Saturday, February 5, 2011

Developer buys 2040 Market St.

"PMC Property Group has put under agreement the former AAA Mid-Atlantic headquarters at 2040 Market St. in Center City and is drawing up plans for a residential complex at the property.

PMC is buying the five-story, 150,000-square-foot building from NorthStar Realty Finance Corp., which foreclosed on it last year, for an undisclosed sum, although it is expected to close at a little above $8 million, according to market sources.

PMC, which is headed up by Ron Caplan, a developer who has established a sizable presence in the Center City apartment market, will finalize the deal next month.

Though plans for the property are still being worked out, PMC plans an adaptive reuse project similar to one it did last year at 1830 Lombard St., said Jonathan Stavin, executive vice president at PMC. On Lombard, the company bought an 11-story office building that had once been used by Graduate Hospital and converted it into 185 apartments and constructed a 12-story addition with 24 rental units.

Stephen Varenhorst Architects is designing the AAA project, Stavin said.

“We haven’t decided exactly what we will do,” he said, noting it will also include a retail component.

Much can be done to the building, which has room to have an addition constructed atop it.

“We have found demand for new product in Center City is strong,” Stavin said, noting that 1830 Lombard leased up all of its apartments in just a year. “With this site, there is great proximity to downtown offices, it’s several blocks off Rittenhouse Square, and the access to University City and West Philadelphia is fantastic.”

Though it has taken some time, far West Market Street has gradually made the transition from an all-office corridor to one with a mix of residential projects. It began with the conversion in 2002 of the old After Six tuxedo factory by Thomas Properties Group and PMC into 168 apartments.

Later, Thomas Properties constructed with P&A Associates the Murano, a $165 million, 42-story condominium tower, and Orens Brothers converted the former Daily News building at 2200 Arch St. into condos. Other residential projects tried to follow, such as Opus East’s proposed development at 1919 Market that was killed because of a softening residential market. Brandywine Realty just bought the site and plans a mixed-use tower there.

There is room for additional rental housing in Center City. The vacancy rate in Center City dropped to 1.9 percent, and rents have risen, according to Delta Associates, a research firm. Monthly rents zoomed upward by 7.4 percent to an average of $1,918, or $1.88 a square foot.

Demand for rental housing continues, according to a Center City District report released in November. There are 39,000 apartments and other rental units downtown.

“While demand has softened slightly since 2007 levels, students, medical technicians, nurses, hotel and restaurant employees, as well as young professionals and new-to-the region employees continue to fill nearly all available units,” the report said.

The biggest challenge to the rental market is a “shadow market” of condo owners and investors who are trying to rent out their units, the report said.

The project at the AAA building will be a welcomed change for the neighborhood. It has been vacant since 2005 when the auto club completed moving its headquarters to Delaware.

Built in 1967 for AAA Mid-Atlantic, the property in its unoccupied state has taken on an untended appearance on the edge of the city’s Central Business District.

NorthStar Realty of New York foreclosed on its borrower, World Acquisition Partners Corp., last April and took control and title. World Acquisition, a commercial real estate investor and developer that had been based in Huntingdon Valley and amassed a portfolio of industrial properties in Northeast Philadelphia, bought the building in 2006. At the time, World Acquisition had become an active real estate player amid the real estate boom.

In 2007, the firm unveiled a set of grand plans for 2040 Market. One proposal entailed constructing a 53-story residential tower on top of the building and another scenario had a 35-story office addition atop it.

At one point, World Acquisition considered tearing the building down and starting anew but none of its plans ever came about.

The real estate company did obtain approval to expand the building and current zoning could permit as much as 750,000 square feet to be constructed on the site though it’s unlikely PMC will build something on that scale. Approvals are also in place for an underground garage to be built out and PMC does intend to construct the parking component."

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