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December 23, 2013

Dranoff: Tax abatement crucial to hotel plan

The sketches were drawn, and the vision of a 47-story, $210 million hotel and condominium in Center City was in place. The developer, Carl Dranoff, said financing would be 95 percent private – the only exception being a block of money from the state. He was also counting on the city’s 10-year abatement of property taxes. Then the author of a proposal to slash that abatement warned that he shouldn’t count on it.

“If they included abatements within their [financial] plans, then they have more work to do,” said Councilman W. Wilson Goode Jr., who is sponsoring a bill that would slash abatements for new property owners by more than half.

Dranoff, in turn, said such a move would kill the project.

Thus began a war of words in the wake of Tuesday’s announcement by Mayor Nutter, Dranoff, and others unfurling plans for the soaring tower, which would rise slightly higher than Billy Penn’s hat on City Hall.

The SLS International Hotel & Residences, to be built at Broad and Spruce Streets, across from the Kimmel Center, is envisioned as a mixed-use luxury boutique hotel and condominium tower. The building would be Dranoff’s first hotel project and the largest of his dozens of developments in the city. He is partnering with Los Angeles-based SBE Entertainment Group.

And as he did with his other projects along South Broad Street – Symphony House and 777 Broad – Dranoff said he is banking on the city’s 10-year tax abatement as a way to recoup high construction costs and as a selling point to condo buyers.

Not so fast, Goode said.

Dranoff, who sparred on the abatement issue with Goode during a June council hearing, said he was confident that there is “enough political support” for the abatement that Goode’s bill would not pass.

“Hopefully it will never come to fruition,” Dranoff said of the bill, which would eliminate the abatement on the portion of property taxes that go to the School District. Property taxes are split between the district and city, with the schools getting 55 percent.

Property owners with tax abatements still pay for the tax on the land, but not for improvements. But the land value is minimal compared to the improvement, especially in luxury buildings.

Before the news conference, Dranoff called the bill a “project killer and job killer.” When asked later whether passage of Goode’s bill would cause him to cancel the project, Dranoff said he would not comment on hypotheticals. He finally said nothing would be built without a full tax abatement.

Goode’s argument for restructuring the abatement formula is that the schools need the money. While the abatement attracts residents, he has said it effectively bribes them to live here.

Dranoff, for his part, said the project will yield $11.1 million for the city, including wage taxes, before the tower is finished. After completion, it will provide the city with $6.7 million annually, he said.

The site in the 300 block of South Broad now consists of three parcels – two vacant buildings that once housed the studios and offices where Kenny Gamble and Leon Huff produced many of their 170 gold records and one owned by the University of the Arts.

The 422,838-square-foot SLS International is being designed by Kohn Pedersen Fox in New York City, whose chairman, A. Eugene Kohn, is a Philadelphia native.

The tower will rise 562 feet – 14 feet higher than the City Hall tower – and feature 150 boutique hotel rooms and 125 luxury condominiums, as well as a spa, fitness center, and ballroom.

Groundbreaking is expected next fall, and the project should take two years to complete.

Dranoff and his partners are applying for a $10 million subsidy through the state Redevelopment Assistance Capital Program (RACP), a popular source of funding for large projects, including FMC Corp. in University City and the W Hotel.

The $280 million, 700-room W project, less than four blocks from the SLS International site, is in line for at least $75 million in public financing, including $25 million from the RACP.

Tuesday’s announcement of Dranoff’s project was attended by local and state dignitaries, including former Gov. Ed Rendell, whom Dranoff and Nutter both thanked for his dedication to South Broad Street.

“The Avenue of the Arts in many, many ways is the avenue that Ed built,” Nutter said.

Dranoff, who called the project a “game-changer,” said he was working with the Washington Square West Civic Association on plans to improve the neighborhood surrounding the future tower.