Rolling out the Red Carpet

Philadelphia looks to pamper visitors, lure business and keep everyone entertained.

By Bruce Buckley

INTECH Construction is building the new 34th Street Residence Hall at Drexel University. The 17-story tower, designed by Erdy McHenry Architecture, will accommodate 283 students.

After years of trying to lure residents from the suburbs to Center City, Philadelphia’s development community is looking well beyond the metro borders for its future prospects. With work under way on the $700 million expansion of the Pennsylvania Convention Center, developers are lining up to deliver thousands of new hotel rooms to handle increased convention traffic. Proposed high-rise commercial projects are also aiming to lure major corporations to downtown. Meanwhile, plans for casinos, new sports venues and entertainment districts could go a long way toward rolling out the red carpet for visitors. With many contractors already focused on Philly’s other needs—such as the steady stream of institutional work—the city’s pipeline of projects doesn’t appear to be slowing anytime soon.

“We don’t expect to see any decline in volume for 2008 versus 2007—and that was a record year for us,” says John Bremner, senior vice president of pre-construction at INTECH Construction of Philadelphia, which saw its eastern Pennsylvania revenues hit $311 million last year.

INTECH has carefully navigated the wave of work around the city in recent years. It banked heavily on residential work until early 2007 when it moved away from the sector over fears of a condo bubble burst. Instead, the company treaded more heavily into the city’s consistent institutional market, taking on projects like the new 34th Street Residence Hall at Drexel University. The 17-story tower, designed by Erdy McHenry Architecture, will accommodate 283 students.

INTECH Construction is among the Philadelphia contractors cashing in on rising demand for hotels. The company is currently building the $92.5 million Kimpton Hotel Palomar in Center City, which will convert the 16-story Architect Building at 17th and Sansom streets into a 230-room high-end boutique hotel. (Rendering by Gensler.)

But the company hasn’t sworn off private developer work, landing one of the first new hotels intended to service the convention center— the Kimpton Hotel Palomar. The $92.5 million project, designed by Gensler, will convert the 16-story Architect Building at 17th and Sansom streets into a 230-room high-end boutique hotel. The 142,000-sq-ft project is expected to complete in December 2009.

As with the residential boom, Bremner says INTECH is being cautious about seizing opportunities early before the sector dries up.

“We were fortunate to snag one of the few hospitality projects that were certain to move forward,” Bremner says.

While speculation over hotel work runs high, reality is beginning to set in. Peter Tyson, vice president of PKF Consulting in Philadelphia, estimates that the city will see approximately 2,500 new hotel rooms by 2012 to accommodate traffic for the expanded convention center. The 376,000 sq-ft expansion will increase the facility’s exhibit and meeting space to 1 million sq ft.

Tyson says he is tracking 30 projects in downtown and the University City area, but predicts that only around ten will be built.

“There are some fluffy pipedream projects out there,” Tyson says. “Between the credit crunch and construction costs going up at a rate higher than average room rates, things that might have penciled out 18 months ago, don’ t make sense now.”

Offering Office Space

Although projects like Cira Centre and the Comcast Center added significantly to the city’s inventory of commercial space, many remain optimistic that Philly can accommodate more.

“The office market doesn’t seem to have suffered very much,” says Sergio Coscia, design associate at RMJM Hillier of Philadelphia. “There’s a lot of speculation from the New York market about the opportunity to buy properties and fix them up.”

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Michael R. Ytterberg, a principal with BLT Architects in Philadelphia, agrees.

“Property owners tried to stop the Comcast tower project—and when it went ahead they said it would doom the market,” he says. “But the tower filled up, vacancy rates are down and there are a handful of new office towers in the works now.”

Among the most notable is the $800 million American Commerce Center proposed by Walnut Street Capital. At 1,500 ft tall, it would dwarf the recently completed Comcast Center, which currently tops the skyline at 975 ft. In addition to office space, the 2.2 million-sq-ft skyscraper could house 26 stories of hotel and up to 6 stories of retail with street-level access.

Nearly $370 million in work is already underway for the Cira Centre South project at the old Post Office site in University City. Brandywine Realty Trust plans to build two towers that would include a mix of office, hotel, residential and retail. The 842,000-sq-ft Post Office will be renovated to house the Philadelphia headquarters of the Internal Revenue Service.

For residential developers, bringing businesses downtown could be the magic cure to the ailing condo market.

“More people have been moving back into the city, and in order to keep up that momentum and keep people here, the city needs to attract more businesses,” says Gabe Canuso, vice president of development at Hill Brown. “The fact that there are still proposed office buildings is a positive sign. With more companies comes the need for residential and retail. There’s a lot of residential product on the market, but if companies come, you’ll see those absorbed.”

Drawing a Crowd

A new 20,000-seat Major League Soccer Stadium could be the catalyst for $500 million in new development planned by the Buccini/Pollin Group along the Chester waterfront. (Image courtesy of Buccini/Pollin Group.)

Entertainment could also prove a strong draw for more development. Ongoing redevelopment of the Chester waterfront got a boost when Major League Soccer awarded a team to Philadelphia. The new team is backed by an investor group that includes the founding partners of local developers the Buccini/Pollin Group. The investors hope to move into a 20,000-seat waterfront stadium and entertainment complex in Chester that is in planning. Buccini/Pollin Group would also develop more than $500 million in mixed-use projects around the new stadium over the next five years. Plans include 225 apartment units, 42,000 sq ft of retail space with an 8,000-sq-ft restaurant, 435,000 sq ft of new office space, a 200,000 sq ft convention center and 180 town homes. Additional work on the 70-acre site includes structured parking with 1,350 spaces, a community marina and greenways.

The Wachovia Center could lead to large-scale development as well. Philadelphia-based Comcast-Spectacor and The Cordish Company of Baltimore have proposed a new mixed-use district surrounding the city’s stadiums in south Philly. The development, dubbed “Philly Live!” would include a mix of retail, dining and entertainment in the area adjacent to the Wachovia Center. A 300-room hotel is also being considered. Cordish has developed its “Live!” brand concept around the country, including Power Plant Live! in Baltimore.

Contractors like P. Agnes continue to find steady work with Philadelphia’s colleges and universities. P. Agnes is building an $82 million dormitory project at West Chester University.

Even with all the speculation on developer work, contractors still bank on the area’s strong institutional market. Between the city’s numerous colleges and universities as well as major health care providers, many companies prefer the safe bet.

“If given the choice, I want to lean on the institutional guy for business these days,” says Joe Osifchok, vice president of operations at Philadelphia-based P. Agnes. “The money is there and the market is there. We’re in a market of need—students are in need and patients are in need.”

Among the company’s recent contracts is an $82 million project to build two dormitories at West Chester University. The company is also working on a $55 million Cancer Research Pavilion at Fox Chase Cancer Research Center.

Like many health care clients, Fox Chase has plenty of projects on the horizon. This spring, Fox Chase received final approval for a 20-year, $1 billion expansion plan. Other institutional clients are also planning major work, including a new hospital for Albert Einstein Medical Center.

“With everything I see out there in health care, the market continues to be very strong,” says Al Fazzini, vice president of marketing at L.F. Driscoll in Bala Cynwyd, Pa., which saw record revenues in 2007. “It’s tough to imagine there being more than what we’ve seen in the last few years, but it’s tracking at about the same level. It just keeps going and going.”