The new owner of the Wanamaker Building in Philadelphia is betting that replacing office space with homes will help turn around the struggling historic property.
TF Cornerstone, the New York investment firm that recently took control of the 1.4 million-square-foot property at 100 Penn Square East, across the street from City Hall, is planning to convert most of the office space at the 114-year-old building into residential use following a foreclosure auction that took place this week.
The result of the auction means TF now owns the entirety of the property and is better positioned to command its fate as the firm attempts to address pandemic-induced office demand challenges.
The company is planning to transform the sixth through 12th floors into about 600 apartment units. The fourth and fifth floors will remain office spaces, and the lower three levels will be preserved for retail use. The conversion plan echoes those made by other landlords and investors across the United States as many attempt to overhaul struggling office properties into newer and higher-demand uses.
More than 81 million square feet of office space is moving through the conversion pipeline, according to a new report from commercial real estate services firm CBRE, with more than 75% of those projects slated to become multifamily properties and spaces. Over the past decade, office-to-multifamily conversions have generated at least 33,000 housing units across the United States.
"As the building enters its next chapter under our helm, we [have] the opportunity to reimagine this iconic building in a way that respects its historic integrity and adds to the vibrancy of the Center City community,” TF Cornerstone Senior Vice President Jake Elghanayan said in a statement to CoStar News.
Office history
Similar to other older office properties throughout Philadelphia, the Wanamaker has struggled to find its post-pandemic footing as companies have both shrunk their real estate footprints and prioritized space in some of the city's newer and nicer options. At the time of the auction, the building's occupancy rate had fallen to about 20% after years of depressed demand and a string of large tenant move-outs.
The building — split between about 950,000 square feet of office space and a recently shuttered Macy's department store — was primarily owned by Rubenstein Partners, a locally based investment firm that paid $114 million for a 60% stake in the property in early 2017 when it was roughly 97% occupied, according to CoStar data.
The impacts of the pandemic and a string of large move-outs compounded vacancy issues for Rubenstein, ultimately resulting in its $124 million loan on the Wanamaker Building falling into receivership. The servicer slashed its appraised value from $185.7 million when the loan was issued in 2018 to less than $54.5 million, a roughly 72% drop.
While most lenders are hesitant to transition into landlords, TF Cornerstone began building up its stake in the historic building when it purchased a majority of the property's debt last year. The investment firm purchased the retail portion of the Wanamaker for $40 million in late 2019, when the space was still fully occupied by Macy's.
“Much like the major renovation of the building undertaken when the Wanamaker was last operated as a single department store, TFC takes seriously its role as the steward of this important civic building," Elghanayan said.
Shifting spaces
The investment firm has long hinted at an interest in overhauling the remainder of the property into something with a residential focus. Now that it owns those nine floors spanning upward of 954,360 square feet, TF Cornerstone finally has the chance to make those plans a reality.
The company plans to begin the apartment conversion in early 2026 with a two-year construction timeline.
While Philadelphia is far behind other cities across the country in terms of its conversion pipeline — Manhattan and Washington, D.C., are by far the leaders on that front — there has been a surge of activity over the past several years as officials streamline the permitting process and the demand for housing has outstripped that for aging office space.
Companies in the Philadelphia area handed back more than 7.6 million square feet of office space between 2019 and 2023, according to CoStar data, and rents have fallen alongside the decline in tenant demand.
What's more, office leases amounting to about 3 million square feet are set to expire through the remainder of this year, an amount that could prolong the market's recovery even as large employers such as Chubb, FS Investments and Vanguard have expanded their office stakes in the region.