Category: Commercial Real Estate

Shift Capital made its name in Kensington.

The company has long styled itself as a socially conscious real estate developer, rebuilding long-vacant buildings into thriving mixed-use properties in a neighborhood challenged by poverty and addiction.

Now 14 years after the company’s formation, it is seeking to sell its cornerstone developments in the neighborhood.

That includes its Harrowgate flagship, the 116-unit building at 3400 J St. known as J-centrel, which is home to the renowned Vietnamese bakery and cafe Càphê Roasters.

Kensington Corridor Trust, a nonprofit that Shift helped found, plans to purchase that property for $18 million, although it needs to raise $1.5 million more by the end of August to close on the deal.

The organization is a neighborhood trust with the mission of acquiring properties on Kensington Avenue and placing them under community control — via a nonprofit board — to preserve affordability. Currently, most of the trust’s properties are storefronts and much smaller than J-centrel.

“We’re excited to hand the responsibility of creating a healthy, safe neighborhood to the next group to continue the work that we’ve been doing,” said Brian Murray, CEO of Shift Capital. “It’s an exciting moment of transition to the next generation of people … who want to see Kensington be what it could be.”

Murray says the properties Shift wants to sell represent 30% of their properties in the city.

They are in talks with potential buyers for the old industrial building at 3775 Kensington Ave., and the artist studios, office space, and light manufacturing at 3525 I St. (MaKen Studios North) and 3401 I St. (MaKen Studios South).

Murray emphasizes that Shift will retain a presence in Kensington. Their offices will remain in J-centrel, and they are still working on the Càphê Roasters expansion across the street at 3419-23 Kensington Ave.

He says a sale of this kind has always been part of the plan. The investors who backed these developments in Kensington are nearing the end of their time with the fund, and Shift is not currently planning to recapitalize with new partners.

“Our world is limited to capital that needs to be returned,” he said. “They can be as mission-driven as they would like, but that still is a limitation of the role that we can play in revitalizing and preserving neighborhoods.”

That’s why Murray wants to sell to Kensington Corridor Trust, which Shift helped found in 2019 (although it exited the organization’s board in 2021).

Kensington Corridor Trust owns 32 properties along the avenue, although none is close to the size of J-centrel. In preparation for the purchase, the trust has hired more staff, including a new property manager and a full-time maintenance person who used to be with Shift.

“Shift Capital’s J-centrel property will be our single largest acquisition to date in terms of square footage, units, and cost,” said Adriana Abizadeh-Barbour, executive director of Kensington Corridor Trust.

Abizadeh-Barbour said the trust raised a half-million dollars in early August, and she is confident it can get the $1.5 million needed before the end of the month.

The funds raised so far include $1 million from individual donations, $1 million from the City of Philadelphia, $3 million from foundations, $3 million from investment funds, and $10 million from Community Development Financial Institution, which specifically invests in low-income areas.

“We have a strong base of supporters who believe in community control and neighborhood power, and we’re excited to bring this under community ownership,” Abizadeh-Barbour said.

The trust plans to make the apartments more affordable as higher income tenants move out of the building, with the goal of targeting the units to those at 60% of area median income, or roughly $50,000 for a one-person household.

As for Shift, the company has other big plans in Philadelphia. Earlier this year it announced a partnership with Temple University over a long delayed development proposal near Amtrak’s North Philadelphia station, near Broad Street and Indiana Avenue.

And although lenders backed away from the firm’s redevelopment of the historic Beury building at 3701 N. Broad St. in 2024 amid an increasingly difficult development environment, Murray says they “are still actively working on” the property.

“The Kensington Corridor Trust [sale] is an exciting mission exit that we’ve been working on almost from the beginning of our work,” Murray said. “This was always a prescripted game plan to create an entity that was community controlled that could be a steward of assets in the neighborhood long term.”

More than a dozen Philadelphia-area contractors have sued apartment developer Post Brothers, alleging the company failed to fully pay for all the work they did.

