Carl Dranoff New Development will be Condos Not Apartments

by Alan J. Heavens, Inquirer Real Estate Writer
Armed with evidence of increasing demand for new and larger high-rise condominiums in Center City, Carl Dranoff has shifted gears on plans for his One Riverside development at 25th and Locust Streets.

Instead of 147 luxury rental apartments, the 22-story, $100 million-plus building will have 88 condos, including two penthouses, that he said will be priced at $700,000 to $4 million.

Groundbreaking for One Riverside is scheduled early next year, "depending on permit issuance, which is hard to predict," said Marianne Harris, Dranoff Properties' sales and marketing director.

If that schedule holds, the first buyers will move in by late summer 2016, she said.

One Riverside will be the first from-the-ground-up high-rise condo building started since the financial crisis derailed the 2004-08 construction boom, which produced nearly 2,500 new units, according to Dranoff's calculations.

Tom Scannapieco, developer of 1701 Rittenhouse Square Street, is set to break ground in the spring on a $150 million, 26-story, 40-unit condo tower at Fifth and Walnut Streets scheduled to open in 2017. Pre-sales of that building are in the multimillions of dollars, he said.

Scannapieco was able to sell out 1701 Rittenhouse, albeit more slowly than he anticipated. But many other high-rises, including 10 Rittenhouse - which Dranoff was brought in by lender iStar Financial to finish and sell - navigated troubled waters until the economy began to improve.

In recent years, developers, including Dranoff, had shifted to building high- and mid-rise luxury apartment buildings to take advantage of demographic changes in the real estate market. Apartment development continues in Center City, spurred by demand and continued reluctance by lenders to finance major for-sale projects.

Dranoff announced the change Wednesday at an invitation-only dinner for real estate agents at Sbraga in Symphony House at Broad and Pine Streets, the developer's first ground-up luxury condo high-rise.

Yet Dranoff said his experience at 10 Rittenhouse, where condo prices topped an unprecedented $1,000-plus per square foot as the market was just starting to recover, convinced him that taking One Riverside condo would meet a demand.

"There is a scarcity of this kind of product on the market," he said. "At 10 Rittenhouse, we continue disappointing buyers looking for new and larger condominiums."

Economist Kevin Gillen said market indicators suggest that "now looks like a great time for multifamily development to shift from rentals to owner-occupied condos."

Rents had experienced exceptional growth since the housing downturn and subsequent recession, Gillen said, as house and condo prices fell.

"Now that housing is recovering and rents have peaked out, the cost of owning is practically equivalent to renting, and also offers the additional benefits of home equity and asset appreciation," he said.

Many households have shifted from owning to renting, or have just continued to rent, since third-quarter 2007, when the housing bubble burst in the eight-county Philadelphia region, and "current fundamentals indicate that the pendulum has begun to swing the other way," Gillen said.

Demand for larger condos, a trend that started in Manhattan, spurred Dranoff to limit One Riverside to seven one-bedroom units, which he described as either starter homes or "nanny suites" for providers of child care to families in larger units.

The larger units (two-, three-, and four-bedroom) have more square footage to accommodate families with children or visiting grandchildren, he said.

The trend was already noteworthy in the Philadelphia market, though. For example, Weichert Realtors agent Susan Yannessa said today's buyers at Beaver Hill condominiums in Jenkintown included families with two or three children that prefer the units to single-family homes.

The 16 four-bedroom, 41/2-bath units planned for One Riverside range from 1,964 to 2,497 square feet - about the size of typical detached house in both city and suburbs. Dranoff says he expects that his buyers will be a mix of city dwellers and suburbanites.

One Riverside also will have 110 underground parking spaces and a private park to complement adjacent Schuylkill River Park.

"I've learned that people, especially those from the suburbs, want open space," said Dranoff, adding that all units would have terraces and balconies.
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