Want city-owned land? It might already be reserved for someone else
Since 2013, the city has "reserved" land for 44 potential projects, many intended for affordable housing. And the number is growing, in a process that occurs largely behind closed doors.
The large swath of vacant land at the corner of Reed and South Capitol Streets in Point Breeze — across from where new $500,000 townhouses are being built — has been undeveloped for more than a decade.
For years, developers have been after the landowner, the Philadelphia Redevelopment Authority, to buy the empty lots. These days they are worth $605,500, about 10 times their value when the city acquired them.
But the authority balked at those offers. Instead, in January 2016, the authority "reserved" the land for the Women's Community Revitalization Project, a nonprofit organization that promises to build low-income housing at the site. The reservation takes the property off the market before a sale. The price: $100 or less.
More than a year and a half later, the nonprofit is still looking for the $12 million it needs for the project. It has yet to put a shovel in the ground.
Since 2013, the city has "reserved" land for 44 potential projects, many intended for affordable housing. And the number is growing.
Many of those designations come through the redevelopment authority, in a process that occurs largely behind closed doors. Decisions aren't made public — unless someone asks. At times, developers are already privately approved before the city solicits bids on the land.
Last summer, the Philadelphia Chinatown Development Corporation submitted a bid on one of the authority's largest parcels — between Eighth and Ninth and from Vine to Race Street. After losing to the Philadelphia Bar Foundation, and Philadelphia-based developer Pennrose, the Chinatown development corporation's executive director said he learned the property had been reserved for the bar foundation in 2013 — so it could apply for zoning and stormwater management permits and financing. The reservation period expired in 2014. Still, the preferred developer of 2013 won the bid.
"If the Redevelopment Authority gave them a reservation letter … it demonstrates the city was supportive of their proposal," from the start, executive director John Chin said. "We did not get that support."
The process also could mask favoritism, or at least the perception of it
In the Point Breeze parcel, the nonprofit approved to develop the land is run by the life partner of Anne Fadullon, the city's top planning and development official.
Fadullon declined to answer questions about that project, saying that she recuses herself from any proposals or actions involving the Women's Community Revitalization Project or its executive director, Nora Lichtash.
"She gets no special treatment and no harmful treatment," Fadullon said.
Lichtash, whose organization has developed 10 affordable-housing projects in the city, said that she began working on acquiring the Point Breeze land two years before her partner became chairwoman of the redevelopment authority.
The executive director of the authority, Greg Heller, answers to Fadullon. But he said he doesn't consult the board when making property reservation letters. "Those are done administratively," he said.
Many of the properties that are reserved by the authority don't go through a bid process and are sold directly to a developer — often at far below their market value.
The city's current policy is that publicly owned land may be transferred directly to a nonprofit entity if the proposed plan advances the city's planning and development goals. A for-profit developer could also directly receive publicly owned land under certain conditions.
Heller and housing advocates defend the process, which they say is an effective way to ensure more affordable housing.
For "any city in the country or private transaction, if you are buying property, you get some sort of negotiating period," Heller said. "It can be a reservation letter or sometimes it's called an 'option agreement.' But it's pretty standard in most real estate transactions that you have something the owner gives you that … you can then use for your pre-development and financing."
Kevin Gillen, an economist and senior research fellow at Drexel University's Lindy Institute for Urban Innovation, said reserving valuable city-owned land for affordable housing should be given careful consideration.
"What's the forgone tax revenue?" Gillen said. "For what it costs to build one unit of affordable housing on expensive land you could rehabilitate 20 or 30 rowhomes."
Gillen said he and others have suggested another path for the city to increasing affordable housing: Sell its valuable land to market-rate developers and put the proceeds toward rehabbing dilapidated rowhouses.
But advocates of affordable housing say there isn't enough. They want to strategically acquire many of the 4,700 vacant city-owned properties for sale in Philadelphia.
"It's easier to sell to the highest bidder but that won't get us to affordability in our neighborhoods," Councilwoman Maria Quinones Sanchez said. "The city has to leverage what we own around mixed-income neighborhoods."
A reservation letter helps for nonprofit developers to compete for limited state Low Income Housing Tax Credits, by giving them control of the property. How many have been issued is unclear: The redevelopment authority said it hadn't tracked the letters it has issued or how many "reserved" projects resulted in affordable housing.
Among the 44 projects given reservations in the last five years, 10 have received those low-income tax credits, according to an analysis by the Inquirer and Daily News. Three others are being developed for working-class and market-rate housing. Most of the rest, such as WCRP's Point Breeze land, await funding while the local real estate market continues to grow.
Heller said he will renew a reservation for up to three years before taking it to the redevelopment board to decide whether to continue extending it.
Illustrating the political nature of the process, individual City Council members get to sign off on proposed projects in their districts before the redevelopment authority even considers issuing a reservation. Council must also approve the final sale.
"I'm not going to issue a reservation letter without the councilperson," Heller said. "It just doesn't make sense since … Council is so involved in the process."
For the connected, it works well. John Longacre, a developer who has a good relationship with his councilman, Kenyatta Johnson, said buying city property is "easy and transparent."
But for others, such as Ken Weinstein, who hasn't received support from district Councilwoman Cindy Bass, buying city property is harder. For years, Weinstein wanted to purchase and rehabilitate the Germantown YWCA in Bass' district.
When the property was put out to bid last year, Weinstein proposed buying the property outright for $65,000 to build affordable housing for seniors. Instead, the authority staff selected Bass' preferred bidder, Keith B. Key Enterprises LLC, a Pittsburgh-based developer who also bid $65,000. Key received a reservation letter, giving him time to seek financing for his workforce housing project.
"I haven't heard of that happening," Weinstein said about the reservation letters. "I would think there would be talk within the development community about it. … I don't understand the secrecy." (Bass says she consulted the community before endorsing Key.)
Ori Feibush, the developer of luxury townhouses across the street from the vacant Reed and South Capitol Streets parcels in Point Breeze, said he applied to buy the city-owned lots, proposing everything from market-rate housing to a community garden.
The property, however, was reserved for the WCRP, the affordable-housing nonprofit, which had the crucial blessing of Councilman Johnson. Feibush's proposals did not.
The vacant parcels will be given to WCRP for "nominal value," defined as $100 or less.
Asked about the tradeoff in giving away valuable land for affordable housing, Heller said that even if he sold city land to market-rate developers, there would be a lag in revenue because of the 10-year property tax abatement on new construction.
"Whether it's a million-dollar whatever or a low housing income tax credit deal … it's not like we were going to get taxes next year anyway on either," Heller said. Low-income projects get a three-year tax break.
However, Gillen said, the city should be thinking beyond the 10-year tax abatement. He added that new affordable housing construction on expensive land might not be "the most cost-effective policy."