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Urban Revival: Report Card

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By Elise Vider

The winds of reform may be blowing, but it will take some mighty big gusts to budge the city's most intractable problems. Here is my report card for the big issues that still bedevil Philadelphia's ability to achieve responsible real estate development:

 

Planning and Zoning:  A for effort, Provisional A.

Passage in December of a new zoning code, the culmination of a four-year effort to replace a byzantine, 642-page document, is indisputably a major accomplishment and step towards a progressive, 21st century city.

 

The new code takes effect on August 22. But zoning won't be fully reformed for another six to 10 years as the city methodically reviews and remaps the entire city, establishing zoning classifications for every parcel.

 

That process is complemented by the city's ongoing planning work. With passage of the Philadelphia 2035 comprehensive plan to set the broad vision, the city is now undertaking to drill down on specific land uses by rolling out 18 district plans with extensive community input. As each district plan is approved, the commission will prepare a revised zoning map for City Council approval. The Planning Commission approved the first two such plans for "West Park" and "Lower South" last month.

 

Another unknown aspect of the new zoning code is the efficacy of the new civic design review process. Originally intended to professionalize urban design review of major projects, opposition from community groups resulted in a compromise that is still untested.

 

 

Vacant Land Reform: Incomplete.

The scope of Philadelphia's vacant land problem is huge: 44,000 vacant parcels, more than three-quarters of them privately owned, cost the city $20 million in annual maintenance, $2 million in uncollected property taxes and diminish property values by a staggering $3.6 billion, according to a 2010 study.

 

But for the owner-occupant who wants to buy the side yard next door or the developer assembling parcels for a large project, acquisition has been a years long trip through the looking glass, dealing with an alphabet soup of agencies, conflicting policies and arcane processes.

Vacant Lot.jpg

Now, reform is running on parallel tracks. The Philadelphia Redevelopment Authority (PRA is the new moniker of the city's Redevelopment Authority) is preparing to unveil its much-anticipated "Front Door," an online portal to about 10,000 properties owned by the PRA, the Philadelphia Housing Development Corporation and the city's Department of Public Property. (Land owning entities including the Philadelphia Housing Authority, School District and Philadelphia Industrial Development Corporation are not included.)

 

Although some wags consider Front Door only a façade, it does represent an important first step: an online, searchable database of the three agencies' combined inventory and a single point of contact for making inquiry.

 

But as long as potential buyers still have to navigate different land-owning bureaucracies, the disposition process may not be much improved. A draft policy intended to at least unify procedures among the agencies is anticipated but full, one-stop shopping for publicly held land is still in the future.

Another key issue is whether vacant land sales will be tied to planning goals for uses such as urban farming, stormwater mitigation, green space, etc., that have more civic than financial value. The PRA is committing to disposing of properties in a strategic fashion, with the goal of revitalizing neighborhoods trumping maximizing revenue for the city.

 

At the same time, Council member Maria Quiñones Sánchez is sponsoring a controversial measure to establish a land bank that includes the tens of thousands of parcels that are tax delinquent. (A companion piece of enabling legislation is moving through Harrisburg. If it fails, it is possible that land bank proponents will seek a charter change in November.)

 

"The current system is broken," says Rick Sauer, executive director of the Philadelphia Association of Community Development Corporations. "The Front Door is an important step to a more efficient, transparent and predictable system. But to have success, we need to put vacant land back into productive use at scale, and for that we need a land bank."

 

Councilmanic Prerogative: C.

It is time-honored tradition in Philadelphia for district City Council members to rule development in their fiefdoms. The new zoning code does nothing to prevent Council from continuing to spot zone and the land bank bill, as written, gives Council members absolute veto power over sales.

 

Deputy Mayor Alan Greenberger argues that over the long term, the city's reforms will raise the bar for Council decision-making. He adds, "[District council members] still have a legitimate interest in development in their districts. They are tied to their communities in a fundamentally different way than others with different agendas."

 

On the day we spoke, the Planning Commission voted to support a bill to rezone the historic Blue Horizon on North Broad Street. It's a good measure, Greenberger said, boosting density in a way that would likely be done anyway when the zoning remap is made. Till then, "I'm not stopping the machinery of development just because we haven't gotten to it."


