A Green Development Proposal for the Reading Viaduct
Final Project CPLN 675: Green Development Professor John Landis Victoria Pereira Hershey, Bryan Rodda & Anna Ellis December, 14, 2009
I. Project Concept For assignment two, we chose to focus our green development program on a site defined by the abandoned elevated Reading Viaduct rail line just north of Center City. It sits in the southern most part of the Poplar/ Ludlow/Yorktown neighborhood and is just north, across the Vine Street Expressway, from Center City and the Philadelphia Convention Center. Defined north and south by Spring Garden and Vine Street, and east and west by 10th and Broad Streets, this site holds great potential for being a successful and catalytic project as well as an interesting case in green development.
Site Opportunity Over the past few years, there has been a noticeable renaissance of two Philadelphia neighborhoods, Northern Liberties to the east and Fairmount to the west. This is very important to the site we have chosen because it lays directly between the two neighborhoods. If redeveloped it could capitalize on these already emerging areas as well as provide the missing piece to complete the system of active neighborhoods due north of Center City. It is also a unique opportunity to work with the Reading Viaduct and create a completely unique amenity that does not exist anywhere else in the city. This line, which carried trains to Center City for almost 100 years, transects many diverse and rapidly
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Cover Photo by Bryan Rodda
Reading Viaduct Development Proposal
redeveloping neighborhoods and could be a magnet for residential and commercial development in the area. With the redevelopment of this site, we hope to provide for an active and sustainable neighborhood with residential, entertainment, employment and leisure opportunities. The site itself offers much freedom of development in the number of vacant lots available as well as unique opportunities to work with existing industrial buildings. It could be an opportunity to rejuvenate the former industrial heart of the city, while generating additional economic development and tax revenue for the city (not to mention a lucrative investment for developers). The stock of new buildings that we will propose in the following pages reflects the area as it once was. With a mixture of different uses, number of floors, sizes and types, the hope is to create a diverse and interesting set of buildings that provides for varied preferences within the market.
Build It Green While there is definitely an obvious opportunity for redevelopment in this area there is an even bigger, slightly less obvious, opportunity to do it “green.� The site lends itself very well to being redeveloped in a sustainable manner. For example, there is ample opportunity for building re-
Figure 1. A view of the Liberty Place Towers from the Reading Viaduct Photo by Bryan Rodda
use, infill development and park creation on the previously contaminated elevated train rails. The site is already well provisioned with public infrastructure and has ample access to public transit. These existing characteristics coupled with all the elements to be added during the construction period to the individual buildings and larger area will make this site efficient and sustainable. Green development has the ability to provide a different kind of lifestyle, one that is increasingly popular, marketable, and lucrative, an opportunity of which we want to take advantage.
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II. Site Description and Analysis
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uses and buildings
The overall site currently houses a mix of residential, vacant and active industrial uses and small, neighborhood-serving commercial spaces. Site visits to the neighborhood indicated a number of newer residential projects and industrial building conversion projects that have begun to provide a new character to the one-time industrial district. Remaining in-
Zoning and Ownership
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Most buildings are at a two-to-threestory scale, with taller buildings located closer to Broad Street and Vine Street. There are also a significant number of vacant or partially vacant parcels that provide infill and renovation opportunities.
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Current mix of land
Reading Viaduct Green Development Proposal Planned Changes to Existing Site Plan
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Additionally, the site contains a large section of the Reading Viaduct rail structure, which our development will convert into a linear urban park. Currently this space, which curves across the overall site with two different “arms” that combine south of Callowhill Street, is unused and overgrown, and comprises 4.5 acres of land.
Reading Viaduct Green Development Proposal Existing Site Plan
dustrial uses are generally small-scale, and commercial uses include auto repair shops along with a smattering of corner stores, and neighborhood bars and restaurants.
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The site (Figure 2) is situated in the Poplar/ Ludlow/Yorktown neighborhood of Philadelphia, and is generally bounded by Vine Street on the south, Board Street on the west, Spring Garden Street on the north, and 9th Street to the east. The development site is actually a collection of nine individual building sites interspersed with the existing neighborhood in this area (Figure 3). In total, the nine sites comprise 10.8 acres of potential land for development.
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Figure 2. Existing Site Plan of the Reading Viaduct location.
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Figure 3. Proposed Changes to the Existing Site Plan.
