Philadelphia Considers More Tax Breaks for Conversions

Conversions are expensive and the commercial real estate market in Philadelphia isn’t looking any brighter for office landlords. Enter more tax breaks.

City officials are considering doubling the city’s tax abatement period to 20 years for office conversion projects in Center City, Bisnow reported. The critical district is struggling with persistently high vacancy rates in the wake of the pandemic.

The Tax Reform Commission, reconvened last year by Council President Kenyatta Johnson, released recommendations Tuesday targeting what co-chair Matt Stitt called “a structural decline in the need for commercial office space” caused by remote work trends.

“The 10-year tax abatement is simply not a sufficient incentive,” the commission’s report stated. The commission suggested a five-year window for implementing extended tax breaks of 20 years on qualifying “hardship buildings.”

The proposal comes as approximately 10 million square feet of Philadelphia’s 42 million square feet of office space sits vacant, according to Commission member and Brandywine Realty Trust CEO Jerry Sweeney.

The recommendations received support from commercial real estate organization NAIOP and the Chamber of Commerce for Greater Philadelphia.

A rival advisory group created through the same legislation as the Tax Reform Commission, however, criticized the proposed tax cuts.

“This is not a serious proposal for the future of Philadelphia,” said Tax Reform Advisory Committee member Erme Maula. “The only thing certain with cuts to the business tax is that big businesses will get more money.”

While conversions are the topic du jour of decimated office owners across the country, they’ve been slow to develop in Philadelphia. There are a couple of proposals in the works, but the first office-to-residential conversion since the pandemic isn’t on track to be completed until this spring, according to the Inquirer.

The commission’s recommendations arrive as Mayor Cherelle Parker prepares to deliver her budget address next month.

— Holden Walter-Warner