City Center's expanding Allentown footprint

J.B. Reilly's City Center Investment Corp. has accumulated dozens of properties around arena

Not too long ago, the private developer who has become the standard-bearer for Allentown's downtown rebirth was scaling back his center city real estate holdings.

In 2007, J.B. Reilly's East Penn Properties sold the 10-story Hamilton Financial Center at Seventh and Hamilton streets to Lehigh County for $3 million. The company also sold its partial stake in the five-story East Penn Place office building at Eighth and Hamilton streets to developer Dunn Twiggar for between $500,000 and $1.5 million.

"Clearly, I was trying to limit my exposure downtown five years ago," Reilly said.

Today, the opposite is true. Since 2011, when Allentown launched its127-acre Neighborhood Improvement Zone, East Penn Properties, and Reilly's new company, City Center Investment Corp. have spent more than $17.3 million to buy 40 properties in the blocks surrounding the PPL Center hockey arena now under construction.

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The developer also has lined up deals to buy a few additional downtown properties in the unique tax incentive zone, which offers developers or property owners the ability to tap tenants' state and local taxes to finance construction. No other property owner has acquired more than a few parcels in the NIZ.

While City Center hasn't revealed specific plans for many of the three dozen properties it has acquired, the company is clearly dominating downtown Allentown's resurgence and steering its revitalization. The developer hopes to transform it into a vibrant urban hub with new offices, shops, restaurants and upscale apartments.

"We are pretty much just trying to develop and redevelop what we have," Reilly said. "We are focusing on opening these buildings and making sure we get some of these renovation projects along Hamilton Street online so they are there to support all the office workers and arena patrons and hotel guests later this year."

Several of City Center's projects are known: Some of the properties were acquired to make way for an 11-story office building that will house National Penn Bancshares' corporate headquarters. Others were demolished to allow future construction of luxury apartments at Seventh and Linden streets. The developer also plans a seven-story office building at the site of the former Colonial Theater.

City Center, whose other investor is Lehigh Gas Partners' Joseph Topper, is renovating several smaller Hamilton Street properties for shops and offices and plans to bring back the Federal Grill restaurant.

But it also snapped up multiple properties near Eighth and Walnut streets that Reilly says will be demolished for a parking deck, and several other properties between Linden and Turner streets for future development that could include a mix of retail, office and residential units.

"There is no definite plan for what is going to go there, but that is another significant developable site that between us and the city and the parking authority is a site that could have a future use," Reilly said.

He insists that City Center is not engaging in land speculation but following a development plan that he hopes can come to fruition over the next five to seven years.

Parking lots in play

Next to City Center, which owns property in nearly every block surrounding the arena, the Allentown Parking Authority will have a lot to say about the next round of NIZ development.

Two Allentown Parking Authority surface lots sit in the middle of the block that one City Center has slated for its unnamed mixed-use development, immediately north of the arena, bordered by Seventh, Eighth, Turner and Linden streets.

For now, though, those lots are not for sale, said parking authority Executive Director Tamara Dolan, though they could be at the right price. The authority has five lots in the NIZ that have attracted interest and could some day become prized, ready-to-build land for developers.

A partnership of construction management firm Alvin H. Butz Inc. and York-based Think Loud Development is negotiating to buy one of them, the Farr lot near Eighth and Hamilton, to build a music club, restaurant and office complex. Others sit adjacent to Miller Symphony Hall on Sixth Street, and behind the Holiday Inn at Fountain and Maple streets.

"If developers are coming forward, the board is talking with them," Dolan said.

The authority is prohibited from selling lots for development as parking, and can't sell a lot unless it determines the spots aren't needed or can be replaced elsewhere.

If the Parking Authority eventually sells to City Center, it wouldn't be the first time a city-related agency has sold property to the developer.

The Allentown Housing Authority sold a two-unit apartment building on Walnut Street to City Center for $130,000. It is one of several buildings near Eighth and Walnut streets that City Center plans to demolish to build a parking garage.

The Housing Authority has a larger building at Seventh and Linden that is surrounded by City Center acquisitions. It houses 22 apartments, but could be sold for the right price. The U.S. Department of Housing and Urban Development has strict rules for such a sale, including that any tenants be relocated, Executive Director Dan Farrell said.