Reading Viaduct Development Proposal
Most of the site is currently zoned G2, which is a general industrial zone that permits a variety of manufacturing and other industrial uses. It is one of Philadelphia’s least restrictive zoning classifications. Most of the lots we’ve selected for development have only one owner, and are already on a larger parcel than the other fabric of the neighborhood.
Needed Regulatory Changes The site is currently dominated by a G2 zoning, for a generalized industrial district, which does not allow for construction of dwelling units. Our proposal envisions rezoning the various development sites according to their use. For example, for our townhouse developments we would seek a R10 designation, which is a typical Philadelphia rowhouse neighborhood
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III. Market Study zoning classification, and is similar to the existing zoning in much of the neighborhood area north of Spring Garden Street. The proposed commercial and commercial/residential mixed use buildings will seek C3 and C4 zoning designations. The C3 designation allows for typical smallscale, neighborhood-serving commercial development with residences above while the C4 designation will be applied to a somewhat higher-density commercial sites that have frontages near existing commercial space along Broad Street.
Preservation of Existing Buildings Our proposal reuses several existing structures, including a large one-time industrial building bounded by 12th, Wood, Pearl and the Reading Viaduct. In addition, our proposal seeks to minimize the number of buildings (indicated in Figure 2) that would require demolition. Demolition is generally only required when we felt that significant benefits could be gained through joining a parcel together to build a more efficient new structure and when the existing structures are unable to be reused.
Environmental Concerns The site’s primary environmental concern is the Reading Viaduct itself, which is known to be contaminated. While the
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contamination of this site will not preclude the development of the other proposed parcels, we consider the redevelopment of the Viaduct into a linear park to be an essential element of our development proposal. However, we expect that— and the Friends of the Reading Viaduct agree—that the contamination issue can be managed and that redevelopment as a park will help in this decontamination. Clearly, the Reading Viaduct presents both challenges and remarkable potential for development opportunity. As a park, it could become Philadelphia’s next great civic space—or it could be its next failing park. What is obvious is that there is no other space in the city that is quite like it: which is exactly why it presents such a risk and reward for development.
Use of Existing Infrastructure The site is fully served by existing Philadelphia water, power, sewer and stormwater systems, though our proposal seeks to minimize its impact on these physical systems. The site is also fully served by an existing street network and sidewalks, though some sidewalks may need to be improved and/ or replaced as part of the building process.
Site Conditions and Ability to Be Green As will become clear in the LEED ratings analysis later in this proposal, this site is inherently green because of its centralized, infill location in one of America’s leading, though chronically under-invested, cities. Few other locations in Philadelphia offer the same mix of potential new park development, use of existing infrastructure, access to transit, biking and walking, and proximity to the central core of the city. The site is extremely favorable for green project development.
The following market study outlines the current trends in office and residential property in Center City Philadelphia., which includes our site location.
Office According to the CB Richard Ellis Office Market Analysis for the third quarter, 2009, there were 43.9 million square feet of existing inventory in the City of Philadelphia and an average class-A asking lease rate of $27.42 per square foot per year. The vacancy rate was listed as 13.3% and a negative year-to-date total net absorption of 806,002 square feet was recorded. In fact, the third quarter, 2009 was the fifth quarter in a row of negative total net absorption for the Greater Philadelphia office market. However, the negative total absorption was lower than the previous two quarters of 2009, which is perhaps a sign that the local economy is improving. (CBRE Market Analysis Office Q3 2009)
Residential According to Cushman and Wakefield there is currently a limited supply of multifamily product in the marketplace in Philadelphia and very few projects coming under contract. They state that this “can be attributed to both the absence of class A properties for sale and difficulties in acquiring finance.” This absence of property
Reading Viaduct Development Proposal
Figure 4. Comparable Real Estate Developments in the Philadelphia Market. The top chart demonstrates comparable current residential asking prices in the neighborhood for “non-green” housing. The second chart indicates current residential rental asking prices at a “non-green” renovated industrial building located within the neighborhood. The third chart demonstrates a comparable “green” project in Philadelphia.
opportunities can be exploited by building this green development project as there is less competition than in other periods of real estate development in Philadelphia. (Cushman and Wakefield Report) Figure 4, above, includes several comparable residential properties that were available in our project area. This comparables analysis includes a comparison between both “green” and “non-green” or conventional residential properties.