Real Estate Tax Reform: Incomplete.

 It's been a long time coming, and at last actual value assessments might be imminent, at least if Mayor Nutter has his way. Criticism aside that it is a backdoor tax hike, nobody really knows what if any impact the hikes might have for emerging neighborhoods, which would be hit hard. Still there is no dispute that the existing system is broken. Says Greenberger, "It's the unfair that we know, as opposed to the fair that we don't know."

 

Another issue, less pivotal, is the gradual expiration of the 10-year tax abatements. No one anticipates a wholesale flight from those properties - mostly condos - as the abatements vanish, but without the abatements, the condo resale market could stay depressed.

 

The Unions:  F.

The cost of construction under the city's powerful building trade unions is the proverbial 500-pound gorilla when it comes to real estate development.

It is widely known that construction costs are far higher in Philadelphia than they are across the nation - or across City Avenue.  And that certain of the building trades use tactics that only start with pickets to intimidate non-union workers who dare to work in the city, and the general contractors and developers who employ them.

 

Pat Gillespie, business manager for the city's Building Trades Council, argues that well-trained, legal workers with a living wage, health care, pensions and other benefits should cost more compared to "unskilled, undocumented" workers. As for intimidation, it's in the eye of the beholder, he says; some unionConstruction Worker II.jpg members are just "very demonstrative about how they express themselves."

 

Even critics acknowledge an upside of union labor. As one industry executive told me, "I like my union guys. I like that they have benefits. I like that they're well trained. That inures to my benefit. I know the quality is going to be there."

But it's hard to get around the numbers.

 

In 2009, The Building Industry Association of Philadelphia reported that the cost of construction labor in Philadelphia was 39% above the national average, putting Philadelphia fourth highest of any major city in the nation.  BIA also gathered bids to build identical houses in Philadelphia and in the suburbs; per-square-foot construction costs for a 20-foot-wide house were $137 in town and $113 in the suburbs.

 

If anything, the differential today in labor costs is even higher - as much as 50% more to build in the city than the suburbs, by some accounts. Wages are only part of the reason. Union work rules, notably those regarding inter-union conflicts, are another issue. Consider a theoretical, but entirely plausible example: union electricians sit around, constrained from getting a necessary piece of equipment, waiting for the laborers' union to unload the truck. Gillespie told me that the trades are very concerned about this problem: "This has our attention and we are taking very serious action to fixing and avoiding these problems."

 

Mike Pestronk, a partner in Post Brothers, a residential developer, has been defying the status quo, hiring union and non-union for projects including the Rittenhouse Hill and Delmar-Morris apartments in Germantown and the loft conversion of the Gold-Tex building on the edge of Chinatown.

 

"We're not an antiunion company in any way," Pestronk says. "We start all our projects by bidding and we hire on the basis of quality, schedule and cost." So the $24 million Gold-Tex project is a mixed shop, not because Post wants to take a principled stand, but because, Pestronk says, it's the only way to make the numbers work.

 

And therein lies the fundamental issue.  The simple fact is that construction costs in Philadelphia often exceed the sales price or rental income potential of new real estate. It's why so much development here is institutional (think universities, government) or subsidized with tax breaks or other public funds.

 

A longtime Philadelphia developer and construction executive tells of the recent rehab of a single West Philadelphia rowhouse.  A union contractor quoted $165,000 to do the job; a non-union bid came in at $65,000. The total cost to the developer, including acquisition of the property, was $153,000. A buyer was willing to pay $195,000, but when the appraisal came in at only $175,000, the developer's profit sank like a stone. "If I build union, never mind anything else, I can't get an appraisal to support the cost of development, never mind being paid for the effort," the executive told me.

 

"The union issue stops a lot of other conversations," says Anne Fadullon, a one-time city official and now an executive at a construction services company. "But the fundamental problem is that we're a really poor city. And we're going to be a poor city until we can attract and retain jobs and do something about our tax rates and our schools. Until we solve the other problems, the union issue doesn't matter."

 

 

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