Plans moving forward for boutique hotel at old Family Court, developer says

Philadelphia’s former Family Court building, which Peebles Corp. plans to convert into a boutique hotel, as seen from Logan Circle.

Plans to turn the former Family Court building near Logan Square into a luxury hotel are back on track following setbacks in the pursuit of federal historic tax credits for the project, according to the head of the company behind the proposal.

Peebles Corp. chief executive R. Donahue Peebles said that his company is still about $8.5 million short of the funding it needs to start the project at the former courthouse at 1801 Vine St., but that it is working with city and state officials to secure the financial support.

Work at the 77-year-old Beaux Arts building could begin as soon as early next year, he said.

“We’ve focused all our energy on trying to see if we can make the project viable,” Peebles said. “With the support of the city and the state, we have been able to lay out a plan that will.”

Peebles also said his company plans to develop the property as an independently branded hotel, a shift from its original proposal for it to be part of the Kimpton Hotel & Restaurant Group, which operates Philadelphia’s Monaco and Palomar hotels.

“It will be a high-rated, 4½-star hotel, but it will be an individual boutique hotel,” said Peebles, who likened it to the Hay-Adams Hotel in Washington.

When Peebles was awarded the project in 2014 after a competitive bidding process, Philadelphia officials described the court building’s renovation as a vital step toward enlivening the Benjamin Franklin Parkway.

The Coral Gables, Fla.-based company aimed to fund part of the project through the Federal Historic Preservation Tax Incentives program, which provides tax write-offs against a portion of construction costs for historic-restoration projects. Those credits can then be sold off to investors to reduce their own tax burdens.

That plan faltered in 2016, when officials with the National Park Service, which examines projects for historic tax credit support, disqualified it from the write-off by ruling that the alterations Peebles was proposing would “severely downgrade” the building’s character.

A revised version of the plan was eventually accepted by the Park Service, but it involved costly adjustments to the proposal as well as a reduction in the number of guest rooms to 205, down 10 from the count in its original proposal to the federal agency.

Then, late last year, the proposal sustained another financial hit from the enactment of federal tax law changes that forced historic tax credit users to spread the write-off over five years of taxes rather than being able to use it all at once.

The change diminished how much investors would pay for the credits because resulting tax savings could no longer be immediately put to some other profitable use.

Peebles said tax credits for the Family Court hotel project will now be worth around $16 million, about 20 percent less than they would be before the tax-law change.

The cost to build the project, meanwhile, has ballooned from an anticipated $85 million in 2014 to about $105 million now, mostly due to the delays in getting government approvals for the credit and to environmental issues with the structure, Peebles said.

That’s left the company angling for a total of $10 million in city and state assistance, including $1.5 million it’s already been awarded from the Pennsylvania Redevelopment Assistance Capital Program, Peebles said.

John Grady, president of the Philadelphia Industrial Development Corp., said his agency and other city officials are lending Peebles whatever support they can in the interest of seeing the project completed after the years-long delay.

“We’re looking at whether there are additional financing resources, and whether there are investments we can make in the project to help close that gap,” Grady said.

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