Marketability of Green Development
Onion Flats, a Philadelphia-based real estate development company, conducted research into whether or not LEED buildings command price premiums over their nonLEED counterparts. Their results indicated that sustainable office buildings can earn rent premiums of $11.33 per square foot and have 4.1% higher occupancy rates than non-LEED buildings. For commercial sales, the price per SQFT is an astonishing $171 higher than non-LEED purchases. While there are some concrete numbers for the rent and sale premiums of com-
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IV. Site and Building Program
According to Leinberger, “..Housing prices in walkable urban places have about a 40300 percent premium over drivable singlefamily housing, controlling for price range and luxury orientation of housing” (Leinberger p. 99). Walkable office demand is 8
Finally, Philadelphia water costs—especially costs for managing stormwater —will soon increase for properties that continue to produce large quantities of
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The summary of the development’s full building program is given in Figure 6, below. The charts summarize the full built areas as well as rentable areas for the overall project. The other table provides details on each individual building, including lot size, building footprints, stories and floorarea ratios (FARs), sorted by land use type.
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The Reading Viaduct can be one of these projects, a unique elevated rail, that has the potential to turn the deteriorating industrial space into a recreational and practical green path and in the process “bring together economically and culturally diverse communities, generate economic development, and provide a catalyst for the redevelopment of this section of North Philadelphia” (www.readingviaduct.org). In 2003, a study by Urban Engineers concluded that the cost to demolish the Viaduct was about 10 times higher than the cost to turn it into green space which they estimated to be approximately $5.1 million.
Notice the development of the Reading Viaduct linear park throughout the development area, which will be central to catalyzing development throughout the area.
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It is believed that the creation of a park, one that is uniquely designed, can become an asset to an area, generating economic development and act as a catalyst for continued investment in an area. Projects such as the Promenade Planteé in Paris and the Chelsea High line in Manhattan have been catalysts for surrounding neighborhood economic development booms.
Reading Viaduct Green Development Proposal Proposed Site Plan
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Across the country, electric utilities have increased by nearly 30 percent across the board due to oil cost increases. Though oil prices change continuously, the long term expectation is that the less oil dependent a building is, the more resilient it is towards increased utility costs. Similarly, deregulation has caused 70 percent and 73 percent rate increases in the Pennsylvania and Maryland regions, respectively.
Public Park Investment
The development’s proposed site plan is given at right in Figure 5. The plan includes the location of both new and renovated buildings, as well as the context of the existing urban fabric. The graphic is only illustrative of the possible configuration of buildings on the site; however, it does indicate the general quantity of open space that we expect to be able to provide on each development parcel (retaining 100 percent lot coverage only in legacy buildings).
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The book The Option of Urbanism: Investing in a New American Dream by Christopher B. Leinberger describes the changing trends of Americans away from the strip malls and suburban sprawl towards a new type of community, one where they can live, work, shop and play within easy walking distance. Leinberger argues that preferences are changing and people are moving back into the cities and walkable neighborhoods, with the end result of an overall increase in demand for such walkable urban neighborhoods.
Recently, the appraisal industry has recognized the connection between building performance and the value of a property. The results, according to the Appraisal Institute in Chicago, show that a $1,000 savings in utility costs adds $20,000 to home value. The importance of life cycle savings must be recognized, especially with pending electricity rate hikes in Philadelphia by the end of 2010.
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stormwater, which provides a new green incentive to minimize stormwater production. All of these statistics show that a more efficient building will only become more competitive in the marketplace in time (www.onionflats.com).
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Green Features that Produce Green Premiums
also discussed. In 2006 in Washington, D.C., walkable urban space had a 27% premium over drivable suburban space and also enjoyed lower vacancy rates than their suburban competition (Leinberger p. 101).
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mercial space, they found that it was harder to find information on LEED residential projects because they are so new to the market. However, there are a few examples that support the theory including a New York City building called “The Solaire,” which has managed to earn 10 to 15 rent premiums compared to its nongreen neighbors. (www.onionflats.com)
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Figure 5. Proposed New Site Plan
Reading Viaduct Development Proposal
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V. Proposed Green Features Green Features of Renovated Buildings: LEED-NC Part of this Reading Viaduct development proposal includes the renovation and refurbishing of existing buildings on the site. For the most significant building renovation we applied the criteria for LEED 2009 for New Construction and Major Renovation to determine roughly what our estimated level of LEED would be (see Appendix 2). The building in question will become a re-purposed residential loft building that is currently located at the corner of Pearl and 12th Streets. Our goal for this restoration was the achieving of LEED Silver standard, which requires 50-59 points out of a total of 110 possible points on the LEED New Construction and Major Renovation worksheet.