City Center bought one of the largest undeveloped downtown properties — the fully cleared site of the demolished Colonial Theater — in 2013 from the Allentown Commercial Industrial Development Authority after its plan to build an office building there beat out a proposal from the Butz-Think Loud partnership.

Reilly said he welcomes other developers in the NIZ and says some with well-known names are "looking at downtown projects."

Charles Street Capital is converting the former Schoen Furniture building in the 500 block of Hamilton Street into a headquarters for Trifecta Technologies and Alvin H. Butz doubled the size of its Butz Corporate Center in the 800 block. A development partnership of Jaindl Properties and Dunn Twiggar is planning a mixed-use office and apartment complex on the former Lehigh Structural Steel property near the Lehigh River.

But as the NIZ matures, the number of large, developable properties is shrinking. Almost none remain in public hands, said Sara Hailstone, executive director of the Allentown Neighborhood Improvement Zone Development Authority.

That opens the door to smaller projects, she said.

"I will say that the one thing the larger development has done is now we are finding that there is more interest from smaller developers and smaller tenants because they are seeing the large development in the downtown," Hailstone said. "And that is good; you want to diversify."

Larger developers looking to build significant projects can still make deals with private property owners downtown, or along the Lehigh riverfront, where several sizable properties remain "under-utilized," she said.

"I don't want anyone to think there are not opportunities for a large project," she said.

Prime real estate

A shortage of large, buildable parcels is a common problem in urban redevelopment schemes, especially in older neighborhoods, said Ray Bromley, urban planning expert at the State University of New York at Albany.

City founders tended to cut up property into multiple, narrow and oddly shaped parcels that don't lend themselves to modern redevelopment. That has forced prospective developers to accumulate multiple lots.

"How do you get all of the different owners to sell their property at a reasonable price?" Bromley said. "The danger is you need 20 properties, and you buy up 19 and the 20th says I want $10 million because they know they have you over a barrel."

City Center has tried to assemble developable chunks of land by buying up those smaller properties en masse. But sometimes it has meant persuading property owners who had no plans to sell to part with their investments.

Reilly said that as the arena and surrounding buildings have gotten closer to completion, property owners have demanded higher prices.

Allentown landlord Joe Clark said he has been approached by City Center, which was hoping to buy properties he owns on Seventh Street and Hamilton Street.

The tough-talking Clark said he refused to sell, leaving him with two Seventh Street properties in the path of whatever Reilly has planned for the block immediately north of the arena.

Clark, who owns the Crocodile Rock nightclub and said he is entertaining development plans of his own, feels the price he was offered was "low-balled."

"I didn't fall into that trap," he said.

Julius Ewungkem did sell. The Bethlehem resident and full-time quality control engineer had assembled a small portfolio of rental properties, including a six-unit apartment building on Hall Street near Clark's two properties.

It was making him pretty good money in 2011, producing $3,000 in rent when fully occupied, to cover $1,000 in mortgage payments, he said — a good investment.

Located in an alley just steps north of the arena, it quickly ended up on City Center's radar. Ewungkem said a real estate agent representing the developer made repeated visits to the property, at one point saying he had a buyer who would pay cash, was desperate to purchase the building and had to complete the transaction within six months for tax purposes.

Ewungkem said he wasn't interested, but the agent kept calling, and eventually he agreed to sell the building to City Center for $233,000, which was $80,000 more than he bought it for in 2006. Later, he tried to back out of the deal, but the agent told him the buyer would sue.

While he didn't appreciate the high-pressure sales tactics, he doesn't blame City Center.

"I just got scared and decided to move on with it," Ewungkem said. "My fault is that I accepted the initial deal."

Reilly disputes the claim that City Center has low-balled anyone, saying buyers and sellers often have different opinions of property values. He said the company prides itself in responsible, above-board negotiations.

"The fact of the matter is that we have been able to successfully negotiate and close on 35 properties over that period of time," he said. "Given the volume of transactions, we have had relatively little conflict. We haven't been involved in any litigation over any transaction. Period."

Reilly said he doesn't condone high-pressure tactics, but he's not looking over the shoulders of every real estate broker trying to nail down a sale. Most property owners have walked away with an amount on "the high end of what you would consider the market value range," he said.

"Early in the process, there were a lot of people who didn't think the arena would ever be built," he said. "Now as we are building the arena, people look back in retrospect and wish they held on to their properties."

Source: MCall.com