Tipping point: Developers are placing multimillion dollar bets on the central business district

Tipping point: Developers are placing multimillion dollar bets on the central business district

May 8, 2015
Delaware Business Times | Kathy Canavan

After less than a year on Kirkwood Highway, Pat Gioffre moved his commercial realty business back to the city. “All the players are here,” he said.

“There are a lot of successful people who are downtown on a daily basis,” Gioffre said, “whether they’re visiting their bankers, their investment advisers, their lawyers.”

Despite office vacancies, parking spots that cost $80 to $200 a month, and 32 shootings in the first four months of this year, the tug of the city persists.

Michael P. Kelly, chairman of McCarter & English and a fourth-generation Wilmingtonian, said attorneys expect to work downtown. “Walking down Market Street at lunchtime is just part of the package,” he said. “There’s a sense of community here.”

“I’m just crushed by what’s happening to jobs in the city, and we all know about the high crime rate. I know our mayor and county executive and our governor are doing all they can,” Kelly said. “You look back on the good things of 20, 30 years ago. You had all these restaurants. You had movie theaters. You had Wilmington Dry Goods. You had Kennard’s. You had Mullins. You had food markets.”

Some developers’ plans for the future look a lot like Kelly’s memory of ’80s Wilmington — shops, apartments, theaters, office towers brimming with tenants and new components like charter schools and collaborative spaces.

Some assembly is required. For one thing, as Pete Davisson of Jackson Cross Partners said, “There’s no draw pulling people to the Wilmington market. There’s nothing special. The Financial Center Development Act passed in 1981 brought all these credit card companies to Delaware, and there’s been nothing that strong since then. We haven’t been able to replace that as a draw.”

Wilmington’s Class A office space has a 13 percent vacancy rate, and landlords like to stay under 10 percent because that’s when they start to make money, Davisson said. More problematic is the Class B space in buildings constructed before 1983. That vacancy rate is 38.3 percent.

Empty buildings still dot major streets like Market and Orange and King, and some iconic sites like the old Delmarva Power building at 800 King Street are almost entirely vacant. DuPont, the city’s anchor for 113 years, is moving out, and its successor, Chemours, hasn’t made any promises it will stay put more than two years.

Still, developers like Pettinaro, McConnell Companies, and Buccini/Pollin Group are sufficiently jazzed about the city to put the pieces together.

Some Class B office space is being repurposed. The old Beneficial Bank building on Market Street will open as a suite hotel early next year. MBNA’s distinctive French Street headquarters has morphed into the Community Education Building. Freire Charter School will open in the old Blue Cross Blue Shield building in September. There’s a Met Life sign in front of the long-empty Alico Building on King Street. The old Hercules Plaza building has been recast as an innovation center. Adjacent to Wilmington Hospital, a new owner has razed 1001 Jefferson St. with hopes its high-rise zoning and proximity to I-95 will woo a builder.

The city’s broadband speed is tops in the nation. The Blue Rocks are eyeing AA ball. La Fia chef Bryan Sikora is growing his farm-to-table biz with a spot in the Renaissance Center at 405 N. King St.

Net absorption — the rate at which rentable space is leased — is up, according to Jackson Cross’s Davisson. And, he said, the average all-inclusive rate for Class-A space is $26.16 a square foot, which compares favorably with $25.81 in the strong 2006 market. The average Class-B space leases for $20.75, compared to $20.59 when the market was purring.

The Amtrak station connects downtown to every city from Boston to Washington, D.C. A bridge to connect Route 13 to the Riverfront is still on the table, and insiders say there’s a very strong possibility it will be funded in the next five years. If it is green-lighted, Robert A. Stenta of Pettinaro said his company owns 13 acres on the Riverfront side and could have a building under construction at the same time the bridge is.

The Riverfront is thriving with new luxury apartments, office buildings, two museums, a ballpark, a Westin Hotel, an IMAX theatre, plus restaurants, including a Starbucks. The once-lagging Shipyard Shops have come roaring back as the 90-percent-leased Shipyard Center. There are now five different roads that can get you in and out of the Riverfront.

Developers hope to replicate that success on the other side of Martin Luther King Boulevard, but they are keenly aware there is 1.32 million square feet of vacant office space in the city. One option: Transform the Class B space.

Just in time for the charter school openings, Buccini/Pollin is turning the old WSFS building on Market Street into affordable apartments for teachers who want to live downtown.  Ditto for the top floor of the Walgreen’s at Ninth and Market. And more at 6 East Third St. It’s an if-you-build-it-they-will-come approach — the hope is that school jobs will attract teachers to live in the central business district and that new residents will attract shops and restaurants to locate there.

A Buccini/Pollin do-over is in progress on Shipley Street too, where the old Midtown Parking Garage has been leveled to make room for the market-rate Residences at Midtown, an upscale, pet-friendly 231-unit apartment building with 500 subsurface parking spots, 350 of them open to the public.

Amenities at the $55 million building will include a swimming pool, a pet bath, a movie-projection room and a clubhouse with a demonstration kitchen. An enhanced alley will take residents straight to Market Street.

Buccini/Pollin is also building market-rate apartments at 608 and 627 Market St.