Figure 6. Proposed Building Program by Land Use and Complete Building Program Summary The upper chart summarizes the overall program for the development, including total built and rentable square footage and the proposed floor-area ratios (FARs). The lower chart indicates our proposal’s buildings, detailed by land use type and whether or not a building was retained and renovated or constructed new.
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The renovated building is, by definition, an infill site. Therefore, it scores remarkably well under the LEED “Sustainable Sites” criteria, recording 22 of 26 possible points with virtually no need for additional developer resources. Green features of the location include its direct access to a range of transportation options— in addition to being within a reasonable walking distance of Philadelphia’s downtown office core, the site is within a block of one of the city’s busiest bus lines and only four blocks from heavy-rail transit
access through the Broad Street Subway line. The site will also provide dedicated parking for PhillyCarShare vehicles, which will help the project to argue for below zoning parking provision while providing future residents with the amenity and flexible of car sharing programs. We estimated that our renovated building will be able to save 20 percent on energy performance when compared to the building’s previous baseline, earning 7 LEED credits for “Energy and Atmosphere.” Additionally, the project will include a collection of solar panels on its roof with the goal of generating approximately 5 percent of the building’s total energy demand, and we plan to institute a full measurement and verification process to insure that our green investments have the desired effects on building energy performance. Nine more LEED credits were received through the “Materials and Resources” section. We anticipate being able to substantially use the existing building’s structural framework as well as some interior structures. Additionally, as developers we will commit to sourcing 20 percent of our new construction materials from regional sources. Our last section of LEED credits are from the “Indoor Environmental Quality” sec-
Reading Viaduct Development Proposal
tion of the LEED worksheet. These credits represent our investments in making the interior environment of the renovated building healthier to occupy for tenants. Here it appeared easy to select some low-emitting building materials as well as maximize our loft-style building structure for extensive daylighting of units. In total, we estimate that the renovated building would be eligible for approximately 56 total LEED Major Renovation points out of 110 total possible points, which earns a LEED Silver ranking.
Green Features of the Overall Project: LEED-ND Our project involves a total of 9 building sites within a four-by-four block area immediately east of Broad Street between Vine and Spring Garden Streets in Philadelphia. We selected this site arrangement in part to be able to take advantage of the relatively new LEED Neighborhood Development criteria so that the site can be more effectively marketed as a “green” location (see Appendix 2). It’s clear from the LEED-ND analysis that this infill site is perfectly suited to creating the type of traditional neighborhood development that favors non-automobile travel, public transportation and a human-based
building scale. We sought to have this project attain a LEED-ND rating of Gold, based on the following LEED-ND green features:
Smart Location and Linkage For the most part, this section was an easy area for our project to attain LEED credits. This entire project takes place on an urban infill site location, which is heavily favored in the LEED credits. Further, we received points for our plan to redevelop the Reading Viaduct itself into park space and to remediate any of its brownfield issues. The site also has one of the highest number of daily transit trips available in the area, with two access points to the Broad Street Line within walking distance, as well as the city’s most heavily used bus line (#23).
Neighborhood Pattern and Design Here, too, our project benefits from retaining and supporting the dense, walkable, historic urban fabric of the project site. The project area is extremely walkable, with most blocks well under 400 feet of liner distance between intersections and a high number of intersections per square mile. Our development is committed to having street-facing entrances for our buildings, as well as effective glazing on retail and mixed-use spaces, as noted in the LEED-ND criteria for promoting walkability. These walkability
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VI. Cost Estimates and Pro Forma benefits with transit linkages will directly result in a reduced dependence on automobile for residents and employers in this development, reducing the project’s carbon and ecological footprint while also promoting an engaging, lively street community. Also, the overall site plan will employ the existing urban street and sidewalk grid, minimizing the need to disturb or adjust the sites, and thus minimizing the construction’s impact on the site. The project will also provide dedicated bicycle storage and exterior bike racks for residents and business customers that come to the project site, which will encourage cycling usage and access to the development. Further, the site will provide dedicated parking locations for PhillyCarShare “pods” for the benefit of neighborhood residents to reduce their need to own an automobile as well as to reduce the amount of development space that is required for parking, which has stormwater and urban heat island benefits through minimizing impervious surfaces.
