Certain Philadelphia politicians have been patting themselves on the head for derailing Mayor Jim Kenney’s planned $10 million sale of one of the city’s great white-elephant properties: the 13-acre campus at 46th Street, which Provident Mutual Life Insurance Co. left in 1983.
The property, with its gray stone office pile topped with a gold dome and sailing-ship weather vane, ought to be worth many tens of millions more by now, suggested city councilman Allan Domb, who’s in the condo business. Maybe there are better proposals out there, offered city controller Rebecca Rhynhart. West Philly neighbors want more information about what’s in it for them, district council rep Jannie Blackwell, who proposed the bill supporting the mayor’s planned sale, then stalled it when challenged, told my colleague Jacob Adelman.
It will surely be embarrassing for the mayor if the city were to sell the property cheap, and the buyer flips it for a much higher price — as seems to happen regularly to smaller city-owned properties whose sale is also subject to “councilmanic prerogative,” for example in the South Philly part of Councilman Kenyatta Johnson’s district, as reporters including the Inquirer’s Craig McCoy have documented.
On the other hand, the would-be West Philly buyer, Iron Stone Real Estate Group, has a record of doing exactly what the Kenney administration says it wants to do at Provident Mutual: bring in medical and related employers to repopulate the site. It’s what Iron Stone did at the similarly sized former MCP/Woman’s Medical College campus in East Falls after it took over in 2007.
How do we know this property is worth so much more than Iron Stone offered? I asked. Check comps, Domb urged. Here you go:
The city picked up the Provident Mutual property in 2014 for $4 million, the same year Drexel University paid $25 million for the similarly sized but much-better-located former University City High School complex 12 blocks east -- amid University City’s high-rent office buildings, and walking distance to 30th Street Station, Penn, Drexel, and CHOP. In 2015 the school district sold the smaller West Philly High property, near Provident Mutual but on the Penn-student-apartments side of Market Street, for just $5 million.
So $10 million sounds like it’s in the ballpark, at least.
What Domb seems to object to most — and what he knows rightfully annoys voters and taxpayers — is the $50 million the city already spent fixing up the property under former Mayor Michael Nutter, supposedly for law enforcement, which instead chose to move to the former Inquirer tower, at five times the cost. Domb says we can double the expense and the outrage, if we consider long-term interest on the city borrowing that funds its capital investment. He’s talking about holding hearings to ask how this happened.
What happens if no much bigger offer materializes? I asked Domb and his supporters, responding to his congratulatory Facebook posts. Domb’s fellow real estate broker Mike McCann suggested the city “hold it and lease it for the next 10 [to] 20 years,” the way a private real estate business might.
Domb seems comfortable with that approach: He said he’s “recommended to the [Kenney] administration and the developer that we should partner 50/50 with them so that when it’s sold in the future we can recoup some of the tax dollars we are losing. I am in favor of the use, just want us to be a part of the upside especially if the city in the future becomes a tenant.”
He wants to cancel the windfall value of the city’s improvements to a developer by making sure they are paid for over time, and not just by taxes on the resulting new businesses.
Domb added that he “would like our city to try and recoup our loss.” And, given recent investment in University City a couple stops back down the El, he predicted, “this property in the next 10 years might increase in value.”
That’s quite a timeline. This property has already been depressed for 35 years. City agencies, offered the space, have shown little interest. Nor did the historically black Lincoln and Cheyney Universities and other nonprofits when they had the opportunity in the years after Provident Mutual left.
Is it the city’s job to maximize profits from (and in competition with) private real estate interests? Or to bank properties for decades, until they reach target valuations, even when there are ready buyers at today’s prices?
The people who run the city/Chamber of Commerce public-property consortium, the Philadelphia Industrial Development Corp., are clearly comfortable with the long-term view. Of course, PIDC’s mission and “councilmanic prerogative” have coincided with a long, slow period for for-profit employment growth, and rising poverty, in Philadelphia, compared to other big U.S. cities.
So while Kenney’s critics have put off his deal, at least for now, the basic question hasn’t changed: Who wants this white elephant? Is there anyone willing to pay what the city spent on improvements? And if not, how long should we wait around trying to regain spent money — what economists call “sunk costs,” which they warn we should never expect to recover?
This property is not “worth” what the city spent or wasted; it is only “worth” what a buyer is willing to pay. Meanwhile, the city has to secure, insure, and maintain the property while awaiting a buyer. And forego wage, business, and property tax gains that could have accrued under a faster sale to a ready developer.
If Domb can find a buyer soon at $100 million, I’ll call him a public-property hero for driving a harder bargain and seeing the market clearly. If it turns out real estate demand really is slowing and there are no better offers in sight, and the city ends up sitting on the property for long years more, we may end up wishing the city just took that $10 million in 2018.