Philly is exploring a 20-year property tax abatement for converting struggling office buildings to apartments

Philadelphia has long been on the cutting edge of office-to-residential building conversions, aided by flexible zoning laws in Center City and the 10-year property tax abatement.

Still, Center City Philadelphia, like most American job centers, suffers from office vacancy rates of around 20%.

That’s why a 20-year-property tax abatement for the conversion of struggling office buildings to new uses is among the ideas being promoted by Philadelphia’s Tax Reform Commission, which released a preliminary report Tuesday.

“The economic realities are harsh, even for new development, and when you talk about repurposing an existing building, that pain threshold becomes even more acute,” said Jerry Sweeney, CEO of Brandywine and a member of the commission. “The only way to really make these projects have some level of economic feasibility is through cooperation from the public and the private sector.”

High interest rates, persistently elevated construction costs, a rental glut at the high end of the market, and fears of stubborn inflationary pressures under President Donald Trump are among the problems facing developers.

The idea outlined in the commission’s report would double the existing tax abatement for the conversion of “hardship buildings.” But it suggests sunsetting the policy after five years, meaning that developers would have to build quickly. The incentive wouldn’t be a permanent fixture in Philadelphia’s development playbook.

In addition to securing the support of Mayor Cherelle L. Parker and City Council, such an idea would also have to get approvals from Harrisburg as state law currently limits property tax abatements to no more than 10 years.

Sweeney posited that the repurposing of vacant office buildings to residential uses could address the shortage of affordable housing, although to date, most conversions in Philadelphia target the upper end of the housing market.

There are other models around the country “geared toward direct investment in using certain office buildings to facilitate creation of affordable and workforce housing,” Sweeney said. “We know Philadelphia has an affordable housing crisis. This is one tool that the public sector can use to ameliorate [it].”

Due to the high costs of converting structures like the Wanamaker Building toward new residential uses, deep subsidies would be required to incentivize below-market rate development — perhaps beyond anything Philadelphia’s government could provide.

Sweeney’s Brandywine is the premier office building owner in Philadelphia, but his company is not seeking to convert any of its buildings in the city to residential uses. They are considering such conversions in Wilmington, Del., and Austin, Texas.

“In Philadelphia, no,” Sweeney said. “We are really very happy with the quality of inventory we have. We’re mid-90% leased in our inventory in Center City and University City.”

In the post-COVID era, Brandywine has benefited from tenants fleeing older or less updated office buildings for Brandywine properties in the West Market Street heart of the office district.

The commission’s report is only advisory. Sweeney described the 20-year-abatement idea as the beginning of the discussion — ”an important placeholder” — about how the city can get more of its vacant office space into productive use again.

Developers contacted about the policy proposal were universally enthusiastic.

“Exploring some type of incentive to spur adaptive reuse of former commercial office space is essential,” said Sarah Maginnis, executive director of NAIOP Greater Philadelphia, a commercial real estate trade group. “The current 10-year abatement is not a sufficient incentive to make many conversions viable.”

Sweeney and other members of the Tax Reform Commission argue that their larger ideas about cutting wage and business taxes could also address the city’s long stunted commercial real estate market. Most new office buildings in the region have been erected in the suburbs in recent decades, even as residential construction boomed in the city.

Philadelphia’s unusually high wage tax and complex business taxes are a common explanation for the small amounts of new office space, even as cities like New York, Boston, and Washington, D.C., saw more corporate employers move back into city limits during the pre-pandemic years.

“We had something like 540 office leases signed in Philadelphia last year, and less than 10 are from out of the city. It’s pathetic,” said Allan Domb, a commission member, large Center City residential landlord, and former City Council member. “Then look at Devon, Valley Forge, and Malvern. They’re booming.”

The problem facing the commission, as always, is how the city can fill gaps in its tax base if levies on wages or businesses are slashed. Residential property tax hikes are politically difficult in a city with a large voting base of lower-income homeowners. Many commercial property owners are contesting their current tax bills, as valuations of some office buildings plunge.

And as President Trump’s second administration unfolds in Washington, cuts to federal funding are expected to negatively affect the city’s budget as well.

“At a time when President Trump and Elon Musk are trying to cut all federal resources to Philadelphia, this is an irrational plan,” said Kimmy Cook of the Coalition for Essential Services and Tax Equity.