“I think the apartments the Buccini/Pollin Group are delivering to Market Street are absolutely going to be a catalyst,” said Rick Kingery, vice president for Collier’s International in Wilmington. “Residents will spend money downtown and retailers chase disposable income. That means the restaurants will stay open and it will keep the lights on in this town.”

Developer Paul McConnell wants UD to plant a satellite campus downtown, figuring the city needs an additional driver to fill the vacant buildings. “Once you have the university here as an active presence, then the jobs are going to come and the kids are going to come,” McConnell said.

Del Tech and Delaware College of Art and Design anchor the Lower Market area, and the Historical Society of Delaware is working on a $6.8 million do-over of its buildings there.
Debbie and Mike Schwartz are demonstrating small-batch success with 2nd and Loma, their one-city-block development on Lower Market — 26 commercial spaces and 86 rental apartments where one-bedrooms go for $800 to $1,100. The area was called Ship’s Tavern District before they took over and rebranded it four years ago.

“It wasn’t where it needed to be then, but the bones were here and we knew what it could be,” said Debbie Schwartz, adding that their renters are a completely mixed demographic of old and young, JP Morgan Chase employees, Del Tech professors and Amtrak commuters to Philadelphia.

For those who question whether the central business district will ever tip, Jon Hickey, a commercial agent for NAI Emory Hill, pointed to La Fia, the foodie favorite bakery-restaurant at Fifth and Market. “Before you’d say to yourself, ‘Can you ever imagine having a world-class restaurant at Fifth and Market?’ And they’ve done it.”

Tax credits, federal money, and the state’s new Downtown Development District Grants are boosting development around the city.

While Buccini/Pollin is adding $101.5 million of mostly market-rate housing in the central business district, nonprofits like Habitat for Humanity, Ministry of Caring and Interfaith Community Housing are building low-income housing a few blocks away on the shakier East Side with its drug undertow.

Brother Ronald Giannone, executive director of the Ministry, established his first Emmanuel Dining Room East there in 1980, and since then has added his own headquarters office, a dental office for the poor, a daycare center, and Mother Teresa House for people living with HIV. His newest venture is a 26-unit apartment building, complete with a state-of-the-art security system, for low-income older residents.

“We win over the East Side one step at a time,” he said. “It is indeed a black, struggling community where many dream of a safe and drug-free neighborhood.”

Private developers are moving into the East Side, too. A vacant warehouse is being converted into apartments near Howard High School, and apartments are under way on Walnut Street.
On the other side of the Washington Street Bridge, the Rotary Club of Wilmington is leading a $2.1 million do-over for Brandywine Park.

Interfaith Community Housing is transforming six vacant buildings in Quaker Hill into artist-designed condos and houses that will sell for $60,000 to $130,000. The hope is artists will fill them too, part of the effort to grow a creative arts district around worn Quaker Hill.

Officials and businesspeople have suggested big and small tweaks to tip the city — new lighting, a revived art loop, a creative district, and many more shops and restaurants open through the dinner hour to woo the roughly 45,000 commuters who now head to their parking garages at 5 p.m.

Pat Gioffre, who moved back into the city, said he’s seeing small investors coming off the sidelines and putting their money in the downtown. “I think the city is at a point of no return, and I think more good things are to come, he said.

For skeptics, Gioffre said they should recall where the Riverfront was 10 years ago. “Up till 10 years ago, I was pooh-poohing the waterfront,” he said. “I was saying, ‘It’ll never happen.’”

Still, the central business district is competing with newer space, free parking, and no wage tax in the suburbs. The suburban office market was much more active than downtown’s during

the last quarter, according to Colliers International.

Privately, businesspeople say chronic crime could still cause banks, the biggest drivers of the city’s economy, to leave the city, or it could prevent other businesses from moving in, especially after Newsweek magazine dubbed Wilmington “Murder Town USA” in December.

Commercial realtors and some businesspeople say there’s crime in every large city, and there’s a clear dividing line between Wilmington’s dangerous pockets and its downtown business district.

“Is it a problem for the City of Wilmington? Yes. Is it something that’s really in your face during the business day in the central business district? No,” Rick Kingery said.

“I can’t talk for people who are living in New York and reading Newsweek magazine and saying, ‘I’m never going to Wilmington,’” Pat Gioffre said, “but I wouldn’t not allow my kids to go to the movies at the waterfront. The crime doesn’t bother me because, if you look at the crime, all of it happens in the same neighborhoods.”

“You’d be surprised as to the number of businesspeople who understand that the downtown is safe and that they can conduct business here without the threat of downtown crime,” said Jeff Flynn, the city’s economic development director.

“More than anything else, it burdens the psyche of the city,” said Michael S. Purzycki, executive director of the Riverfront Development Corporation. “Clearly, it’s got financial implications, but there are a lot of people committed to the city. As long as people feel confident in the city, I think the downtown’s going to do just fine. The fact is there is a certain amount of nervousness about the future of the city, and we have to calm those nerves.”

Michael Kelly often walks from the train station to his law office late at night. Kelly, an undefeated amateur boxer in the ‘70s and ‘80s, has never had a problem.

“Many a night I come in from Amtrak at 11 p.m. And I walk from the train station to 405 King,” Kelly said. “Nobody’s ever bothered me, but I am looking over my shoulder.”

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