City Council has approved a plan to lease, and ultimately acquire, the former North Broad Street home of the Inquirer, Daily News, and Philly.com for use as the Philadelphia Police Department’s new headquarters.
Council members voted Thursday in favor of legislation establishing a framework for taking occupancy of the 18-story tower at 400 N. Broad St. after it is renovated for the department by its current owner, a subsidiary of developer Bart Blatstein’s Tower Investments Inc.
Details of the lease and purchase agreement will be worked out in a yet-to-be negotiated “master lease” between Blatstein and the city, Lauren Hitt, a spokeswoman for the city, said in an email before the legislation’s passage.
The decision to move police headquarters from its current location at 750 Race St., a structure popularly known at the Roundhouse, to the historic former newspaper building was announced in May. An earlier plan, on which the city had already spent about $50 million, would have moved police administration to the former Provident Mutual building in West Philadelphia.
Under the new plan, Tower Investments subsidiary 400 North Broad Partners LP will renovate the 93-year-old, 468,000-square-foot building and lease it – along with an adjacent 590-space parking structure at 1501 Callowhill St. – to the city for nine years, after which the properties will be acquired by the city outright.
The deal was so structured to allow the project’s developers to receive historic tax credits, which support the rehabilitation of historic buildings, officials have said. As a tax-exempt entity, the city could not get those tax credits if it owned the building during and immediately after construction.
The development team is expecting to receive $40 million in historic tax credits for the project, Councilman Allan Domb, who helped negotiate a price reduction, said in an interview.
Officials’ original arrangement with Blatstein valued the building at $49 million, with an additional $211 million to be paid for construction, for a total cost to the city of $260 million, Domb said.
Blatstein agreed to reduce the property price by $7.5 million – and to refund the city an additional $2.5 million after five years – to help make up for fees that will be incurred when the city takes over the project’s mortgage after the nine-year lease, Domb said.
The interest rate for the mortgage will be fixed at 3.75 percent over its 19-year duration, ultimately costing the city $353 million, he said.
The bill passed Thursday stipulates that the city’s rent for the initial nine-year period will cover debt service for the project loan, up to $15.6 million a year.
After that initial term, the city has an option to acquire the building “at a fair-market-value purchase price based upon factors and a formula to be set forth in the master lease but not less than the then-outstanding amount of the financing.”
Hitt said that phrasing was included with the legislation to obtain the historic tax credits.
Internal Revenue Service rules restrict the credits from being used in most cases in which a tax-exempt lessee is able to exercise a purchase option at a fixed acquisition price, rather than at fair-market value.
The final lease to be negotiated with Blatstein “will ensure the city pays no more than the outstanding debt at the time of purchase of the property,” Hitt said.