“We’re bullish on Center City, and anytime we see an opportunity, we’re going to pursue it.”
That statement from Matt Pestronk explains in a nutshell why PH Retail Partners, the commercial real estate affiliate of Post Brothers, just purchased two properties on prime retail blocks west of Broad Street.
One, at the corner of 15th and Walnut streets, consists of three buildings with street-level retail and office space above. Two of the three retail spots are occupied, one by AT&T Mobility and the other by Club Monaco. The third space, whose last long-term tenant was a Puma store, currently has a pop-up tenant occupying the space. The other, a two-story retail building at 1520-22 Chestnut St., has been vacant since a Dollar Tree store closed last fall.
Pestronk and partner Randolph Hope declined to disclose the price they paid for the two properties, but a news release announcing the purchase placed the total PH Retail will spend on the two properties, including renovations, at $50 million.
In an interview, Pestronk and Hope explained that they expect to have a new tenant for the one vacant Walnut Street space within 60 to 90 days, after the pop-up tenant moves out and facade and interior renovations are completed.
The Chestnut Street building, Hope said, represents a greater opportunity. “We bought the ugliest building on the block, and we saw an opportunity to upgrade it.”
“We saw an opportunity that the seller was happy to let someone else take advantage of,” said Pestronk. (The partners declined to identify the seller in the interview, but The Philadelphia Inquirer identified it as PREIT.) “The seller made a huge profit selling to us, and we’re happy to have that opportunity.”
Hope said that PH Retail has already spoken with “a number of interested tenants” about the Chestnut Street property but is only now actively marketing the building now that the sale has closed.
“We’re considering all options” as to the type of tenant, he said, “but there’s going to be a significant retail space there.”
The 1520-22 Chestnut Building has the largest retail floorplate available west of Broad Street currently: a total of 40,500 square feet, with 13,500 square feet on each of two floors and a basement. Hope said PH Retail expects to announce a new tenant for the building in about six months.
“We think Chestnut Street has more potential than Walnut does now for retailers in terms of rental growth,” Pestronk said. “Walnut Street has been the apple of many people’s eye for a while in terms of rent growth, and rents there have gone from $100 per square foot to $200 per square foot. Chestnut has as much foot traffic, and its rents are significantly lower.”
Pestronk sees Chestnut, once the city’s most fashionable shopping street, as becoming Center City’s hub for mid-market retail. “The 1500 block has come a long way already,” he said. “It’s not going to be Walnut Street ever, but considering the tenants that were on it 10 years ago, it’s a lot better than it used to be.” The growth of off-price retail and big-box-type stores in what were once carriage-trade buildings — Nordstrom Rack occupies a building built for Bonwit Teller, and what was once the Center City Brooks Brothers is now a Staples — backs him up, as does the opening of stores like Uniqlo, H&M and the Bloomingdale’s outlet store on the street.
The purchase adds another 70,000 square feet to the more than 300,000 square feet of retail space in PH Retail’s portfolio and brings its total asset value above $100 million. The company was founded in 2014 as an opportunistic investor whose goal is to quickly add significant value to retail corridors from New York City to Washington, with a focus on Philadelphia.
Pestronk said, “If you were asking us where the real money is to be made in the city right now, we’d say West Philadelphia. But since we’re talking about Center City, it’s Chestnut Street.” Stay tuned, then, for future announcements of this type on the opposite bank of the Schuylkill.