In state and federal courts, the building and professional-services contractors, most of them affiliated with the city’s carpenters union, allege Post Brothers owes more than $9 million for work at the 630-unit One Thousand One apartment complex at Broad Street and Washington Avenue in South Philadelphia.

“The Post Brothers want to take a Donald Trump business model where they don’t want to pay their contractors,” said James Hocker, assistant executive secretary-treasurer of the Eastern Atlantic States Regional Council of Carpenters.

One of the contractors, Healy Long & Jevin, a concrete construction company based in Wilmington, alleges the Post Brothers mismanaged the project at Broad and Washington and should pay an additional $14 million.

Post Brothers alleges it’s Healy that should pay them a larger sum — for poor performance. Healy’s lawyers did not respond to a request for comment.

Doylestown-based Apollo Contractors and other smaller contractors filed the next-largest claim, for $5.8 million.

According to Apollo’s complaint, the developer “doesn’t have adequate funds because the owners” used company funds “for their own personal benefit and expenses.” Healy has made similar claims.

Post Brothers in court papers called the union contractors’ lawsuits “without merit.” The development company argues that the conflict is about who should bear the costs of inflation.

“Subcontractors who agreed to a price in 2022 experienced 30% inflation probably throughout the course of the project,” which is wrapping up this year, said Michael Pestronk, CEO of the Post Brothers, who runs the company with his brother Matthew.

But “the way that contracts work, our financing works, we pay lump sums for agreed scopes of work,” Pestronk said. “It’s up to the subcontractors to fix their costs and allow for that.”

He also says the fraud allegations are baseless and just an example of contractors “throwing [stuff] at the wall” to see what sticks.

The carpenters have launched a pressure campaign against Post Brothers, including nine billboards denouncing the company along Philadelphia’s highways. They say contractors at the Broad and Washington site had to pay union members and contribute to health and pension funds, despite not being fully remunerated.

“That’s why they’re fighting hard to get what is owed to them because they have a lot of money on the street, and it’s jeopardizing their business,” Hocker said. “But they made their employees whole.”

Post Brothers has made a counterclaim against Healy, accusing the concrete contractor of “false billing” and other violations. A judge rejected a motion from union-aligned Healy to dismiss the developer’s counterclaim.

Pestronk says the legal saga is a manifestation of high interest rates and inflation in the construction market. Multifamily residential construction outside the city’s wealthiest neighborhoods has slowed dramatically. Office construction has ceased, and industrial sites do not require as many building trades.

“Subcontractors and general contractors are feeling much more hungry today than two years ago,” Pestronk said. “Their pipelines are totally dry.”

What’s in dispute

One of the largest dollar-value claims against Post Brothers is a joint demand for $5.8 million from a group of businesses, led by Apollo Contractors, a carpentry, drywall, and finishing firm, and Fluid Works, a plumbing contractor, based at the same Doylestown address.

Apollo and Fluid are owned by members of the Sharpan family, who are also partners with the Pestronks in another business, Mega Supply in Bensalem. The Sharpans are separately suing the Pestronks over money they say the Pestronks owe Mega Supply.

The Apollo-Fluid Works complaint, filed in Philadelphia Common Pleas Court last August, was the first to include fraud allegations.

Apollo says that the Pestronks paid Apollo to improve “their respective private residences” even as they owed millions to the contractors for work in Philadelphia, according to Apollo’s complaint. Attached to the suit are invoices for more than $200,000 worth of carpentry, painting, tile and drywall work that Post Brothers paid Apollo to perform at Michael Pestronk’s Eagle Farm in Villanova in 2021 and 2022.

The groundbreaking for the Broad and Washington project was in December 2021.

The Apollo complaint alleges that Post Brothers knew they didn’t have enough money to pay for the work but didn’t tell the contractors until the work was done.

Early in July, Healy amended its federal complaint, pending before Judge Michael Baylson, to add similar claims. The Post Brothers denies those allegations and says the contractors have not offered detailed support for the allegations.

“They are preposterous,” Pestronk said.

