Developers planning to build a 1,500-foot tall skyscraper in downtown Philadelphia say the project could cost about $1 billion, and they may seek financing for as much as 65 percent of the project.
Garrett Miller, president of Philadelphia-based Walnut Street Capital, which is developing the site with a partner, said the group has already paid about $30 million for the land on which the American Commerce Center would stand, at 18th and Arch Streets, four blocks northwest of City Hall.
"The credit markets right now are not optimal," he said in a telephone interview. "Once we're through with the zoning entitlements, we'll obviously take a look at the macro environment, and the local climate and decide how to proceed."
Occupancy rates and rents have been rising in Philadelphia, the U.S.'s sixth-largest city, even as vacancies rise and rent increases slow in New York City, 90 miles to the northeast. The collapse of the market for commercial mortgage backed securities has made it difficult for developers to get loans of more than $100 million, said Miller.
"Right now our goal is to get the building approved and entitled," he said. "Once that's completed we will then begin the process of investigating how to move forward, when to move forward. There are about 10,000 steps to a large-scale development like this and we're probably at like number 17 right now, so we have a ways to go."
Walnut Street's partner in the development, Washington-based Multi-Employer Property Trust, is a real estate equity fund supported by 330 Taft-Hartley and public employee pension funds, according to its Web site. It claims $7.29 billion in net assets.
The partners have been working with Savills Granite, a New York-based investment adviser, to secure debt financing for the project, Miller said.
Downtown Philadelphia's office vacancy rate is 9 percent, close to its low point this decade. Rents in the Philadelphia area were $25.92 a square foot at the end of the first quarter, up about 30 percent since mid-2005, according to Los Angeles-based brokerage CB Richard Ellis Group.
In midtown Manhattan, the most expensive U.S. office market, rents average $85.61 a square foot, CBRE reported.
"There are clearly users in the marketplace from outside the city looking to relocate here," said Maureen Anastasi, marketing and business development vice president for CBRE's Philadelphia office. "The market fundamentals of supply and demand are in place to support the development of a new office tower."
The tower, designed by New York-based architectural firm Kohn Pedersen Fox, would include 63 floors in the 1,200-foot base, with a 300-foot spire rising from one side of the building. It would have 1.3 million square feet of offices, a 325-room hotel, and about 300,000 square feet of retail on its lower floors, said Peter Kelsen, an attorney representing developer Walnut Street and MEPT.
The tallest completed U.S. building is Chicago's Sears Tower, at 1,451 feet. The Chicago Spire, which is to be about 2,000 feet, and the Freedom Tower at New York's World Trade Center site, which is to be 1,776 feet, are in the early construction stages.
The Commerce Center would be about 525 feet taller than Philadelphia's current tallest building, the Comcast Center, which opened this year. The 975-foot tower, headquarters of Comcast Corp., the largest U.S. cable television operator, is one block away at 17th and Arch Streets