How Philadelphia Can Foster Development Without Speculation

By Nolan G. Shenai
Special to the Legal

Philadelphia, the one-time bastion of American industrialism and development, is now home to more than 40,000 vacant properties, not entirely inclusive of the more than 35,000 city-owned, blighted properties. The Redevelopment Authority has approximately 3,300 properties available for sale on its website, but virtually none of the properties on the RDA’s website are in the Center City district, or even in the adjacent neighborhoods: Art Museum/Fairmount, Northern Liberties, Queen Village/Bella Vista and Graduate Hospital. If the city could find an efficient way to dispose of its hundreds of millions of dollars of real estate, any budget shortfall would be covered multiple times over, and then some. Simultaneously, the city cannot continue to feed the all-too-prevalent trend of speculators holding desirable real estate without developing it.

The city should implement a framework to dispose of its real estate as follows:

1. The city should create a website where all city-owned, vacant real estate is listed in a convenient, easy-to-search format.

2. Any interested party can nominate any city-owned, vacant property to be listed for development lease auction, as defined below, and the city must list that property for development lease auction within thirty days of the party’s nomination thereof.

3. Immediately upon nomination of a property, the property will appear listed online and published in a widely distributed print publication, as a “queued property,” indicating the date on which the development lease auction will begin for that property, as well as the opening bid.

4. The nominated property will appear on an online auction for exactly 10 days, where any other interested parties can bid on the development rights to the property.

5. The winning bidder at the development lease auction shall have 30 days to remit the full amount of the winning bid to the city, but if the buyer fails to remit the full amount of the winning bid in this time frame, the second-highest bidder shall have the option to purchase the property, or it will be re-listed for development lease auction.

6. Assuming the buyer tenders appropriate payment, the buyer, as successful bidder at the development lease auction, will have purchased exclusive development rights to the property for 18 months.

7. Within the 18 months following the development lease auction, the buyer must develop the property, with all applicable permitting, zoning and licensure, making the property fit for use, pursuant to Philadelphia Code, for its zoned purpose.

8. If the buyer has complied with the above requirements, at any time within the 18 months following the development lease auction, the buyer, upon inspection by the Department of Licenses and Inspection, may certify to the city the completion of development.

9. Upon accurate certification of completion of development to the city by the buyer, the city shall deed the property to the buyer, free and clear, upon payment to the city of any tax, utility or other certain allowed arrearages not to exceed 10 percent of the market value of the property.

10. If the buyer has failed to comply with the terms of the development lease auction, the buyer may, upon good cause shown, apply for one extension not to exceed 12 months to comply with the development lease auction’s terms, though development projects over a certain square footage or land footprint, to be determined, shall be eligible to apply, upon good cause shown, for three consecutive extensions not to exceed 12 months each.

11. If the buyer, at the expiration of the development lease and any extension(s) granted, has failed to comply with the terms of the development lease auction, the buyer shall immediately surrender any possessory or leasehold interest in the property, and the property shall be re-listed immediately for development lease auction.

12. Any buyer who has successfully bid on a development lease, but who has failed to comply with the terms of the development lease auction more than two times shall be banned from participation in development lease auctions for 18 months.

13. Development leases are nontransferrable.

What are the upsides to this plan?

The city gets revenue from non-revenue-producing properties in three ways: (1) the revenue from development leases; (2) the revenue from arrearages (not to exceed 10 percent of the developed value of the property); and (3) the future property tax revenue from occupied/privately owned properties. The city also will have an efficient plan to encourage development of vacant properties and to reduce blight while penalizing speculation.

What are the downsides?

The city will have to invest in this plan to the tune of an online auction website, and will be tasked finally with inventorying its vast collection of vacant properties/land. The city, however, has already invested in the Redevelopment Authority, as has the commonwealth and the federal government. It is a well-funded arm of the city that has the capacity and funding to carry out this plan.

Center City has added residents for the first time in decades, and Philadelphia is becoming recognized as a destination city for the first time since the 1960s. Philadelphia has an internationally recognized arts, entertainment, sports and culinary scene, and is home to big business and small business alike. The city is at a critical juncture, and must decide if it intends to foster growth and development, or if it plans to watch passively (and hope to receive downstream benefits) as Boston, New York and Washington, D.C., invest in their futures. The ball is in our court.

Comments

[digital options]

The economic crisis is profound and almost every sector of our every life is concerned. I think it's better to grow and be an independent city investing in the future and apparently that's the procedure this great place called Philadelphia has decided to choose.

[Greg Whedbee]

I read your blog with interest, having done commercial real estate brokerage for over 28 years and working with and for several developers during that period both in Philadelphia and throughout the Southeastern Pa area.
As I consider your plan I think it has some merit,however I have some concerns including the following:
•Of the 40,000 properties many are in very blighted areas that make economic viability or even break-even scenarios impossible for a developer.
•Many if the properties on the lists are encumbered with other debt or legal and environmental issues that make it almost impossible for the developer to clear title in a timely manner even with city cooperation
•Zoning, local neighborhood approvals and council representatives need to sign off on most projects that impact their particular area, making some uses impractical or impossible
•A developer must do a build-to-suit to have a user in hand in order for a project to go forward without speculation. On larger projects it takes months or even years to get a new development occupied.
•Many development or redevelopment projects require approvals and/or cooperation of other agencies, state and federal in order to move forward.

Your blog is not without merit and stimulates thought on how to address some issues that must be addressed in order for this great city to move forward.
Thanks

[Shimon Guy]

Generally - a great idea!