Mounting Frustration With City Council Casts Dark Cloud Over Heady Time For Philly CRE
Philadelphia and its citizens want a lot of things from the commercial real estate industry, but developers say the city’s government has a worsening habit of getting in the way of those desires.
Panelists at Bisnow’s Philly Construction and Development event in Center City on Tuesday once again lamented two pieces of legislation that went into effect over the past few months: the shrinking of the 10-year tax abatement and mandatory inclusionary zoning in parts of Council Districts 3 and 7. Despite Philly’s unprecedented rent growth in multifamily, continued success in industrial and booming life sciences, the tune sung by most panelists was one of mounting frustration.
“We’re making it sound like doom and gloom, and it’s obviously not,” Philly Office Retail President Ken Weinstein said at the event, invoking the city’s self-diagnosed inferiority complex.
Beyond the familiar refrain, developers warned that the notorious, unofficial policy of councilmanic prerogative is growing in stature as a barrier to citywide housing policy and urban planning goals.
“I was on record as thinking councilmanic prerogative was a good thing, but I’ve totally rethought that,” said Alterra Property Group Managing Partner Leo Addimando, whose term as president of the Building Industry Association’s local chapter ended at the beginning of this year. “Now I think it’s toxic.”
Among the most overt problems with the tradition in recent years has been individual council members standing in the way of the disposition of vacant, city-owned land within their districts, stymieing what seems like a win-win policy of addressing blight while subsidizing affordable housing with cheap land, multiple panelists said.
“Every property that comes out of the [Philadelphia] Land Bank, you cannot get your hands on it unless you have some in with that district’s council member,” said Weinstein, who also serves as chair of the Philadelphia Housing Development Corp., which oversees the Land Bank. “It could be a powerful lever for newer or smaller developers, but it’s not happening.”
Even developers of color, for whom Philadelphia has made several public attempts to increase access and resources, have reported waiting years to have land transferred to them even after being selected by PHDC. Wilson-Drake Development President Lorraine Wilson-Drake, whose company builds new construction houses for rent on vacant lots in some of the city’s most disadvantaged neighborhoods, expressed her frustration Tuesday. Asked to summarize her experiences working with the city, she initially offered only one word: “Yikes.”
“It’s just very dysfunctional,” Wilson-Drake said of the city’s real estate policymaking. “I don’t think council understands development, and they’re very reactionary. I try to build things that require as little city involvement as possible, because we just don’t have the administrative capacity to deal with it.”
The fact that council members exert so much control over their districts compounds what the industry has long claimed is the biggest challenge for commercial real estate in Philadelphia: unpredictability. Whether it is the frequent changes to citywide real estate policies over time or inconsistencies in the application of zoning law, the lack of predictability for developers in the city has driven many to opt for the path of least resistance when building on property they own, which in many cases means low-density residential development with generous parking, panelists said.
The industry’s assessment of Philadelphia City Council as out of touch means that even the prospect of improving environmental sustainability could be regarded with trepidation or resignation by all but the most well-resourced companies, Mosaic Development Partners founder and co-owner Greg Reaves said.
“We have to be careful about implementing policies across the board that could have real detrimental effects on areas that can’t afford to be compliant with those policies,” Reaves said.
For smaller-scale landlords like Wilson-Drake and Open Spaces Capital owner Palak Shah, sustainability efforts like flood plain resiliency measures and periodic tune-ups to energy systems are farfetched without heavy — and easy-to-use — subsidies, especially in the face of skyrocketing inflation for construction materials.
“The level I’m operating at, especially if you’re borrowing money to acquire and renovate these properties, there’s just not enough margin to think about energy efficiency,” Shah said. “I worked for a startup that worked with PECO, so I know about energy efficiency and I believe in it. But I’m saying that the numbers simply don’t work. The capital needed to fund these [initiatives], we just don’t have that.”
The long-term effects of the newly imposed 10-year tax abatement’s shrinkage and the soon-to-be-enforced mandatory inclusionary zoning law could take years to become clear, and the immediate future of the city looks historically bright. But developers are raising a stink now, with a possible eye toward the next round of city council elections in November.
“We’ve laid this [problem] out for city council, which has chosen to either not listen or not believe the numbers we’re laying out for them,” Addimando said.