Open Land and Stormwater Additionally, the new proposed buildings have a combined building footprint that does not exceed 50 percent of the total lot areas, while still maintaining good street wall frontages. This gener-
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ous open space on the site plan allows for much of each land parcel to be pervious surface to collect and manage as much stormwater on site as possible. This will minimize polluted water runoff from the project, which is especially critical in this area of Philadelphia where a combined sewer overflow system is in place.
The Reading Viaduct The signature Reading Viaduct park at the center of our development concept also provides LEED-ND points for its provision of public space and recreational space. Additionally, using native plants for landscaping of this park space will reduce irrigation requirements for the open space that we propose while also serving a rainwater and stormwater runoff benefit for the project. We also see the Reading Viaduct project as a significant, city-wide amenity that will be completely unique to this location and will draw visitors from throughout the city and will come in time to anchor this neighborhood as it grows from our project. The sheer uniqueness of this elevated park space will provide both green features and additional social benefits to the greater civic spaces of Philadelphia.
Summary In total, then, our LEED-ND analysis of the site scored a total of 65 points out of a possible 110 points, which ranks at the LEED-ND Gold level (see Appendix 2 for additional information).
The project proformas (see Appendix 1) were divided by use into three separate sheets, residential (both for sale and for rent) and commercial. The mixed use was divided in half between commercial and residential for rent apartments because in our program the mixed use buildings are four floors with commercial on the first two and then apartments on the upper two levels. This meant that our proformas were calculated based on an aggregate gross square footage of each use throughout the site. Cost estimates were managed by project through a combination of RSMeans construction estimates, area-based comparables and some assumptions based on the average costs as compared to our project and the proformas provided. Some of our estimates are explained as follows:
Land or Site Acquisition Our project forced us to look both at the acquisition costs of raw land as well as existing vacant buildings. In order to find an average number for each, we looked to our site as there are already a number of properties for sale. Based on the numbers for two existing buildings for sale, one at Buttonwood and 10th Streets and one at 12th and Wood Streets, an average price of $60 per square foot was found. For vacant land, we used num-
Reading Viaduct Development Proposal
Figure 7. Highlights of the Financial Performance of the Proposed Development Project The above chart shows both the individual and combined net present value for the proposed development for its first 29 years.
bers for a site at 10th Street and Ridge Avenue which was $24.23 per square foot to purchase. These numbers were then applied to each separate parcel based on whether they were existing buildings or raw land and then the various parcels
were aggregated by use to come up with the total land and site acquisition costs. For the aggregate rental apartments proforma we calculated total land cost for the 116,167 square feet as $36.68 per square
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foot, totaling $4,261,500. For aggregate for-sale townhouses we calculated total land costs of $3,611,033 and aggregate commercial space as $4,985,559. The total acquisition cost for all property for our building program was $12,858,092.
Site Pre-development Costs In the proforma we assumed pre-development cost to encompass demolition, site improvements, environmental mitigation, and public infrastructure. The end cost was specific to each use as laid out in the proformas because site conditions were different per building and then aggregated by use. Working backwards from the $10 per square foot pre-development number provided in the example proforma (assumed average) we evaluated each of our projects. In general they were lower than average because the overall conditions within our larger boundary were good, with existing public infrastructure and clear and level lots. The only real concerns for us were the removal of an electrical power station and environmental mitigation costs due to the presence of this power station and its previous connection with the Reading Railroad line. These costs were reflected in the variation in cost by use. The numbers were as follows: for-rent apartments had $5 per square foot in pre-develop-
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ment costs, for-sale townhouse had $8 per square foot and commercial development was estimated at $10 per squarefoot.
Parking Facilities Parking is an interesting matter to deal with in a green development project. You are working with the opposing requirements and suggestions set forth by the zoning code with regard to minimum parking requirements as well as LEED and other green resources stressing the importance of reducing impervious surface, reducing the number of cars people use, and locating development in close proximity to public transit. We decided on the provision of a limited amount of underground parking for each of the uses. Underground parking may be more expensive to build (roughly $30,000 a spot), however it not only makes for a “greener� site but that with no surface parking lots or larger parking structures, you increase the amount of future development that can occur in the area as well as provide for a more attractive and appealing neighborhood. Underground parking for 100 cars will be provided for the commercial development, 100 cars for the for-rent apartment development (.25 spots per apartment), and there will be no dedicated off-street provision for
parking for the for-sale units. A variance to the zoning code would need to occur. There are a number of reasons why we believe we could get away with providing so little parking as compared to the amount of square footage we are constructing. First, there are a lot of streets that run through our site and a there is a great opportunity for the provision of permitted on-street parking for residents and commercial employees. Second, our site is located in relatively close proximity to the Community College of Philadelphia, which in zoning code allows you to reduce the parking spot to residential dwelling significantly. Third, and last, as stated in the proposed green section, we will be creating dedicated parking within the neighborhood for the placement of PhillyCarShare vehicles which significantly cuts down on the need for a resident to own a car.
