Plans To Resume Auction Of Philly's Tax-Delinquent Properties Could Pique Commercial Developer Interest

After a more than three-year pause, the city of Philadelphia plans to restart auctions on its growing backlog of abandoned delinquent properties.

The move would open up scores of often blighted lots to the highest bidder and could make way for new residential and commercial projects at sites across the metro. But it remains unclear how much CRE interest resumption of the auctions might generate, according to one academic, who said a process that has been unpredictable for years is likely to remain that way.

“There’s always interest in distressed bidding,” said Joshua Harris, executive director of the Real Estate Institute and a professor at Fordham University. “So you might have some interesting bidders and people paying attention to this that maybe normally wouldn't.”

Mayor Cherelle Parker and the Philadelphia City Council have been working with the sheriff’s office, which has traditionally conducted auctions of properties that have unpaid taxes, to set the first sale in years by July 1. The city is in dire need of the cash, having missed out on at least $35M in revenue due to a lengthy pause in sales amid the pandemic and a series of political skirmishes over the last few years.

But getting auctions back on the block will require resolution of a conflict with the sheriff’s office.

After the pandemic shut down a number of city functions, Sheriff Rochelle Bilal’s office selected an online bidder as part of an effort to safely resume major auctions in March 2021. However, that pick — hiring third-party Bid4Assets.com on a six-year contract — fell afoul of city contract guidelines, according to WHYY, leading to a fracas that further delayed auctions.

If auctions resume soon, new property hunters could swoop in alongside family offices, single investors and others that typically show up to sales, Harris said. And no matter what, auctions will likely turn up some unusual sales after nearly four years on ice.

Cleaning up rundown properties is a likely win in all categories for property owners, but Harris said he didn't expect a rush on tax-challenged properties when auctions resume.

In addition to the length of the auction process, the number of property purchases by third-party bidders was in decline prior to the pause. Third-party-bidder sheriff sales totaled 2,852 properties in 2017, according to data provided to Bisnow by the Philadelphia Law Department. By 2018, that had dropped to 2,600 such sales, and by 2019, only 1,361 sales were recorded.

As of 2022, the city had amassed a list of at least 1,330 tax-delinquent properties to be sold. The city didn't provide more recent data.

“Typically, the properties that do finally go to the tax deed sale where the sheriff has to get involved in that regard are ... the properties that people just don't want,” Harris said. “So there's often something about it that makes it just not immediately valuable.”

Last week, the city began to require any vacant building to register with the city’s Vacant Property Registry to get ahead of allowing buildings to fall into blight and put things in motion for later sales.

Philadelphia auctions require the winning bidder to turn in a down payment totaling 10% of the final price the day following the auction, then the rest within 15 days, according to the sheriff’s website. 

The in-person bidding option had its share of issues, with authorities having to escort winning bidders to their cars to pocket cash for full purchase prices because they felt threatened in years past.

Meanwhile, community advocates have organized against some auction procedures, saying that allowing open access for out-of-state bidders could drive up prices and result in gentrification in historically Black neighborhoods affected by blight.

Those advocates hope the city will adhere to a 2019 guideline barring developers from snatching up every vacant row home or lot. If all goes to plan, the city’s land bank would be allowed to purchase properties and develop them into affordable and market-rate housing, community gardens or yard space.

The city has already set aside $1.1M to reacquire 91 liens, effectively protecting community gardens from the threat of being sold off by private lienholders at sheriff’s sales.