Developer Carl Dranoff is planning 28 stories of luxury condos at Broad and Pine Streets, instead of the hotel-and-apartment hybrid he previously had in mind for the site, as Center City heads toward a likely near-term glut of both rental housing and hotel guest rooms.
The developer’s earlier vision of a 22-story building with 76 hotel rooms and 83 apartments known as the Hyde — to have been developed with the Los Angeles hospitality mogul Sam Nazarian’s SBE Entertainment Group — has been supplanted by a new proposal with 56 “high-end” condos, Dranoff said in an email Tuesday.
Dranoff ultimately decided that the location along the strip of Broad Street south of City Hall, known as Avenue of the Arts, “lends itself best to a condo project,” spokeswoman Barbara Gall Sheehan said in a follow-up email.
“We think there is strong demand for high-end/luxury condos in premier neighborhoods, like Avenue of the Arts,” she said.
Dranoff said the new condo project, which is being designed by the Philadelphia architect Cecil Baker & Partners, would feature ground-floor retail and underground valet parking. The project was presented Tuesday night to the Washington Square West Civic Association in an early step of its permitting process.
Michael Silverman, a managing director at Integra Realty Resources in Philadelphia, said Dranoff was apparently responding to a dearth of new, high-end condos in Center City. Such units are thought to be selling briskly in Dranoff’s recently completed One Riverside project in western Center City near Locust Street by the Schuylkill and in Tom Scannapieco’s 500 Walnut St. tower near Independence Hall, Silverman said.
“The appetite for condominiums is strong, and there’s not a lot of inventory of the new stuff,” he said.
Rental apartment and hotel projects, by contrast, have been rising from the ground at a rate that could soon outpace demand.
The Center City District business-improvement association said in a February report that a total of 3,127 new rental units were scheduled for delivery this year within what the group called Greater Center City, largely bounded by Girard Avenue to the north and Tasker Street to the south, between the Schuylkill and Delaware River.
That growth, nearly three times the average annual increase in new apartments tracked by the CCD between 2010 and 2016, will likely result in a surplus that lifts vacancy rates and lowers rents, the report said.
Such a future may have been on Jersey City, N.J.-based Mack Cali Realty Corp.’s mind last year when it backed out of a deal with Philadelphia’s Parkway Corp. to build a 300-unit apartment tower at 709 Chestnut St., citing an expected softening in rent growth.
Central Philadelphia hotel projects look similarly surplus-bound, with more than 2,300 new guest rooms forecast for delivery between the start of 2017 and the end of 2019, an increase of about 21 percent over the roughly 11,200 available during 2016, according to calculations based on data from CBRE Hotels, a division of the real estate firm CBRE Group.
In addition to that inventory — in an area bounded by Vine and South Streets, between the Schuylkill and Delaware, plus a sliver of University City along Walnut and Chestnut Streets — are 150 guest rooms that Dranoff himself hopes to deliver in coming years as part of the SLS Hotel & Residences hotel-and-condo tower he still aims to build at Broad and Spruce Streets with Nazarian’s SBE.
SBE said in a statement that it remained committed to the SLS project.
Tony Biddle, regional leader for CBRE Hotels, said central Philadelphia hotel rooms are being booked at an ever-swifter pace, with market-tracker STR Inc. reporting a nearly 5 percent increase in demand between January and July over the same period last year.
But Biddle said that won’t be enough to absorb all the new supply in the near term, which could encourage other developers with hotel projects on their drawing boards to join Dranoff in revising those plans.
Developers are “taking note of the anticipated supply growth that we will have here over the next couple years,” he said.
Condo projects, on the other hand, seem to have more wind in their sails, with prices just now hitting their stride after recovering from the most recent downturn, said Kevin Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation.
Average prices in the area bounded by Vine and South Streets, between the Schuylkill and Delaware, reached $446.58 a square foot during the three months that ended June 30, their highest level since the Lindy Institute began tracking data in 1980 and up 32 percent from a 10-year low of $337.93 during the first three months of 2012.
That bodes well for Dranoff’s change of heart at Broad and Pine, Gillen said.
“The Center City condo market has basically moved from a recovery phase into an expansionary phase,” he said. “The timing would appear to be quite fortuitous for him to make that strategic decision.”