Building Construction The construction cost per square foot came from RSMeans construction cost estimator. For each separate proforma, we calculated the high, medium and low cost associated with such a project and then based on the combination of specs RSMeans provided, we priced our project accordingly. For example, for our apartment development, we imputed an apartment of 6 stories
based on our gross square footage and development site zip code and got the cost breakdown which can be seen in Figure 8.
Figure 8. Building Construction Cost Estimates.
We then weighted our own building specifications against that which RSMeans provided. Our apartment construction involved the rehab of a building instead of the construction of a 10-story building and then the rest occurs in 4-story model (the cost which we divided in half based on the half commercial half residential mixed-use model). Because on average our buildings would be smaller than that of the 6-story RSmeans model, we took an rough average of the low and medium range costs of construction. This resulted in the $140 per square foot cost of construction (this example is the overall model with which we priced out construction costs for the use-based proformas). Once we calculated the price per square foot, we included a three percent green cost premium of development based on the desire for our project to receive a LEED silver or gold standard. Had we wanted to do reach LEED Gold or Platinum the premium would have moved up to five percent.
RSMeans’ low, medium and high cost estimate for a 4-7 story apartment building in Philadelphia.
Landscaping and Site Finishing Landscaping was also an important part of our proforma because we had to figure out how to finance the conversion of the
Reading Viaduct Development Proposal
elevated Reading Viaduct into a park with bike and pedestrain trails, access points and structural reinforcement. Using the $10 per square foot that was provided in the original proforma we worked backwards from there based on our context. As was the trend with site pre-development costs, our landscaping costs per square foot came out lower than those of the original proforma. Our first inclination was to reduce the landscape cost by half to $5 per square foot because we were working with an urban site where buildings are built out to the street with very little landscaping con-
cerns beyond the provision of trees on the sidewalks. The central courts of some of the buildings would be greened but not to an extent that it would be a great increase in cost. These central courts could also become garden space managed by tenants and or residents, also accounting for the reduced landscaping costs. Our next step was dealing with the viaduct itself and the landscaping cost associated with the development of it into a park and recreational pathway. As stated in the City of Philadelphia Viaduct report of 2003, the estimated redevelopment costs of this 15
project were $5.1 million. This number includes landscaping, benches, paved pathways, access ramps and staircases. We wanted to account for this amount in the proformas. We divided the $5.1 million price tag by three and applied an additional $1.7 million cost to each use-based project based on square footage. For the apartment development that meant a $3.37 cost per square foot that was added to the landscaping costs, for commercial it was $2.08 and for the townhouses it was $7.58 (this cost was absorbed into the construction cost per square foot based on the model).
Financing The financing for the apartment and commercial projects was relatively straightforward with a simple lender financing model with a 6 percent interest rate, a 30-year term, a discount rate of 1.4 and 3 percent in fees. While 6 pecent is on the lower side, we account for the possibility of incentive programs that may provide lower interest rates on loans that support green development. We assumed the same incentive based model for lowering the construction lender rate to 7 percent. For the townhouses, the financing also followed a lender financing model but instead of only having a percentage provided for by lenders, in this case, all the money for this
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project was borrowed. So because more money was borrowed, it takes longer to pay back the total before you see a profit than in the apartment and commercial models.
