By Katie Burke CoStar News
After about two years of foreclosure threats, the historic Wanamaker Building in downtown Philadelphia is headed for auction.
The 114-year-old Center City office property will be up for bids as part of a Philadelphia Sheriff's Office sale in which TF Cornerstone, a New York-based investment firm and the property's primary lender, already has a $120 million head start. The auction will begin on June 3 for the roughly 1.4 million-square-foot building, which has an occupancy rate of about 20% after years of depressed demand and a string of large tenant move-outs.
Similar to other older office properties throughout Philadelphia, the Wanamaker at 100 Penn Square East has struggled to find its post-pandemic footing as companies have both shrunk their real estate footprints and prioritized space in some of the city's newer and nicer options.
The building — which is split between about 950,000 square feet of office space and a recently shuttered Macy's department store — is primarily owned by Rubenstein Partners, a locally based investment firm that paid $114 million for a 60% stake in the property in early 2017 when it was roughly 97% occupied, according to CoStar data.
Yet Rubenstein's financial troubles began to mount shortly thereafter.
In the earlier years of the pandemic, tenants including the Children's Hospital of Philadelphia, the United States Army Corps of Engineers and the federal Housing and Urban Development agency vacated about 500,000 square feet after exercising options to terminate their leases.
Rubenstein was unable to backfill the spaces, and in 2021, tried landing a buyer for the building after investing upward of $30 million in capital improvements as part of a plan to upgrade and reposition the property.
That plan fell flat, however, and a couple of years later, the $124 million loan on the Wanamaker Building fell into receivership. The servicer slashed its appraised value from $185.7 million when the loan was issued in 2018 to less than $54.5 million, equating to a roughly 72% drop.
Betting on a turnaround
While most lenders are reticent to transition into landlords, TF Cornerstone began building up its stake in the historic building when it purchased a majority of the property's debt last year. The investment firm purchased the retail portion of the Wanamaker for $40 million in late 2019, at which point the space was still fully occupied by Macy's. Since then, it has reportedly been exploring a potential residential conversion plan for the remainder of the building.
Given TF Cornerstone's credit for the auction, any interested bidder would have to submit an offer of more than $120 million in order to remain competitive.
Distressed properties have fueled Philadelphia's office sales market in recent years as the city struggles to work through a record amount of available space. Companies in the area handed back more than 7.6 million square feet between 2019 and 2023, according to CoStar data, and rents have fallen alongside the decline in tenant demand.
What's more, about 3 million square feet of leases are set to expire through the remainder of this year, an amount that could prolong the market's recovery even as large employers such as Chubb, FS Investments and Vanguard have expanded their office stakes in the region.
Even so, Philadelphia's roughly 14% availability rate is the second lowest in the country, according to the data, and the city's diverse economic base has made eager investors optimistic about a prospective rebound. Private buyers and investment firms have accounted for about 60% of the sales that have closed in the area over the past year, many of which traded at just a fraction of their previous prices.
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