Risky makeover of Divine Lorraine takes another step forward
Philadelphia developer Eric Blumenfeld says he already has tenants in place for three restaurants, one speakeasy, one bakery, one recording studio, and a lounge to anchor the historic building's ground floor.
For someone who just admitted to spending nearly seven times the amount he budgeted for the restoration of the lobby of the Divine Lorraine, developer Eric Blumenfeld is in decidedly good spirits.
"When I'm alive, they'll say, 'He's a moron,' " Blumenfeld says, grinning, on a recent afternoon as he opens the door to one of the stylish penthouse apartments he built in the iconic Philadelphia tower.
"And when I'm dead, they'll say, 'What a genius.' "
It's taken a while for Blumenfeld, 54, to get to this point. When he leads a tour of the historic North Broad Street building in late September, the Philadelphia-born developer is still on a high from five days earlier, when he publicly unveiled his $1 million overhaul of the lobby. Since hundreds attended the event, he says, the pace of leasing the building's 101 apartments has quickened. Employees on site are buzzing with excitement. Blumenfeld himself is sporting a "Divine Lorraine Hotel" lapel pin; the trunk of his Jeep is stuffed with duffel bags, T-shirts, and mugs bearing the former hotel's name.
Five years ago, it's likely that no one in Philadelphia — including, perhaps, Blumenfeld himself — could have predicted that the Divine Lorraine would be what it is today. Since 1999, the 11-story tower sat vacant along North Broad, serving as "a billboard of blight," former Philadelphia Deputy Mayor Alan Greenberger said. Certainly, there was always interest — in the last 18 years, the building has had multiple owners, including Blumenfeld once before — yet no one believed that a project could work financially.
"It's a risky project," said Greenberger, who helped shepherd the project to fruition. "There was nothing about this area that said, 'Invest here,' or that this would be easy."
Blumenfeld repurchased the landmark in 2012 for an estimated $2.1 million plus $800,000 in debt. Since, he's turned a building formerly filled with homeless people, graffiti artists, and trespassers into attractive apartments — and he did it all, aside from the lobby, within budget. Nearly all of the units are outfitted with trendy finishes — exposed brick walls, lofts, and sleek appliances. On the ground floor and basement of the main building, and in the smaller annex behind it, Blumenfeld is planning a labyrinth of commercial space, with tenants already in place for three restaurants, a speakeasy, bakery, recording studio, and lounge.
When discussing his vision for the project, which he expects to complete next summer, Blumenfeld talks excitedly. During the tour, he climbs up and down grand staircases, steps over muddy puddles, paces in and out of unfinished, graffitied rooms on the ground floor. He hops rapidly from subject to subject, frequently speaking in hyperbole. Yet there's a genuine confidence about him. And he's proud. Mostly, he believes the Divine Lorraine can transform North Broad Street.
"When I was a little kid, when someone came to visit my mom and dad, they took them to the [Old Original] Bookbinders — it was the picture of Philadelphia," Blumenfeld says. "I think in the future, it's going to be a selfie in front of this recording studio."
Blumenfeld would not identify the commercial tenants. Pressed for details, he explains that the recording studio will be occupied by someone who is "very Philadelphia but internationally famous." As for the restaurants, he says there will be two fine-dining spots — one inside the Divine Lorraine and one in the annex. One chef also will run a trattoria, serving casual food. All are trying to get liquor licenses; outdoor seating will abound.
"Who is not going to come to a restaurant at the Divine Lorraine?" Blumenfeld exclaims. "It's going to be awesome!"
Still, there is a lot of work ahead — and no promise that the makeover will be successful. North Broad Street remains home to spotty development, vacant lots, and petty crime. The neighborhoods closest to the corridor, namely Francisville, Fairmount, and Callowhill, have been gaining in popularity, yet they still lack the degree of activity of the neighborhoods that have bolstered South Broad Street just a few miles away.
Plus, Blumenfeld's stylish project — at the corner of Broad Street and Ridge Avenue — is on the edge of one of Philadelphia's poorer swaths. According to the nonprofit North Broad Renaissance, the per capita income of residents in the area — which stretches from Spring Garden Street to Erie Avenue — is $14,366.
Blumenfeld is charging $1,600 to $1,700 a month for one-bedroom units measuring up to 785 square feet, and up to $3,200 for two-bedroom units on the penthouse floor. (He says he also is planning a handful of smaller, less expensive apartments in the annex.)
"The $1,700 to $1,800 range is really our magic price point," Blumenfeld says.
Since Blumenfeld began developing along North Broad more than a decade ago, his other residential projects have found success. His Mural Lofts development in the old Thaddeus Stevens School is 97 percent leased, said Ed Casella, Blumenfeld's regional property manager. Nearby, his Lofts 640 apartments are 95 percent full. Both charge an average $1,600 to $1,700 in rent.
The Divine Lorraine, however, has been slower to lease. In mid-September, nine months after the building opened to residents, about half of the units were still available. Blumenfeld says that's because the building remains a construction site. Casella adds they have been "leasing in earnest" for only four to six months.
"Up until an hour ago, we didn't have a real front door," Blumenfeld says. "… I'm very happy with the leasing pace."
New apartments typically take six to 18 months to lease, particularly given Philadelphia's current rental market, according to Barbara Byrne Denham, a senior economist at real estate data firm REIS. Since 2013, developers have delivered 6,000 new rental units to the local market. And 4,100 more are expected. The vacancy rate for Center City — the area between Girard and Washington Avenues, according to REIS — was 9.4 percent in the second quarter of 2017, nearly double the 4.9 percent rate from two years ago.
"If you're a landlord, you're definitely feeling a lot of pressure with all of this supply," Denham said.
Blumenfeld is undeterred. He says he's within his $33 million construction budget, "with the exception of the lobby," where he spent an additional $850,000. "I don't regret it … we sought to preserve every nook and cranny."
And he's getting closer to paying down the loan he received from New Jersey-based hard-money lender Billy Procida, who provided Blumenfeld the bulk of the funds needed to make the project work. After Blumenfeld had trouble finding financing, Procida lent him $35 million at an interest rate around 13 percent, Blumenfeld says. Procida said he has since sold $23 million of that loan to three different partners.
Beyond Procida's loan, Blumenfeld received several million dollars in loans, grants, and tax credits from the city and state.
"I had to basically bet the ranch," Blumenfeld says, of his deal with Procida. "People think that's either stupid or really brave. I believed in what I'm doing so I was happy to sign.
"We're working with bridge lenders and permanent lenders to pay [Procida off]… that will happen this year."
Until then, Blumenfeld is focused on what is ahead: He is getting married in the Divine Lorraine lobby later this year, and he's itching to dive in to redeveloping the Metropolitan Opera House, located just blocks north of the Divine Lorraine. He purchased the building in 2012; concert company Live Nation recently signed on as its tenant.
"Isn't this amazing?" Blumenfeld says, staring up at the opera house that afternoon as construction crews work inside. "This is the sort of condition that the Divine Lorraine lobby was in."
"Be honest with me," he continues minutes later. "What's been a better real estate story than this one in the last nine months?"