Philly Offices Sell for Big Discounts as Distress Deepens

Center City Philadelphia is seeing its most active office dealmaking in years, but at prices that highlight how far values have dropped.

Two Market Street towers traded last week at discounts of more than 50 percent, signaling that the “extend and pretend” era may finally be ending in Philly’s central business district, Bisnow reported.

The flurry of trades and distress underscores how fast the pandemic’s shadow is reshaping Philly’s office market. Investors are finally stepping in, but at pricing that will reset the market for years to come.

CSB Holdings and Tide Realty Capital picked up a 29-story tower at 2000 Market Street for $45.5 million, a 58 percent drop from its 2018 sale price. The property is 68 percent occupied and the incoming owners say they’ll keep it as offices rather than pursue a conversion, making it the largest post-pandemic Philadelphia office sale without a resi play.

On the same day, PMC Property Group reportedly purchased Ten Penn Center at 1801 Market Street for $30 million, just 40 percent of what it fetched in 2006. PMC is best known for office-to-residential conversions, including nearby Three Parkway, but has not yet disclosed plans for the center.

Meanwhile, the district’s biggest office asset is being shopped under distress. Centre Square at 1500 Market Street, foreclosed last year and only 36 percent occupied, is expected to score about $100 million in a deal, less than one-third of what Nightingale Properties and InterVest Capital paid in 2017. CBRE is marketing it as a conversion candidate.

Valuations are cratering, too. Next door, 1515 Market dropped 68 percent in value to $28 million and is in special servicing; its anchor tenant, Temple University, is planning a move after acquiring another property. Shorenstein’s 1818 Market also tipped into receivership this month with nearly $240 million still owed on the 37-story tower.

In the first half of the year, investment activity in Philadelphia’s office market rose 30.7 percent year-over-year to $133 million, according to Avison Young.

— Holden Walter-Warner