A new luxury tower in Philadelphia is mostly empty. What does that say about the city’s high-end condo market?

Tess Waldman says the community at Arthaus, one of Philadelphia’s ultra-luxury condominiums, is so tight-knit that she’s fairly certain she’s met everyone in the building.

That’s partially due to the fact that the tower, which has 107 units, is currently home to only a couple dozen people. Deed records show about 85% of the condos remain unsold, four years after the developer began marketing them. Prices range from $1.6 million to $15 million for the bi-level penthouse.

“Everyone we’ve met is lovely,” said Waldman, 70, a retired IT director. “I’m surprised more people haven’t rushed in here. But they’re not the cheapest condos.”

The $253 million, 47-story tower at Broad and Spruce Streets, was meant to be a triumph for developer Dranoff Properties and Philadelphia’s Avenue of the Arts — what the company called an “exclamation point” marking the famed theater district’s arrival as an elite address to rival swanky Rittenhouse Square, a few blocks to the west.

Waldman and her husband, a doctor and department chair at Thomas Jefferson University, downsized from a suburban home to a mid-rise in Old City around 2016. A few years later, they saw the sweeping terraces outlined in floor plans for a proposed $4.3 million unit at Arthaus, which had just broken ground on South Broad Street.

They were smitten.

“We purchased it when it was still just a hole in the ground,” she recalled. “I heard all the hype. Well, they were right on the money with everything. The building is gorgeous, the views are gorgeous, the staff is superb. … We just love living in the middle of everything.”

But Waldman, the very first Arthaus buyer, is an outlier for now.

Arthaus began marketing units in 2020, and the tower formally opened last year. As of the summer, deeds of sale had been recorded for only 15 of 107 units, netting a combined $35 million. Its trio of sprawling penthouses, the largest of which is pitched at $15 million, all remain unsold.

At this pace, it would take about a decade for the tower to be fully occupied.

Developer Carl Dranoff declined to confirm exactly how many units have sold — although he said more transactions were “pending” — but rebuffed talk of low transaction figures as “noise” and noted that sales were paused in 2020 during the depths of COVID.

He blamed the pandemic and more recent spikes in interest rates for cooling demand and noted that the ultra-luxury condo business is “a marathon, not a sprint.”

“We see nothing but optimism in the next couple of years,” he said, speaking from a library for residents lined with leather-bound books inside Arthaus overlooking the Kimmel Center. “We’re not anticipating any [price] adjustments. We’re in the driver’s seat right now. We have inventory, it’s fully [property tax] abated, and the project is built so we have no additional costs. We just have to wait for the market to wake up.”

A veteran condo developer, Dranoff built in Old City in the 1980s when it was viewed as a fringe neighborhood, and in the 1990s, he brought the first new market-rate multifamily housing in decades to University City. In 2007, Dranoff cut the ribbon on Symphony House, the condo tower across the street from Arthaus, just before the housing market crashed. He managed to fill the tower despite sour economic conditions, although he recalls it taking 2½ years longer than anticipated.

Dranoff noted that new high-end condo development in Philadelphia has ground to a halt, meaning Arthaus will be in a strong position because little new inventory will be added to the market any time soon.

“Look at the trends [and] what a real estate cycle is and what it means in terms of short-term disruption but long-term opportunity,” Dranoff said.

At first glance, the fact that a quarter-billion-dollar building appears to be struggling could seem like a grim bellwether for the city’s broader condo market.

The larger picture is more complex.

Arthaus’ slower sales can be attributed in part to the relatively small size of the luxury market in Philadelphia, which has always paled in comparison to cities like Miami and New York. More recent spikes in interest rates and pandemic-era crises, such as an increase in crime, caused a retreat of some suburban buyers from Philly’s already small market.

There are definitely fewer high-end luxury buyers in Philadelphia now than in the past, said Reid Rosenthal, a luxury condo seller with Berkshire Hathaway.

But the overall picture is not wholly gloomy. Some other top-tier downtown buildings have seen stronger sales.

“It’s the early stages of the luxury condo market recovering, but it’s a weird market,” Rosenthal said. “Certain buildings are selling better than others.”

By certain measures — like sale prices — Philadelphia’s luxury condo market is healthier than it’s ever been.

Kristen Foote, a high-end Realtor with the brokerage Compass, notes that in 2018, only one condo in Center City sold for over $5 million. Already this year, seven have sold for that price or more, and another seven for $4 million (with a three others pending).

“These are historic numbers,” Foote said. “People are getting comfortable with spending that kind of money in the city.”