Marketing and Sales The first thing to mention about marketing and sales is that we assumed that based on the amount of time it would take to build out this project, we would be looking at a more stable market than the one we are currently in (say 3-4 years from now). This means that we applied rents and sale prices that reflected a time in the economy when the average rent per square foot would be slightly higher than what it is right now. A set of comparable projects in the immediate vicinity for the apartment and a boarder set of examples (as put together by the office of Grubb and Ellis) for Center City Philadelphia were used. Commercial office space was priced at $27 per square foot in Center City Philadelphia in Quarter 2, 2009 by Grubb and Ellis. Using this as the baseline for prices today, we projected a rent of $30 in year one for our commercial development project. After year one the price goes up based on increased popularity and productivity of the area between years 2 and 10. After year 11 however, we take into consideration the age and desirabil-
ity of the buildings, the increased access to other and newer commercial space in the area and the price drops back to $30. A green premium was applied to the rent each year under the assumption that people will pay more for space in a green building than a regular building. The rental prices for the apartments are based off comparable apartment buildings in the area as stated above for our varied sizes. Using a number of different apartment sizes in the Packard Building, which was an industrial building adapted into luxury apartments, we found rent per square foot of an 850 square foot onebedroom apartment to be $1.76 ($1,500), a 1,100 square foot two-bedroom apartment to be $1.67 ($1,833) and a threebedroom to be $1.55 ($2,170) a month. We used an aggregate number for the proforma based on the weighted cost per square foot per year of all the different apartments, how many there were of each and how much per square foot they were to rent. The result was $19.90 per square foot per year. Again, we assumed that the apartments would not be placed on the market for a number of years and adjusted the price accordingly to $22 per squar foot per year. The rent followed the same pattern as the commercial development with prices increasing over
the first few years, peaking, and then decreasing based on the age of the building. Once we established the commercial and apartment feasible renting price, we applied a green premium to the number each year to reflect the ability of a green project to command higher rents in the market. This is plausible based on the systems and materials of the building and the neighborhood amenities, especially the newly developed elevated park and pedestrian trail. The townhouses were priced according to a number of projects that were both green and not in the area. There was a very large range of acceptable sale prices from $200 up to $350 per square foot. We priced the townhouses on the lower side to attract a broader and more diverse set of neighbors with a price range (depending on the year) of $218 to $252 per square foot ($415,000 to $480,000).
Net Present Values of the Project We developed two 30-year proformas for the green commercial and apartment projects and a 4-year proforma for the green townhouse development. The proformas in their totality are located in Appendix 1. Once we completed all the proformas we compared the net present values (NPVs) for each of our pro-
Reading Viaduct Development Proposal
formas to create a comprehensive series of NPVs to judge overall success of our larger project, which was the chart that led off this section above, in Figure 7. The combined NPVs for all three projects show a huge overall profit to be made in this project. While we do not see a positive NPV until year three while paying off loans, after that point there are many years of exceptional growth in annual NPV.
initial investment. Finally, as stated in the market study, there is some research that points towards the profitability of green buildings in commanding rent premiums significantly higher than their non-LEED counterparts ($11.33 per square foot in rent or $171 more per square foot purchase of commercial buildings). The ability to charge a higher rent can make all the difference between a poor performing project and one that is successful and profitable.
Financial Benefits of Being Green There were a few places within the proforma that “being green� really enhanced our ability to make a profit out of this project. There is potential for incentives such as lower interest rates for green buildings that makes a huge difference in what you owe back to the lender on top. It is not impossible to think that a lender might be interested in sponsoring and investing in green buildings for how it looks as part of their portfolio. Another area where there are gains is in the expenses as percent of rents paid by the owner and the expense inflation factor. Green buildings are designed to run a lot more efficiently and thus cheaply over a longer period of time. As an ownermanaged property, the saving in utilities in itself makes a green building worth its
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VII. Summary
Appendix 1: Complete Pro Formas
With the redevelopment of the Reading Viaduct Site, our proposal will seek to completely remake a previously industrial area that has suffered years of neglect but which retains significant development potential. The site should be an integral location tying together two lively Philadelphia neighborhoods and linking to Center City immediate to its south, yet it has long been thought of as an area that was polluted by the railroad, inefficient in its use of space and management of storm water, and falling short of its potential. The result of our project could be an ecological renaissance, where the environmental mitigation at the ground and on the elevated rail coupled with green building practices create something rewarding for neighborhood residents and business owners. Everyone can gain something from the Reading Viaduct site. As a developer, there are rent and sale premiums to be had, as a resident, energy costs to save and car independence to celebrate. And as a Philadelphian, there is the benefit of seeing a truly unique park site come to fruition.
Figure 9. Philadelphia’s new Comcast Center peeks out through the undergrowth of the Reading Viaduct on a clear summer day. Photo by Bryan Rodda
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Appendix 1: LEED Standards Analysis