EXCLUSIVE REPORTS
From the January 21, 2005 print edition

Little by little, firms consider the budding business center
Natalie Kostelni
Staff Writer

The Philadelphia Navy Yard, once a bastion of the country's military shipbuilding industry, has become a real option for companies seeking office space in the city but not in the Central Business District.

Vitetta, a Philadelphia architectural firm, led the way in August 1999 -- months before the Philadelphia Industrial Development Corp. took title of the 1,200-acre site in 2000 from the federal government. Incrementally, other private companies have begun to trickle in and consider the Navy Yard as an office destination.

The Star Group, a growing Cherry Hill advertising agency, is considering a move out of its Camden County headquarters, and "the Navy Yard is just one option we're exploring," said Cathy Schwartz, director of corporate communications at Star.

John Binswanger, head of Binswanger/CBB, a commercial real estate brokerage, has two companies taking a hard look at it. "It's another competitive amount of space on the market," Binswanger said. "I certainly think it's a viable alternative."

Tom Bond, a broker with NAI Geis Realty Group Inc., also touts the Navy Yard to clients.

"I always consider the Navy Yard," Bond said. "It's beautiful. The infrastructure is there, the stadium complex is nearby, it's easy to get to ... it's been a long time coming for the city."

As recently as a year ago, most Center City office brokers would have shunned the Navy Yard as uncharted territory. To date, more than 60 companies and 6,000 people work at the South Philadelphia site. However, it's been a handful of companies that have committed to the Navy Yard in the last year that have set a tone for it as a business location.

Under a plan set forth by the city in September, $2 billion in private investment and as many as 30,000 jobs could be realized over the next two to three decades through the Navy Yard's transformation to a "modern urban center" of industrial, office, engineering, research and military enterprises, and places to live and dine.

A state- and city-designated Keystone Opportunity Improvement Zone has been a key lure to many companies that have relocated in the Navy Yard. The zone gives businesses a break on state and local taxes, except for the city wage tax, until 2018.

When Vitetta relocated from 642 N. Broad St. to the Navy Yard, it spent $8 million buying and renovating a 55,000-square-foot building for its 140 employees. The company looked at 30 buildings in Center City before making the move. While the opportunity zone was an enticement, so was the parking.

"We paid $100 a space per month for everybody," said Alan Hoffman, Vitetta's president. "Every employee who went down [to the Navy Yard] got a $1,200 raise."

The architectural firm was a pioneer when it ventured to the Navy Yard in the time when the concept of the Navy Yard as a business center was in its infancy. Infrastructure, such as the power grid and other utilities the Navy oversaw, needed upgrades. The land was isolated, with no connections to public transportation. Now there's a shuttle that runs throughout the Navy Yard to the Pattison Avenue subway stop. No restaurants, dry cleaners or banks were available. A couple of restaurants have since opened up and PIDC plans other amenities to meet a growing demand.

To compensate for the lack of services and to retain and attract employees, Vitetta installed a gym. Breakfast and lunch are also served on-site, Hoffman said.

"I think the Navy Yard is over its growing pains," he said. "This is starting to be a hot place."

AppTec Laboratory Services last spring decided to move into a 75,000-square-foot building constructed by Liberty Property Trust of Malvern. The pharmaceutical company, which is based in St. Paul, Minn., had local operations in Camden. It hopes to employ 200 people by the end of the year. The company wanted to be close to the Philadelphia International Airport, just minutes down I-95.

As part of an overall master plan at the former base, Liberty Property is constructing a 77,000-square-foot building that will be completed by September. The company could build up to 1.4 million square feet there. The first building is garnering a lot of interest, and several leases will be signed by the time it is finished, said John Gattuso, senior vice president with Liberty.

Barthco International Inc., a logistics company, was figuring out a way in April 2003 to consolidate its three sites and find a place to expand. The company employs 175 people. It anticipates growing to 250 workers in a couple of years. Barthco was close to wrapping up a deal in Chester, Delaware County, where it would have been in an opportunity zone, before it decided on the Navy Yard.

"The K-Zone was a big inducement," said Dennis J. Colgan Jr., chief executive of Barthco, about the opportunity zone. The company saves about 10 percent a year by being in the KOIZ.

The company bought a 50,000-square-foot building at the Navy Yard for its new headquarters. It spent $10 million in acquisition and renovation costs. It moved in in November, and has options to expand into two adjacent sites.

"We didn't lose one person in the move," Colgan said. The company, like Vitetta, provides food on-site for employees.

Barthco's renovated headquarters has become the latest showcase of what could be at the Navy Yard. Colgan gave some executives from Urban Outfitters Inc., the Philadelphia-based owner of Anthropologie and flagship Urban Outfitters stores, a tour of his headquarters this month. They were impressed, he said.

"Everyone feels that it is something for real and that it's going to happen," Colgan said about the Navy Yard. "You have an instinct in business, and this is just an instinct."

While Barthco's move to the Navy Yard was notable, Urban Outfitters' decision in December to relocate from Rittenhouse Square to the South Philadelphia site, was a statement. The company will grow at the Navy Yard in several phases, in which eight buildings totaling 287,000 square feet will be renovated. The company will begin moving its 500 employees this summer. It anticipates doubling that number over the next five years.

What stings some real estate brokers and other observers is that Urban Outfitters was never considering leaving the city to begin with, and, with its move to the Navy Yard, has essentially turned from a tax-paying entity into one that will pay no state or local taxes. It's a move city officials heralded as a "great win" for the city.

"It's a wonderful move not only for them but for all of us because of the fact that it's a very fast-growing company and a creative company with a very young staff," said Commerce Director Stephanie Naidoff.

While Naidoff acknowledged Urban Outfitters won't be paying most state and local taxes, it will be paying the wage tax. "We collect the wage tax," she said. "It's a wonderful thing if they are growing at" the rate the company anticipates.

It is also a price to pay to firmly establish the Navy Yard as an office market, she said. "I think that kind of very large investment is setting the platform for attracting other similar companies," Naidoff said.

Natalie Kostelni can be reached at nkostelni@bizjournals.com or 215-238-5139.