Local Tax Policy News
Fate Uncertain For Proposed 1% Construction Tax
The fate of a proposed 1% construction tax for Philadelphia remains unclear as the legislation was narrowly approved by City Council with a 9-8 vote.
The majority vote, made during the last City Council session before the summer recess, is not veto-proof. Although Mayor Jim Kenney has never exercised his veto power before, his administration has been a vocal critic of the construction tax in recent weeks. A spokesman for Kenney said they are still studying the legislation, but there is reason to believe he is likely to veto, so however you may feel, it would be a good time to register your opinion directly with the Mayor.
Voting in opposition to the bill were Democrats Bobby Henon, Derek Green, Jannie Blackwell, Cindy Bass, and Allan Domb and Republicans Brian O’Neill, David Oh and Al Taubenberger. The city’s Finance Department also released a statement describing the negative effect on the city’s finances if the legislation was enacted. Council previously had taken no action on proposed amendments to the 10-year tax abatement.
Language Change Excludes KOZs From 1% Construction Tax
As City Council prepared to wrap its business before summer recess, language in the contentious 1% construction tax bill was amended to exclude Keystone Opportunity Zone (KOZ) sites from the proposed new levy.
Continuing Philadelphia’s habit of creating exceptions rather than addressing fundamental issues, the move has been widely interpreted as an attempt to further appeal to Amazon. The KOZ program has been extensively marketed to the e-commerce giant. The sites considered potential locations for Amazon’s second headquarters were established as KOZs last year, and would now also be excluded from the proposed 1% construction tax under the new language.
City Council Committee Backs 81 New KOZ Sites
City Council’s Finance Committee has approved a bill that would create 81 separate new KOZs, many of them covering multiple parcels, spanning a total of almost 94 acres. The vast majority of the sites are located along commercial corridors in Kensington and Fishtown, but also include sites in the Callowhill corridor.
The new list must be approved by the full City Council and the school district, and submitted to the state by Oct. 1.
New Report Aims To Dissuade City From Ending 10-Year Abatement
As City Hall debates how to find more money for Philadelphia’s schools, a new report from the real estate firm Houwzer aims to dissuade politicians from cutting the 10-year property-tax abatement on new construction.
Third in a series by Kevin Gillen, Houwzer’s senior economic adviser and a researcher at Drexel University, the report examined the abatement’s effect on buildings that have subsequently aged out of the tax break and found that it has boosted prices of new and renovated homes enough to make up for the city’s relatively high construction costs.
For Gillen, the report provides more proof of the abatement’s necessity. He notes that the average return on investment in real estate in Philadelphia for new construction is between 9% and 11%, suggesting that residential development would not be profitable without the abatement.
More: planphilly.com/uploads/media_items/what-s-happened-to-properties-with-expired-tax-abatements-part-iii.original.pdf [pdf]
On page 18-20 of CPDC’s Housing in Perspective report released in February, we had made the suggestion to “harness all or a portion of [the]revenue stream from expiring abatements that [is]flowing to municipal government and direct it to affordable housing. [In 2018 that represents $40 million.] With a simple budgeting decision, rather than a controversial new tax, a curtailment of the abatement, or a divisive, new zoning code requirement, a revenue stream could be dedicated to extend expiring rental subsidies and to help renovate more affordable housing. Instead of counter-posing the interests of market rate development and the needs of lower income residents, Philadelphia can align the two in a most positive manner.”
More: centercityphila.org/uploads/attachments/cjht7xl0m0068ibqdevsjrjsh-2018housingreport.pdf [pdf]
Office Sector News
Center City Office Rents Still Much Lower Than Peer Markets
Class A office rents in Center City hovered just below $33 per square foot as of the end of Q1 2018, a new record but still substantially lower than most other major U.S. markets. At $43.82 per square foot on average across 20 CBDs, Center City Philadelphia’s Class A rents are a full 25% lower than the national average.
While this discount may seem like a competitive advantage, JLL notes in a new report that low and slow-growing rents are a function of less robust demand for space compared to other markets.
When accounting for business taxes in addition to rent, the full cost of occupancy in Philadelphia is significantly higher than other markets, despite lower average asking rents, the report added.
Goldenberg Group Pays $24M For Market East Parking Lot
A co-owner of the large parking lot at 8th and Market streets in Center City has a deal to buy an adjacent parcel from the Philadelphia Parking Authority (PPA), with possible plans for a hotel, offices, and shopping at the consolidated property.
The PPA has agreed to sell the 30,100-square-foot lot to Blue Bell-based Goldenberg Group for $24 million. The tract forms a potential development site of about 2.7 acres when combined with the larger parcel just to the north that Goldenberg controls in partnership with Pennsylvania Real Estate Investment Trust, owner of the soon-to-open Fashion District shopping mall across Market Street.
Hotel-Condo Hybrid Tower Proposed For Old City
Revolution Development Group is proposing a 19-story hotel and condo tower at the southwest corner of 2nd and Race streets in Old City, across from the new Bridge on Race apartment building. The developer’s proposed tower would feature 117 hotel guest rooms on its lower stories, with 24 condominium units on its top nine floors.
The Philadelphia Historic Commission is scheduled to consider the proposal June 27 because its design incorporates a three-story industrial building at 152 N. 2nd St. near the middle of the block that qualifies for protection as part of the Old City Historic District. The building is currently used by Swift Food Equipment Inc., which is pooling its property holdings at the site with Revolution to accommodate the project.
Final Parcels Sell From Portfolio Of Properties North Of Center City
Real estate investment group Arts & Crafts Holdings LLC has closed on the last two parcels put up for sale last year by property investor Mark Rubin in the area to the north of Center City, where it has been investing heavily.
