Source: Bisnow
Byline: Matthew Rothstein
Date: 7/15/2019

Philadelphia is as fertile ground for commercial real estate development as it has ever been, giving rise to inevitable, difficult conversations about how that growth affects communities.

Even though the city has grown more in the past decade than at any time since World War II, it still lags behind comparable cities like Washington, D.C., and Boston in terms of population growth, income growth and development. Growing along similar lines to those cities has affected the affordability and neighborhood continuity that have long defined Philly.

“Philadelphia’s going through something it hasn’t dealt with in a long time, and that’s growing pains,” Drexel University’s Lindy Institute for Urban Invitation Senior Research Fellow Kevin Gillen said. “The problems associated with them are a lot more pleasant than the problems associated with [economic] contraction.”

Philly’s slow-and-steady nature is never more beneficial for recruiting new capital and development interest than in an economic downswing that drops acceptable yields to the city’s level. As interest builds, the question of what developers owe to the places where they build becomes more crucial, as Gillen and other panelists at Bisnow’s University City and Center City Summit discussed.

“Philadelphia has an amazing opportunity, much more than other places I’ve seen, but it’s a limited opportunity and the government can’t solve this problem,” Philadelphia Redevelopment Authority Executive Director Gregory Heller said. “It’s a responsibility that commercial real estate has to take to encourage prosperity.”

University City may be ground zero for the challenge of responsible growth in Philadelphia, as the area’s research institutions have spent the past decade curating a desirable neighborhood that now seems poised for a development explosion. UCity has pushed its own borders into traditionally working-class, racially diverse neighborhoods to the south, north and west.

Consensus between the public and private sectors seems to be that the straightest path toward something like “getting it right” is engaging the surrounding community in good faith and early enough in the planning process for public comments to be taken into consideration for the final product.

Engaging with a registered community organization is now mandatory in Philadelphia for any project of a certain size or that requires a zoning change, and more developers are using Community Benefit Agreements to officially lay out what they will give to the community in exchange for its blessing. Panelists agreed that while there is value in more formal dealings with a neighborhood, they are no substitute for a developer with the earnest desire to do good.

“The community benefit agreements and just having a required aspect of engagement from that standpoint is difficult,” University Place Associates founder and CEO Scott Mazo said. “If it’s a requirement, that’s one thing — and not to be facetious, but it should be a natural part of the process. If it isn’t in the developer’s DNA [to engage with the community], then it’s going to be problematic one way or the other.”

Framing the discussion of community benefits as one of developer altruism is a mischaracterization that a CBA can deepen, according to Heller.

“The CBA is a dated mechanism, and I also think that it’s perhaps counterproductive,” Heller said. “The whole premise of a CBA is that there’s an us-versus-them, combative relationship that you need to negotiate a legal relationship in order for both sides to be happy. That should not be the dynamic between developer and community … When real estate is most successful is when the community engages with it early on, and then you don’t need a CBA at all.”

Countless pages of reporting, columns, academic studies and legislation have considered how neighborhood growth displaces or disenfranchises in-place residents, and the result can feel like a tug of war.

On one hand, there is growth promotion such as the 10-year tax incentive or Keystone Opportunity Zones (and federal opportunity zones); on the other is displacement protection, like affordable housing set-asides or subsidy programs for longtime residents. But even the most aggressive displacement protection may just be a Band-Aid, according to Gillen.

“You’re not really incentivizing growth in the city as much as the status quo [with displacement prevention], and every dollar spent on affordable housing is one not spent on schools,” Gillen said.

At the heart of the tension between development and displacement is the deep income inequality that continues to plague Philadelphia. Its 25% poverty rate is still the largest among major U.S. cities, according to Gillen, and all panelists agreed that most, if not all, of the issues stemming from that would be meaningfully addressed by an improved public school system.

Philadelphia schools are ostensibly the reason why such a groundswell has built against the 10-year tax abatement, but The Lomax Cos. Senior Managing Director Charles Lomax suggested an alternative method.

“Any investment you can put into schools, early childhood learning or things like that will produce more return,” Lomax said. “It’s an objectively high-impact spend that will enhance the community, of which developers will become a part and where residents will live forever. And that will also create the workforce that will meet the needs of the 21st century.”

Philadelphia’s school district has a nonprofit arm, the Fund for the School District of Philadelphia, and Heller told Bisnow after the event that it would be relatively straightforward for an individual or a company to donate, whether volunteered or negotiated as part of a CBA.

Community representatives frequently bring up schools as an issue in discussions with developers, according to Heller. The difficulty is that improvements in school districts are tougher to hang one’s hat on than a green space where a ribbon can be cut.

“Investing in childhood education is definitely the long game, but it’s undoubtedly the best place to invest if you’re pursuing [growth],” Post Brothers principal Randy Hope said. “But everyone’s looking for a quick fix, and these things take decades to change.”

When it comes to growth, Philadelphia is accustomed to the long game. With enough developers and community members working together, hope springs that everyone can win.