The Philadelphia Historical Commission voted 6-3 on Friday to allow the University of Pennsylvania to demolish a Samuel Sloan-designed Italianate mansion on 40th and Pine. The Commission’s decision was the latest twist in a five-year battle over the building’s fate.
The mansion is listed on Philadelphia Historic Register, which protects it from being torn down unless the owner can prove financial hardship. UPenn had purchased the former retirement home at 400 S. 40th St. for $1.7 million in 2003, however a university-commissioned study completed later that year showed restoring the building by itself wouldn’t generate enough return on investment to attract a developer.
In 2007, UPenn backed developer Tom Lussenhop’s plan to restore the mansion and build 11-story hotel on the property. Later that year, however, Lussenhop petitioned the Historical Commission to remove the mansion from the Historic Register, which would have allowed him to raze the building. The Historical Commission denied the request, so Lussenhop returned to the original plan, which was shot down by L&I’s Zoning Unit and neighborhood opposition.
In 2011 the university and new investor Equinox Properties proposed restoring the mansion and building a seven-story apartment building on the property. Although the Historical Commission approved the plan, UPenn decided to scrap the plan rather than try to push it past neighbors and a neighborhood group, the Spruce Hill Community Association (SHCA), which opposed the plan.
Believing that a taller building was no longer politically feasible, university officials argued that tearing down the existing building and replacing it with a five-story, 122-unit apartment building was the only plan that offered enough of a return on investment for Equinox–plus the non-opposition of the SHCA.
So what is a reasonable return on investment? Penn told Real Estate Strategies, Inc., the consultant hired by the Historical Commission to determine financial hardship, that Equinox Properties required a minimum 11 percent cash-on-cash return on equity to develop the project. Margaret Sowell, President of Real Estate Strategies, said that her research showed that even in today’s volatile market, 11 percent was at the bottom end of the range for an equity investor on a project with this amount of risk.
Attorney Paul Boni, who represented neighbors who oppose demolition, argued that as a nonprofit, the university does not need the same return on investment as a private developer, since the apartment building furthers institutional goals. “How much does Houston Hall earn? How about the library, what are their late fees like? An 11.5 percent return on investment? Penn’s mission doesn’t talk about making money.”
Boni testified that Penn’s Master Plan calls for no development west of 40th Street (the Sloan mansion is on the west side of 40th Street). “It doesn’t fit the university’s master plan or mission, so sell it. If they get $500,000 or $700,000 for it, that’s not a taking, that’s a recession. Or, if you keep it, develop it yourself. Don’t have two layers–the university and developers–that’s a way to cook the books.”
Sowell said that Equinox Properties is the investor, not the University of Pennsylvania. “Equinox is the one who is responsible for getting both debt and equity financing. Penn’s benefit comes from a lease-hold interest. They will receive an annual payment of about $20,000. At the lease term of 45 years the property is theirs, so they have a deferred interest in whatever gets constructed on the property.”
Boni said that his clients are planning to appeal the Historical Commission’s decision to the L&I Review Board.
The five-story apartment building designed by Atkin Olshin Schade Architects was approved unanimously by the Historical Commission later in the meeting.