The group paid $17 million for the two industrial properties at 200 Spring Garden St. and 412-26 N. 2nd St. The properties are among 20-plus buildings, together costing more than $325 million, that Arts & Crafts has assembled over the last three years in an area generally bounded by Spring Garden and Callowhill streets and between 2nd and 11th streets, near the just-opened Rail Park.
Arts & Crafts earlier paid $36 million for five other properties from the Rubin portfolio, including a historic former bank that was home to one of restaurateur Stephen Starr’s early ventures.
Rail Park Opens To Fanfare, Crowds
City and state officials, philanthropic, cultural and business leaders, neighbors and civic groups joined Center City District (CCD) President and CEO Paul R. Levy for a ribbon cutting event on June 14 to celebrate the official opening of Phase 1 of the Rail Park. CCD oversaw fundraising, design and construction of the $10.8 million construction project that has transformed a blighted section of the former Reading Railroad Viaduct into an elevated park with walking paths, landscaping, lighting, swinging benches, and expansive city views.
Hundreds of Philadelphia residents also attended the opening event, which included performances by the Philadelphia Suns Lion Dance troupe, the Roman Catholic High School band and The Philly Pops’ saxophone quartet.
The opening of the Rail Park has attracted widespread media interest, including a just-published editorial in The Philadelphia Inquirer that discusses the park’s potential to help the Callowhill neighborhood “become Philadelphia’s next great — and equitable — community.”
SEPTA Report Presents New Vision For Bus Network
Facing declining ridership on its buses, SEPTA has published a new report outlining a way to overhaul the system to bring back riders. Proposed changes include allowing all-door boarding, eliminating transfer fees, spacing out stops, and cutting back on excess rush hour buses.
The report is the result of a yearlong analysis by Jarrett Walker and Associates, a private firm that has helped other cities improve their transportation systems. SEPTA brought in the firm last year to address its lagging bus ridership, which has dropped 17% in the last five years, due in part to traffic congestion and a dramatic increase in ride-sharing services like Uber and Lyft.
SEPTA Unveils Redesigned City Hall Subway Station Concourse
One part of SEPTA’s underground subway concourse has reopened after extensive renovations, the first phase of a multimillion-dollar project to better connect passengers on the Market-Frankford and Broad Street lines and multiple Subway-Surface trolley lines to Center City.
The newly white-tiled, concrete-paved corridors radiate out from a redesigned circular “oculus” space at the southern end of Dilworth Park and is now lit with orange light, while the corridors are well-lit and lined with digital screens. In total, 22,000 square feet of space has received a facelift.
In coming years, SEPTA anticipates spending $59 million renovating the platforms, stations, and miles of corridors that run under the city, from 8th Street to 18th Street along Market Street, and from JFK Boulevard to Spruce Street on Broad Street.
Bourse Marketplace Plans Weeklong Celebration And Preview
The revitalized Bourse Marketplace food hall will hold a week's worth of festivities in advance of its official opening. From June 29 through July 3, events will include a pop-up beer garden, block party and hard-hat tours of the multimillion dollar renovation's progress.
Set to open this summer, The Bourse is in the final stretch of its $22.5 million transformation that will include about 30 food tenants. The Bourse building’s renovation will include a full restoration to the entrances on both 4th and 5th streets to include outdoor seating, and designated common areas with communal seating.
Eds and Meds News
Kimmel Cancer Center Forms Partnership For Clinical Trial Access
Jefferson Health's Sidney Kimmel Cancer Center is teaming up with Nashville-based Sarah Cannon Research Institute in a collaboration designed to expand clinical trial offerings to patients in the Philadelphia area.
Under the partnership, the Kimmel Cancer Center and Sarah Cannon will combine their expertise in drug development and research support services to enlarge the availability of clinical trials for patients in the Philadelphia region. Sarah Cannon has conducted more than 300 first-in-human studies and has been a clinical trial leader in the majority of approved cancer therapies over the last decade.
CHOP Spin-Off Bainbridge Health Raises Additional $1.6M
Bainbridge Health, a Philadelphia health-technology company focused on reducing medication errors, has raised $1.6 million in the past month. The company, which was spun out of Children's Hospital of Philadelphia (CHOP) in 2016, has now raised $3.3 million for its seed round. Its investors include CHOP, BioAdvance and Chestnut Street Ventures along with a group of private investors.
Bainbridge’s lead product, Med O.S., is a clinical intelligence and data analytics platform designed to make medication data easier to manage. The funding from the new equity financing has allowed the company to hire at least five new employees for the software engineering and data science side of the business.
Philadelphia Is Among 5 Finalists For Army Command Center
Philadelphia is among the five finalist cities for the Army’s new Futures Command center. Boston; Minneapolis; Raleigh, N.C.; and Austin, Texas, have been named as other four remaining finalists from an original group of 30.
Military officials said the Futures Command will help the military branch modernize its operations. Army Secretary Mark Esper has said the command could consist of fewer than 500 military and civilian workers.
CPDC: Funding Parks and Transit Improvements With TIF Districts
Join us for CPDC’s membership meeting at The Union League tomorrow, Tuesday, June 26 at 8:30 a.m., to learn how Tax Increment Financing (TIF), backed by increases in tax revenues from large, multi-property districts that benefit from the public improvement, is being used by other cities for transit lines, streetscape enhancements and public parks.
Panelists will include Robert M. Eury, President of Central Houston Inc. and Carole Morey, Chief Infrastructure Officer of Chicago Transit Authority, to discuss how their cities are using TIF districts to invest in transportation and public space improvements and how this might be replicated in Philadelphia.
CPDC members are encouraged to invite both young professionals and other members of their firms to attend this meeting. RSVP to Romina Gutierrez at email@example.com or 215.440.5543.