Parkway Corp. seeks second injection of state money into Center City tower

Parkway Corp., a major Philadelphia parking garage operator and real estate developer, is seeking millions in state development grants for the construction of a downtown office tower that has already broken ground.

The tower, at 2222 Market St., will house a new headquarters for the law firm Morgan, Lewis & Bockius — among the largest and most profitable legal practices in the world — a few blocks west of its current home in Center City. The project has already been awarded $4 million from the state’s Redevelopment Assistance Capital Program (RACP) and began construction last year.

Until recently, Parkway Corp. had also pushed for a $130 million cut to the city’s parking tax. That bill was scuttled Wednesday amid ongoing budget negotiations.

State Sen. Nikil Saval, whose district encompasses the 2222 Market St. project, said he was surprised when representatives for Parkway CEO Robert Zuritsky approached his office in the spring seeking support for another $6 million in grants, given that the tower was leased and under construction.

“This is a private development project in Center City that, to our understanding, has all the funding it needs to get built. And it’s going to get built,” he said. “This seems to be more about profitability than public benefit.”

RACP grants, which totaled some $549 million last year, are nominally intended to kick-start tricky development projects and create jobs. But the process has historically drawn bipartisan criticism from figures ranging from Democratic Gov. Tom Wolf to his Republican predecessor Tom Corbett for a lack of oversight or transparency. Though the state Department of Community and Economic Development awards grants using a scoring rubric measuring job creation and other factors, critics and observers have long said the grant awards really get decided based on input from individual legislators.

Michael Farren, a researcher from the libertarian Mercatus Center, said elected officials often have an incentive to support projects based less on need and more on visibility.

“These grants benefit the particular companies that receive them and, generally, they benefit the politicians that get to claim credit for jobs that were quote-unquote ‘created,’” he said. “All the subsidy does is give elected officials a way to argue they were instrumental in creating what the private sector actually created.”

Farren said 2222 Market St. was an example of projects like those in his research, which found that fewer than one in eight development grants affected a company’s decisions to site a project.

“Going back to the trough after you’ve fed once already is very typical behavior of subsidy-seeking corporations,” he said. “It’s becoming more and more common for policymakers to oppose these types of subsidies.”

Details about the project at 2222 Market St., a $200 million 18-story tower, became public in 2019. Pitched as the first “non-Comcast tower in Philly’s Central Business District in 30 years,” the tower would rise on a former surface lot the parking company owns just five blocks west of Morgan Lewis’ current home.

Despite questions about the future of downtown office work raised by the pandemic, the project broke ground in September 2020 with a lease from the law firm in hand. The project initially applied for $5 million from RACP, but then bumped the request up to $10 million in 2020. It was ultimately approved for less late last year –– $4 million.

Both Zuritsky, the CEO of Parkway Corp., and a company vice president declined requests for comment.

Sources familiar with the project said a nearby Keystone Opportunity Improvement Zone in University City — part of a state economic development program that exempts projects from certain taxes — had initially been considered for the new headquarters. But the promise of RACP money kept the project in Center City.

Even prior to the pandemic crushing demand for office space, Philadelphia had historically struggled to pencil out commercial tower projects due to low asking rents and high construction costs.

But between the first grant and a second request seeking the remainder of the $10 million this spring, the State Senate district where the project sits turned over from former Sen. Larry Farnese to Saval, who campaigned in part on reforming use of RACP.

Saval said that missing out on one incentive program wasn’t enough to justify getting funds out of another.

“I generally believe the RACP program is one where if we’re going to be devoted to projects, it has to have a public benefit, in the realm of permanent family-sustaining jobs, cultural importance,” he said. “Morgan Lewis is already headquartered here. There’s already an office building here. I don’t know that this project creates new jobs beyond what already exists.”

Though Parkway Corp.’s RACP application was the only one filed this year seeking grants for a Center City office tower, the company was far from the only for-profit applicant. Of 128 current RACP applications in Philadelphia, about two-thirds were filed by nonprofits or institutional entities such as the University of Pennsylvania. Many of the remaining private applications detailed plans for the redevelopment of existing structures in historically divested areas, like the renovation of the Beury building, a deteriorating Art Deco tower in the middle of North Philadelphia. But others did not: A 32-story residential tower planned at Broad and Spring Garden streets sought $7.5 million, and an 18-story mixed-use building in booming University City sought $15 million, for example.

While Saval said he planned to oppose Parkway’s application, he described it as emblematic of larger problems with the program. Though Pennsylvania is currently considering legislation to join 15 other states in a compact that aims to ban economic development subsidies altogether, Saval said, the grant money should be used more judiciously in the meantime.

“We have a city that has a 25% poverty rate. Spending state money in this way doesn’t seem to address any of those problems,” he said.

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Editor’s Note: WHYY Inc. is a past and current RACP applicant.