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Saturday, August 30, 2014

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Cascade: No. 54, Spring 2004

Penn Succeeds as Investor and Developer

The University of Pennsylvania's success as developer and investor in two retail development projects has triggered private-sector investments that are changing the face of its University City neighborhood. Penn, meanwhile, is poised to acquire a 33-acre site and develop it into a new eastern section of its campus.

Penn's plan was to stimulate retail development, thereby capturing buying power that was leaking out of the neighborhood and creating a street presence that deterred crime. To achieve this Penn initiated and developed an ambitious project called University Square. It consisted of a hotel, the Inn at Penn, with 228 rooms and 18,000 square feet of meeting space, a Barnes & Noble campus bookstore, one of the largest in the nation, and several restaurants and retail stores. The $90 million project, completed in 1999, was the largest commercial investment ever made in West Philadelphia.

Penn next invested about $50 million in a 35,000-square-foot fresh foods supermarket, 750-car parking garage, and 45,000-square-foot cinema at a desolate intersection at 40th and Walnut streets. Penn owned the land and put together the project, hiring contractors and architects, and providing long-term leases to the tenants. The 24-hour supermarket-which residents had asked for-now draws 35,000 customers weekly. The supermarket opened in 2001 and the cinema in 2002.

Then, in the first major market-rate housing built in University City since World War II, Penn collaborated with developer Carl Dranoff in a $58 million conversion of a vacant 700,000-square-foot seven-story building into 282 upscale apartment lofts, 258 parking spaces, 100,000 square feet of office space, and 22,000 square feet of retail space. This block-long building, known as The Left Bank, is a former warehouse built by the Pennsylvania Railroad in 1929 and is one of the largest properties on the National Register of Historic Places to be converted to residential use. Penn leases the land to Dranoff and uses a portion of the building for its real-estate staff. Two years after completion, the loft units are almost fully occupied. Now Dranoff is converting an abandoned 43,000-square-foot building on campus into offices and a 350-seat live-music center.

Penn is reaping some rewards from its investments that will assist future development. "It's been a continuum," Omar Blaik, senior vice president of facilities and real estate services at Penn, observed. "We had to take most of the development and operating risk with University Square. We stayed the course and we took less risk in the next project. In the last project [The Left Bank] we took very little risk."

The University Square, supermarket-cinema, and Left Bank projects included about 15 retail stores, and the resulting upsurge of economic activity in the area has encouraged another 15 retailers to set up shop. The 30 stores that have opened in the last three-and-a-half years have created 400 jobs-more than half of which are held by West Philadelphia residents.

In an example of how a university can change market perceptions, Penn took a drab parking lot adjacent to The Left Bank and added green space and a picnic area-thereby encouraging a developer to convert a vacant 125,000-square-foot building into a $55 million research facility, Blaik said. Leroy D. Nunery II, vice president of business services at Penn, explained that Penn has become community- rather than university-focused in planning retail development projects. Arts and culture are key to revitalizing Penn's commercial corridor, he said, and new projects seek to capture "a share of mind and share of wallet" from people all over the region.

In its most ambitious development venture yet, Penn is negotiating the acquisition of a 33-acre site from the U.S. Post Office and has drafted plans to redevelop it into office space, apartments, retail shopping, and open space. This development would create a new eastern section of Penn, extending the campus to the Schuylkill River and linking the university to Philadelphia's center city.

For information on Penn's real-estate development strategy, contact Omar Blaik at (215) 898-7241 or oblaik@pobox.upenn.edu.