Philly Tax Abatement Remains A Powerful Incentive For Adaptive Reuse Developers

Adaptive reuse brings new vitality to vacant or underutilized buildings, but sometimes it’s hard for community members to see local landmarks change.

That’s why Scout is kicking off its redevelopment of two former University of the Arts buildings with a “wake” acknowledging the defunct school’s legacy, Managing Partner Lindsey Scannapieco said during Bisnow’s Repositioning Philadelphia: Adaptive Reuse and Conversions Summit Tuesday.

“We’re actually starting off that project with a celebration of life,” she said of the performances and open mic opportunities coming to 320 S Broad St. between June 4 and 8.

Scout’s approach to community relations may be novel, but the work it is about to begin at the former UArts property is not. Adaptive reuse is big business in Philadelphia.

Like many older U.S. cities, it has a large stock of underutilized historic buildings that developers have taken advantage of over the past 15 years, Odin Properties CEO Philip Balderston said at the event, held at Live! Casino & Hotel.

“There’s a lot of buildings that are still standing and they’re spread out throughout the city,” Haverford Square Properties President German Yakubov said. “That allows for those pro formas to work better.”

Many of these projects have been loft apartment complexes built inside vacant industrial structures, but Philadelphia is also a leader in office-to-residential conversions, a trend that’s continued to garner great fanfare due to Center City’s diminished postpandemic foot traffic.

Philly’s building stock may not be unique among East Coast cities, but its tax structure for adaptive reuse projects is.

Though the city sunsetted much of its 10-year tax abatement for new construction in 2022, lucrative incentives are still in place for repurposed buildings.

“It was replaced with a sliding scale” for most projects, said Duane Morris LLP Partner Brad Molotsky. “Effectively it ended up as a 50% real estate tax abatement for new construction.

“When we’re doing adaptive reuse, we still get that 100%,” he added.

Philadelphia is not known for having an easy entitlement process, but it’s apparently beating other cities on that front.

“We are seeing permitting move a little quicker than we have historically,” said LK Miller President Jason Scholl.

“When you look at a place like Boston… it’s really difficult to develop those buildings,” Balderston said. “There’s entitlement controls, there’s policy controls. In Philadelphia, it’s been very easy.” 

Philadelphia has a strong historic preservation lobby that has pushed the city to stand out on this front, Yakubov said.

But construction costs in Philly are on the same level as New York City and Washington, D.C., even though adaptive reuse projects fetch much lower rents in the city, Frontier Development CEO Evens Charles said.

Adaptive reuse projects take advantage of existing buildings, but that doesn’t mean developers shouldn’t expect to have a hefty materials budget. It’s a major problem “when the developer thinks that they can reuse all the existing infrastructure” for an adaptive reuse project, Scholl said.

It’s better to budget for new infrastructure and celebrate the savings later on if what’s there can be reused, he said.

“You just kind of want to assume that everything is going to have to go,” JB&B Associate Partner Christopher Horch said.

Scout and Scannapieco have a different philosophy. 

“We’re not going into a building that’s stripped of all its systems,” she said. “For my use, I need to kind of inherit that.”

The developer is best known for her work on the Bok Building in South Philadelphia, which was converted from a vocational high school into workspaces for creatives, artisans and other small manufacturers.

They’re making use of the same floor drains that were installed at the high school nearly a century ago.

Scannapieco also wants to maintain the legacy of UArts as Scout works to redevelop Furness Hall and Hamilton Hall. She aims to build more workspaces and affordable housing for artists.

“This has to stay a center for culture and creative reuse,” Scannapieco said.