But Foote and other luxury agents say buyers today have a different background than their counterparts five years ago. Pre-pandemic, there were more buyers from the suburbs who downsized from homes in places like Bryn Mawr or Cherry Hill and snapped up condos in Center City.

Those buyers are less in evidence today.

Unlike New York or Miami, Philadelphia has rarely attracted many international buyers, and even outside-of-the-region American purchasers are uncommon. Most people looking for luxury high-rise living in Center City are coming from other parts of Philadelphia.

“People think New Yorkers are coming down, and there were a handful right after COVID,” Foote said. “But we’re not seeing a big influx. The people that are coming from out of the market, they’re coming back to retire, or they are people that are working at Penn or Children’s Hospital.”

The locations drawing them are still the neighborhoods clustered around two of William Penn’s original parks: Rittenhouse and Washington Square. The Bock Development Group’s 2100 Hamilton in the Art Museum District along the Benjamin Franklin Parkway is another recent entrant to the market and has sold two-thirds of its 27 units.

But Tom Bock, president of the group, said it’s hard to generalize about the market. “You’re buying the neighborhood; you’re buying the experience,” said Bock, who owns a unit in the building.

But he agreed that interest rates had slowed the market recently: “People are just not pulling the trigger as quick as they were before.”

Arthaus’ biggest competitor is The Laurel, a $350 million luxury tower billed as “Rittenhouse Square’s last condo.” Southern Land began marketing the project on the lone undeveloped parcel fronting the famed green space in 2018, and the first deeds of sale were recorded in 2022. Occupancy there exceeds the Arthaus.

More than half of The Laurel’s 65 condo units have found buyers, and in July, the developer, Southern Land Co., announced it had crossed the $100 million mark in total sales.

Brian Emmons, a vice president with Southern Land, said the company hedged its bets on the city’s condo market, with the lower half of the tower dedicated for 184 rental units. Those are already over 90% rented.

“Adding rentals really reduced the risk of the project,” Emmons said. “When you add 100 or 200 condominiums at this price point, you’re assuming that you’re going to get 100% or 75% of the absorption in that price point in one building. It’s just not realistic.”

Like Arthaus, The Laurel includes highly coveted amenities, including valet parking and a town car for the building, indoor and outdoor pools, and balconies in every unit (which few of the older buildings on Rittenhouse offer).

One of The Laurel’s three penthouse units has sold for $16 million. The average unit goes for about $5 million. Emmons said that half their buyers come from elsewhere in Rittenhouse. The rest are from South Jersey or the Main Line.

Emmons thought that The Laurel would have even more buyers if the rest of the condo market were stronger or if more buyers were willing to sell homes linked to now rare low-interest mortgages.

“We’re the competition for these other condo buildings,” he said. “Some of the other buildings in neighborhoods that are a little louder and more congested sit on the market longer.”

Dranoff first proposed Arthaus in 2019, several years into a boomlet in Center City’s ultra-luxury condo market. Prior years saw penthouse units at similar projects, such as 500 Walnut St., fetch upward of $17 million.

The largest of the 107 “hauses” at Broad and Spruce Streets were initially pitched at a similar price point — $15 million. The tower was marketed as an amenity-rich arcology — a luxurious, self-contained city with on-site day care, a dog run, spa, pool, restaurant, and 36,000-square-foot rooftop garden offering stunning views.

Less than a year after the groundbreaking, the pandemic hit. The fortunes of South Broad, and the city as whole, took a turn. Offices emptied, high-end retailers shuttered, and transit stations saw riders vanish and homeless encampments take their place.

Dranoff said that Arthaus and the rest of the condo market are dealing with the end of the last real estate cycle and the tail end of the city’s late pandemic woes. Still, he said he’s optimistic for his building and for Philadelphia. He plans several more rental buildings on South Broad Street.

“If you look at The Laurel’s numbers, they would have hoped that they were sold out. We would have hoped that we were sold out,” Dranoff said. “But we’re probably not going to have new big buildings like this come out of the ground for the next three years. When they do, they’ll sell for 30% to 40% more. … So we actually have the opportunity to raise our prices if we’re patient.”

Waldman, the Arthaus resident, has no regrets about buying early.

She also looked at units in The Laurel, but Waldman wasn’t as impressed with the floor plans — or the vibes.

“I moved into the city from the Main Line because I was so done with the Main Line. And, from my perspective, that’s the same sort of mentality in Rittenhouse,” she said. “I know they say everybody wants to live there. Well, it’s everybody but me.”

This story has been updated to specify the Laurel’s sales time line.