Wednesday, October 6, 2010

Once site of big plans, parking lot sells for just $12 million

"An ordinary-looking parking lot at 1441 Chestnut St. that just two years ago seemed destined for hotel greatness - a Waldorf Astoria set amid a $420 million condo/retail/restaurant complex - went on the auction block Tuesday at the Union League.

"Going once. Going twice. Sold for $12 million!" exclaimed Douglas Johnson, of CB Auction Services. He hammered the winning bid made on behalf of Brook Lenfest, of Brooks Capital Group L.L.C. in Bala Cynwyd, a onetime Waldorf project partner.

Fourteen Forty-One Chestnut certainly has location going for it - it sits on prime Center City real estate directly behind the Ritz-Carlton and its condo tower. And the site, zoned for 848,000 square feet of building space, has great potential - that was never in dispute.

But what to build on this half-acre - and when - is being affected by the economic forces of the times. Auctions such as Tuesday's are increasingly being used throughout the United States to determine the market value of properties in major cities, such as Philadelphia, where there have been very few similar sales lately.

For example, Chicago Auction Services recently sold an Indianapolis Holiday Inn. It is set to auction a Holiday Inn at the St. Louis Airport later this month and a Dallas, Texas, spa site with many potential alternative uses next month

Lenfest, son of prominent businessman and philanthropist H.F. "Gerry" Lenfest, heads NetCarrier Inc. of Lansdale, a local-exchange carrier, and is president of Brooks Capital Group - a venture-capital firm specializing in early-stage investments. In April 2009, he bought out the 50-percent stake of his former Waldorf development partner, Timothy J. Mahoney III.

Mahoney, president and chief executive officer of Mariner Commercial Properties Inc., of Ardmore, said today's soft hotel and condo markets, as well as tight financing, prompted him to give up on his dream of building the 58-story Waldorf at the site, even though he had spent years and millions of dollars assembling the land.

When the project was first announced in October 2008, it was billed by Mahoney as a hybrid between the Four Seasons and the Residences at Two Liberty that would open in summer 2012. Planned for the posh tower were upscale stores, a signature restaurant, seven floors of valet parking, a spa, and 136 luxury condos starting at $1 million, all to be situated above the five-star hotel.

Mariner Chestnut Partners L.P., an affiliate of Mahoney's development company, was the listed seller at Tuesday's auction.

Lenfest already owned 85.5 percent of the Mariner Chestnut partnership; two others owned the other 14.5 percent. The auction liquidated that partnership, leaving Lenfest as sole owner and developer.

The price the land fetched Tuesday was about the same as he paid for it a decade ago, Mahoney said - then it was $11.2 million for the purchase and $800,000 paid to the City of Philadelphia to make a legacy-development agreement "go away."

"Needless to say," Mahoney said, "after 10 years of development expenses and six years of litigation, we spent many millions more than that [$12 million] figure."

Asked after the auction what the land should have brought, he said, "I thought it should have gone for above $15 million, but that tells you where the market is today. It's a very tough market.

"That property can't be just a surface parking lot," Mahoney said. "You have to put something on it, but that's difficult, if not impossible in this type of market. There's just no financing."

The Waldorf Astoria is one of at least nine major Center City hotel projects shelved or canceled because of frozen lending markets. The dearth of new hotel development has become a cause of concern for city tourism and convention officials, who say the expanded Convention Center, scheduled to open in early March, will need new hotels to support it.

When reached Tuesday afternoon, Lenfest was mum about his plans for 1441 Chestnut St. He wouldn't say whether it would eventually house a hotel, only that it was too early to tell.

Paul Galanis, managing director of Auction Services, said Tuesday's sale set a new benchmark. "There hasn't been a property like this sold here in four years," he said.

Those wanting to bid Tuesday were required to bring a $250,000 certified or cashier's check. Lenfest was not at the auction; William Luterman, chief investment officer of Brooks Capital Group, attended on his behalf.

Luterman, "Bidder No. 1066," stood near the back as the auction got under way at 11:05 a.m.

The floor bid was $4 million. From there, the bidding went up by $500,000 increments, as hands went up in the audience of about 75 people, almost exclusively men in expensive suits.

"Five million dollars. . . . Do I hear $5.5 million?" Johnson asked at rapid-fire speed. "Come on, do I hear $6 million?"

By 11:12 a.m., Luterman's bid of $12 million was declared the winner. He walked out quietly after signing the documents proclaiming Brooks Capital the new owner of 1441 Chestnut.

Something else did the talking, Johnson said:

"The market came here and spoke today."

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