Features: The Condo Revolution!

Suburban empty nesters willing to pay $1 million and more for the romance of urban life are driving a luxury condo boom that’s about to turn our rowhouse town into the Upper East Side. What’s our cut on the deal? Maybe the world-class city we say we’ve always wanted

Yes, the Buckles have some adjusting to do. So does everyone. The skyline of Center City is changing, as our rendering shows, and the future offers an inspiring vision. There will be glistening glass towers like Mandeville Place and the Murano. There will be stately Art Deco projects like Symphony House. They’ll be designed by world-class architects like Richard Meier, Robert Stern and Robert Venturi. Unlike in the 1990s, when virtually no new private housing was constructed to Center City, the urban landscape is now filled with construction cranes — and every crane you see is for a new condo project. Since 2003, developers have applied to build some 750 new condos in Center City, and to convert another 1,346 apartments into condominiums. By the end of 2008, another 3,700 new condos could be added to Center City’s airspace, creating a 60 percent increase in condo capacity in a decade’s time. There hasn’t been a residential building boom like this since the 1980s. “But the ’80s was largely rental-driven,” says veteran developer Carl Dranoff, who got his start back in 1981 converting an obsolete Old City factory into the Wireworks. “Now, it’s buyer-driven.” The big difference being that people are investing in the city. “This is much more profound,” says Dranoff. “Philadelphia right now is enjoying a revitalization like it’s never seen.”

The big question is, who’s going to live in all those condos?

The skeptics among us (and this being Philadelphia, there are many) will tell you: nobody. Those condos will sit empty. They’ll be built for reasons that have nothing to do with market demand. There is a shred of truth in that: The current boom is being helped along by larger economic forces, namely low interest rates and a sideways stock market that has tempted investors to chase returns in real estate. Another huge incentive is the 10-year property tax abatement the city enacted in 1997; meant to halt blight in the city’s neighborhoods, it allows homeowners and landlords to fix up their properties without being reassessed right away. But because it was extended to new construction in 2000, it also gives a tax break to all the buyers of those new condos. For example, while Symphony House will cost Carl Dranoff $125 million to build, the eventual owners of the 163 units will have to split the property tax on only the $6 million he paid for the parcel at Broad and Pine. That is, until 10 years out, when each unit will be reassessed.

But the transformation sweeping Center City is about far, far more than a property tax break. Unless the sky falls in, there will be demand for downtown housing in the next decade. It will come from the two big bulges in the American population: the “echo boom” of young adults who are preparing to join the job and housing markets, and suburban empty nesters who can get back to being self-indulgent now that their children are raised. “Baby boomers and their kids,” says Paul Levy, president of the Center City District. “That’s what this is all about.”

There is one more factor: Center City itself. It’s a lure now, having changed dramatically for the better in the past 10 years, due in part to Levy and the CCD. He’s quick to rattle off some of the more visible improvements:

Crime is down by more than half.

Outdoor lighting has been doubled.

In 1992, there were 65 “fine dining” restaurants in Center City; by 2004, there were 201.

We’ve gone from exactly zero outdoor cafés to 150.

We’ve added 4,000 seats on the
Avenue of the Arts in the form of performance halls like the Kimmel Center, the Wilma and the Merriam.

We’ve added 4,000 hotel rooms — which enhances nightlife by putting more people on the streets at night.

Although Philly would get a few “most improved” votes, a lot of downtowns have undergone similar rebirths — and in the process, so has the general image of city living, argues Levy: “It’s now a totally positive, romantic image.”

Young, single professionals have been flocking to Center City in disproportionate numbers for a while, which adds to the romantic image. (Young adults 25 to 34 make up 30.5 percent of Center City’s population, as opposed to, say, 8.9 percent of the population in the sleepy suburb of Haddonfield.) But the new element in the mix is the­ ­middle-aged suburban couple. These people, the leading edge of the baby boom, are a demographic group much coveted by developers, not only here but in every city. Why? Because they’ll enter their 50s and 60s with unprecedented home equity, according to Harvard’s Joint Center for Housing Studies. That means they can afford not just condos, but luxury condos.

Will they bite? Developers hope so. One Chicago developer, who plans to erect the tallest building in the U.S., a 115-story condo and hotel tower, recently told the Wall Street Journal he hopes to fill it with suburban empty nesters who move to the city after “the last kid goes to college and the dog dies.”

Here in Philly, “almost half” of the buyers who snapped up the 60 units of York Square, at 4th and Vine, are suburban, says sales manager Linda Di Stefano. They’re coming from places like Bucks County, Princeton, Medford Lakes and Huntingdon Valley. Although the building won’t be finished until December, only six units were left by the end of August. Among those: a small two-bedroom for $469,000, and the largest unit, a 4,000-square-foot bi-level penthouse for $1.975 million.

Some experts minimize the back-to-the-city movement, noting that so far the oldest of the baby boomers are mostly staying put. But it doesn’t take much to initiate a major trend, says Stephen Mullin, a principal of Econsult Corporation who was Ed Rendell’s commerce director in the 1990s and now teaches urban economics at Penn. “A few percent of people changing their behavior can have a big impact,” he notes. That big impact will be felt not just by the real estate market, but by Center City in general, as restaurants, retail and the arts rush in to serve the needs of 10,000 new, well-to-do residents. And whereas Center City wasn’t even on people’s radar screens a few years ago, “It’s now in the mix for more people,” Mullin says. “I see the attractiveness of Center City growing and growing. It’s a real thing.”