1200 Arch Hotel

12th and Arch Home2 Hotel
1200 Arch St.
Developed by
Parkway Corporation, Wurzak Hotel Group and Glenmont Capital Management

Making an Almost Impossible Development Happen...

Over the years, Parkway Corporation has developed projects despite challenges thought to be insurmountable. In this case, by understanding how to minimize costs and combining that with the ability to seek out and obtain governmental subsidies to fill a large financing gap, we were able to successfully lead a team in the design and construction of a 248 room select–service, extended stay hotel under a new flag, Home2 Suitesby Hilton.

Business Challenge

In 2000, Parkway Corporation, as a second phase of our 800 car Convention Center garage development, had secured a 10 year lease for a 28,000 SF adjacent parking lot owned by the Philadelphia Redevelopment Authority - together with a ten year option to the development rights of the parcel.  Parkway intended to develop a hotel directly across the street from the Pennsylvania Convention Center’s main entrance.

In 2011, rather than allow the lease and development rights to lapse at the end of the term and face a potential short or long-term parking competitor constructing a garage on the site, Parkway chose to proceed with a hotel development despite a severe downturn in commercial real estate. Given the historically poor risk/reward ratio for new hotel development in Philadelphia’s high construction cost and low revenue environment, hotel projects were at the time impossible to finance conventionally.

The Solution

  • Parkway’s in-house architectural team worked to design a super-efficient, typical floor minimizing corridor stair and elevator area per room by designing a double loaded corridor “U” shaped building achieving 31 rooms per floor with an extremely efficient façade area per room of just over 100 square feet and with a rentable room to gross area of 88%.
  • We also brought on board a contractor before the design work started and gave them a target per square foot cost of about 20% less than limited service hotel construction had been projected to cost in Philadelphia at the time.
  • Together we directed and sought the advice of our design professionals to successfully design fully within that reduced budget.
  • The building was intentionally designed to stay within non high-rise code conditions with a minimum floor-to-floor structural grid, and amenities were chosen carefully also allowing us to avoid adding costs.
  • To resolve separate design approvals required for the project to proceed, Parkway engaged the Hilton design group, the Redevelopment Authority Design Advisory Committee, the Planning Commission, and our own development team, together with our Architects in a very unusual full day design charrette, where competing interests were able to be expressed, and then coaxed to come to a resolution for the design of the façade. The design that came out of that process was able to receive each of their individual approvals.

At the same time while ensuring a minimum cost product, we knew that we would still have a large capital stack gap of 25% of the project costs, and so proceeded to work through and secure six different Federal, State and Local subsidies, reducing the conventional debt to an acceptable loan to cost  ratio of under 50%, and the equity to be appropriately sized to receive market returns.

Parkway Created Value

  • From an urban built form perspective, we eliminated the built fabric “missing tooth’ of a surface parking lot and completed the built streetscape at a very high profile Center City intersection.
  • Provided 250 additional hotel rooms to compliment the 400,000 SF expansion of the convention center of 2012.
  • At more than double the Hilton brand standard room count for its Home2 Suites brand, our hotel has become the defacto brand standard for urban core locations for Hilton.
  • From its first year, the asset  exceeded a 20% return on equity.
  • On sale seven years after commencement of construction, achieved IRRs in excess of 30% for Parkway and its partners.

For Parkway, cases like this are the rule, not the exception. As one of the few parking operators who have grown from developing garages for our own account, to being leaders in the Philadelphia development community, we have been down the approval process road many times and we know the best route to added value.

Repeatedly, Parkway comes up with new concepts and new ways to make projects happen. Whether you have an existing facility ripe for redevelopment or an empty lot waiting for a new development, Parkway can take your project and the neighborhood to a higher level.