Ever hear the one about a group of commercial
property owners from Center City banding together to fight a designation for a
parcel that would give it huge tax breaks?
We have all been here before.
I’ve recently written about how a coalition
called the Concerned Hotel Owners of Philadelphia is fighting a proposed tax
increment financing (TIF) district designation at 1441 Chestnut St. The Greater
Philadelphia Hotel Association, which represents 91 hotels throughout the
region and all of Center City’s hotels, has also joined the battle against TIF
at the site.
That’s where a developer is looking to
construct a 700-room W and Element hotel. Among their arguments for coming out
against the TIF is the sorry state of Center City’s hotel industry. It just can’t
support another hotel, especially one this size, they say.
This situation has shades of another grand
battle waged by commercial property owners in Center City a decade ago and it
appears history may be about to repeat itself. Ten years ago, a group of
Philadelphia’s office landlords came together to oppose a proposal to designate
a development site at 17th Street and John F. Kennedy Boulevard as a Keystone
Opportunity Zone, which gives companies that move to the property breaks on
state and local taxes. Under the scenario, the site would be deemed blighted
and the KOZ would help the parcel – in the heart of the city’s financial
district - to finally get developed.
Back in 2003, Liberty Property Trust was at the
center of the controversy at 17th and JFK. The developer wanted to construct a
new 1.25 million-square-foot headquarters for Comcast Corp., which would have
received those KOZ benefits.
These office owners worked tirelessly to defeat
the proposal, which the landlords had contended at the time would harm city
coffers and undercut the rental value of their properties.
The group said they did not oppose KOZs per se
but thought, in this case, a designation would be unfair, that the site was
neither blighted nor needed subsidies to kick off development. Market
conditions, the demand for office space by tenants, would drive whether a new
building should be constructed.
To compete with a building that has a KOZ,
these landlords argued they would need to slash rents in their own buildings.
That, in turn, would cause a reduction in their property values and lead to
fewer taxes going to the school district.
These are similar arguments the hotel owners
are making.
As the office landlords painted a dire future
with the KOZ, then Gov. Ed Rendell painted an even more desperate picture of
Philadelphia without the KOZ.
Rendell pleaded that the opportunity zone was
needed to entice Comcast and other companies not to relocate to nearby states
and therefore prevent a giant sucking sound of 15,000 jobs fleeing Center City
and vacating 6 million square feet of office space.
So what happened?
Comcast Center got constructed without the KOZ
though not without some subsidies to help finance infrastructure improvements.
That great sucking sound of job loss from the city never happened though it’s
more like a trickle as some companies continue to move out not because they
need to be in an opportunity zone but mostly due to the city’s tax structure.
The office market has struggled mostly because of the recessionary effects such
as lack of job growth and trends space utilization in which companies are simply
using fewer square feet than they had before. The trophy market and Class A
market are doing just dandy.
If history does repeat itself, the W and
Element project will get constructed.
Source: Philadelphia
Business Journal
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