Company seeks to create a new office submarket in Philadelphia.
Craig Grossman (left) and Aaron Cohen of Arts & Crafts are trying to brand their buildings with artwork and other identifiers.
Beginning late 2015, Arts & Crafts Holdings turned its eye to an area of Philadelphia that was uncharted when it came to office space — and had an idea.
The real estate company wanted to establish a new office submarket in Philadelphia that caters to creative types who have been priced out of Center City or those tenants who really don’t want to be in a traditional, glassy office building along West Market Street or even around Independence Mall. With that idea, Arts & Crafts began to buy buildings around Spring Garden Street, stretching down to Ridge Avenue across to North 3rd Street.
During the last two years, Arts & Crafts has invested $150 million acquiring 20 properties of which eight are multitenant office buildings so far comprising this nascent but potentially emerging office submarket. The company recently sealed up a deal to bolster its position and acquired a portfolio of four properties for $30.5 million.
The buildings were sold by Mark H. Rubin and involve: 444 N. 3rd St., a 193,506-square-foot office building; 309-315 Callowhill St., a 6,588-square-foot building in which the total lot is 17,502 square feet; 437-461 N. 3rd St., a 35,000-square-foot office building that has space for retail on the ground floor; and 827 Spring Garden St., a 20,000-square-foot retail building leased to Sherwin Williams and is located next to the elevated rail park that is under construction. The real estate company now controls 1.2 million square feet of what it has calculated to be a 2 million-square-foot office submarket.
“We’re positioning it as a regional asset,” said Aaron Cohen, who formed Arts & Crafts with Craig Grossman.
Arts & Crafts zeroed in on this part of Philadelphia for multiple reasons. While once briefly considered as a site for a new baseball stadium, the area was the “hole in the doughnut,” Grossman said. “It’s a pocket that has been overlooked for decades.”
It’s just on the outskirts of Center City and areas around it, such as North Broad Street and Northern Liberties, have gotten traction in terms of investment activity. It also hugs the Reading Viaduct that is being transformed into a linear park.
Some refer to the area as Callowhill or Chinatown North but as Grossman and Cohen rollout their vision, they have christened it with a new name: Spring Arts. That is the name they are using to refer to the general area, which they like to call a “village” where they are accumulating their real estate. Internally they have loosely been calling the office submarket they are trying to establish “Northern Edge.” If a company leased office space there, it would be leasing space in the Northern Edge of Spring Arts.
Time will only tell if that’s catchy enough to stick, but Grossman is versed in trying to coin an area with a new moniker. He worked for the late Tony Goldman, a New York developer who came to Philadelphia in the late 1990s with a plan to transform 13th Street into Center City’s next trendy retail and restaurant district. Goldman wanted to implement a plan he rolled out in revitalizing SoHo in New York City and South Beach in Miami Beach and apply it to a sleazy two-block stretch of 13th Street pockmarked with porn theaters and check-cashing agencies.
Part of Goldman’s ambitions included coming up with a new name for the area. While his project was referred to early on as “13th Street Passages,” the idea of giving it a new name meant a new identity to eventually erase some of its grittier past. “Blocks Below Broad” was tried out but didn’t catch on. Midtown Village did.
Charting new submarkets
The idea of establishing a new office submarket is an ambitious undertaking and seldom occurs. It has happened before though. Nearly 20 years ago, neither University City nor the Philadelphia Navy Yard were office submarkets but as buildings got built and companies moved in, both are now accepted as bona fide office submarkets that are attracting tenants. Before the completion of the Blue Route, Conshohocken was merely an old industrial town along the Schuylkill River. Today it’s one of the most desirable business addresses in the region.
What makes what Grossman and Cohen are doing so enterprising is they aren’t trying to create a submarket from the ground up as done in University City, the Navy Yard and Conshohocken. A fresh palette enables a certain degree of control over planning, placement as well as building size and type, and that’s something Cohen and Grossman don’t have.
Arts & Crafts’ strategy involves working within an urban environment, buying existing old industrial buildings and converting them into office space. It’s also trying to go beyond office. It has acquired buildings that house apartments, entertainment venues and retail space. For example, it recently bought the Electric Factory building, which not only contains the famed concert venue but office space as well. It also closed on the building housing Union Transfer, another entertainment venue, that has some other space that will be filled with retail tenants.
Part of that involves attracting retailers to fill out that vision and adding elements to produce a cohesive community. For example, at 990 Spring Garden, a brew pub called Roy Pitz Barrel House opened last year and celebrity chef Chad Rosenthal is opening a barbecue restaurant in the building as well. Roots Yoga opened up in 440 N. 10th St., which is one of their holdings. Planters, signage, pop-up gardens, murals and other art work are being used to tie the buildings together and make them appear to be connected.
All combined, Grossman and Cohen are trying to spawn a village in this overlooked pocket while not totally changing the fabric of it. “We want to fit into the community as well,” Grossman said.
With its office space, the company is trying to fill a niche and a void. It would rather attract 100 10,000-square-foot entrepreneurial, creative tenants than 10, 100,000-square-foot companies, Cohen said. It has made inroads in that regard and its office space is between 75 percent to 80 percent occupied with the bulk of the vacancy in its newly acquired building at 421 N. 7th St., home of the Electric Factory. Rents run about $20-a-square-foot.
Early signs of success
Michael Anderson, a broker with PernaFrederick Commercial Real Estate, has leased around 100,000 square feet of space at 990 Spring Garden and 448 N. 10th during the last 18 months and has other tenants in the pipeline for the neighborhood. When he brings prospective tenants to Spring Arts to look at space, he can gauge right away whether it appeals to them.
“Most of the time, it’s positive,” Anderson said. “They want to be part of something special and jump on the bandwagon on what they are trying to create there. Some come upon it by default. They can’t find space in the Central Business District.”
As a result, there is a momentum to what Cohen and Grossman have started in Spring Arts, Anderson said, noting a range of tenants have moved in. While it’s been predominately tech and creative firms, law, investment and nonprofits have also lease space.
Rachel Ford is one of those tenants who believes in the vision and want to be part of it. Ford operates Made Institute, an educational program for people interested in sewing and fashion design. She had been in Old City but was searching for a new space.
“The space we are in is extremely important and more important than one might think,” Ford said. “I’m super-picky about the kind of space I wanted and always looking to be part of something that is bigger than ourselves.”
Ford landed at 448 N. 10th, in what she described as her “dream space,” and moved in in August. “It wasn’t my dream neighborhood, but it will be with Craig’s vision,” she said. “His success is my success.”
Philadelphia Business Journal