Parkway seeks to build Center City rarity — a new office tower — where porn theater stood

Philadelphia’s Parkway Corp. has taken early steps toward developing a new office tower on the west Market Street property where Center City’s last porn theater once operated.

Parkway began working in January on designs for an 18-story tower that would occupy most of the southern side of the 2200 block of Market Street, it said in an application for funding through the state’s Redevelopment Assistance Capital Program, which was provided to The Inquirer.

The tract includes the former site of the Forum Theatre, which closed in 2012 and has since been demolished.

With the proposal, which it’s calling "23rd + Market,” Parkway is seeking to overcome a decades-long history of mostly failed attempts by developers to contribute a new office building to the Center City skyline that’s not being purpose-built for a single occupant.

Plans for new office projects have been stymied by rents that fail to justify new construction, despite their recent upward trajectory, said Glenn Blumenfeld, a principal with Tactix Real Estate Advisors in Philadelphia, who is not involved with Parkway’s plan.

“You really need very large tenants, and Philadelphia doesn’t have a lot of very large tenants anymore,” Blumenfeld said.

Parkway president Robert Zuritsky declined to answer questions about the plan, including whether his company has a tenant in mind for the tower that it wants to construct for $175.9 million.

The company is seeking $5 million in RACP funds, which support projects seen by Pennsylvania’s Budget Office as having the potential to substantially boost economic growth in surrounding areas.

The blocks around the 23rd + Market development site have seen a recent spurt of development, including PMC Property Group’s renovation of the former Marketplace Design Center building to the west into a new headquarters for Aramark Corp. that also will house the upscale Fitler Club membership club and affiliated businesses.

But the block where Parkway aims to build its new tower has languished in vacancy and disuse for decades. Parkway solidified its control over most of the block with its 2015 acquisition of several parcels it didn’t already own there — including the former Forum Theatre property — from since-deceased real estate investor and porn impresario Richard Basciano.

Other nearby Market Street properties were acquired from Basciano about that time by Brandywine Realty Trust and by a partnership involving PMC and Lubert-Adler Real Estate Funds, all based in Philadelphia.

“23rd + Market will help elevate the city’s reputation ... and continue the development of Center City west toward University City,” Parkway wrote in its RACP application. “This will help to further physically link Center City and University City, generating further economic activity and expanding downtown Philadelphia.”

Still, Parkway’s plan may be a long shot.

Although office buildings have continued to rise in University City and the Navy Yard, largely aided by Keystone Opportunity Zone tax benefits that help subsidize development at specific sites, such construction has been near nonexistent in Center City itself.

Most office-tower construction since Center City’s skyscraper-building boom of the late 1980s and early 1990s has been limited to purpose-built projects for single, well-heeled tenants, such as the former GlaxoSmithKline building at 16th and Vine Streets and the new Comcast Innovation Center. Both were built by Liberty Property Trust, now based in Wayne.

The dearth of new Center City office projects is not for lack of trying.

West Conshohocken-based developer Oliver Tyrone Pulver Corp. announced plans in late 2016 for a 38-story office tower at 13th and Market Streets, but never acquired the land where the project was to rise.

And Parkway itself said in early 2017 that it was planning a development that was to have included offices just north of Center City at Broad and Spring Garden Streets but has since made no apparent progress on the proposal.

Rents for high-end “Class A” office space in Center City averaged $32.57 a square foot during the last three months of 2018, up almost 25 percent from 10 years earlier, according to data from commercial real estate firm Colliers International.

But Tactix’s Blumenfeld estimated that such rents would have to surpass $50 a square foot before developers are able to make a convincing case that a new project would be sufficiently profitable.

For Philadelphia to support new offices, it may have to attract tenants from expensive cities such as New York or Boston who are used to paying those cities’ stratospheric rents, said Joseph Fetterman, a Colliers executive vice president in Philadelphia.

Failing that, developers may have to hope that some of the Philadelphia’s existing business tenants decide they want — and can afford — something newer than the city’s current office stock when their leases expire, Fetterman said. If such a tenant agreed to lease a critical mass of space in a proposed building, it could ease the project’s development, he said.

Insurer Chubb and the Morgan, Lewis & Bockius and Dechert law firms are among Philadelphia office tenants who are said to be considering relocating within the city when their current leases expire in coming years.

“I think there is pent-up demand for new space,” Fetterman said. “The threshold issue is, how do you get the foundational tenant?”