Healy also demanded Post pay an additional $14 million for “mismanagement” at the Broad and Washington site that made the work difficult to complete and unprofitable. Post filed a counterclaim blaming Healy for “defective performance” that cost the developer $17 million. Each has asked the judge to dismiss the other’s allegations beyond the original complaint.

Other lawsuits asked sums well under $1 million. Some have been in settlement talks; others are slated for trial.

Post Brothers’ history with unions

In addition to the nine billboards condemning the Post Brothers, the carpenters union has an electronic messaging truck attacking the company rolling around the city.

The clash is the latest conflict between building trades unions and the company, which has always used an “open shop” mix of union-and-unorganized workers on their job sites.

In 2012, the Pestronks sought to redevelop a former textile mill at 12th and Wood Streets into a 164-unit apartment complex called the Goldtex building, using an open shop model.

The Philadelphia Building Trades Council, an umbrella group that covers many of the construction unions, fought for 100% union representation on the site.

Union workers blocked access to the site — sometimes bringing construction to a standstill — and the Philadelphia sheriff’s office had to enforce a court order that protests stay back from the building. Violent tactics by protesters were caught on video.

Relationships between the Post Brothers and the building trades have never been that contentious since, although they’ve never been tension-free either. The company still uses a mix of organized and nonunion labor.

“We worked very hard to develop a relationship with Post Brothers over the last 10 to 15 years,” said Hocker of the Eastern Atlantic States Regional Council of Carpenters. “There was some bad blood [but] … we were able to secure some work on some of the Post Brothers’ work, specifically around concrete.”

According to both the carpenters and the Post Brothers, the project at Broad and Washington employed greater numbers of union workers than some of their other major projects recently, such as Piazza Alta in Northern Liberties.

“We were trying to play nice with the unions, and we made a commitment to hire these contractors at frankly greater expense than we otherwise would have incurred to try to foster relationships,” Michael Pestronk said. “And it turned out not to have gone well.”

Besides the billboards and messaging truck, there have been periodic pickets at Broad and Washington, but according to Pestronk, nothing remotely comparable to the protests over the Goldtex building years ago.

The carpenters are not a part of the Philadelphia Building Trades Council or the Philadelphia AFL-CIO. Other unions have not joined the campaign against Post Brothers, although the carpenters say they have invited them to partake.

The union also has released a larger campaign, Build Fair Philly, meant to highlight what they consider unscrupulous development in the city. The billboards critical of Post Brothers bear the larger effort’s emblem. They also are trying to build alliances with neighborhood groups.

“Post’s practices ultimately affect the whole market, and we welcome anyone who wants to be part of holding developers accountable,” Hocker said.

Pestronk shrugs off the conflict. He notes that the Post Brothers continue to build in Philadelphia and says the current conflict does not compare to his company’s earlier struggles with the trades.

“When that was going on, that was something I spent a lot of time thinking about and figuring out what to do every day,” Pestronk said. “This is less than 1% of that. These are just some [nonsense] lawsuits that just go on in the normal course of business.”

For the first time in almost two years, Pearl Properties is making visible movement on its long-awaited Jewelers Row housing tower by requesting permission from the Historical Commission to alter two small protected buildings on the Seventh Street side of the project.

In 2022, the Philadelphia-based developer obtained the vacant land at 708 Sansom St. from Horsham-based Toll Brothers, which had sparked controversy — and seen their development delayed — by their eventually successful effort to demolish five buildings in the midst of the city’s historic diamond district.

After buying the property from Toll, Pearl Properties received a zoning permit on Sept. 24, 2024, for a 35-story tower, with 99 units, 50 parking spaces, and almost 1,500 square feet of commercial space.

Since then there has been no movement on the project, amid a difficult construction environment and a competitive multifamily market.

But earlier this month, Pearl Properties asked the Historical Commission for permission to demolish the rear sides of two one-story buildings facing Seventh Street, while preserving their facades as a pedestrian entrance to the tower’s parking garage.

“Due to many years of neglect, the buildings are in substantial disrepair,” Morris Clarke, director of operations of DAS Architects Inc., wrote in a letter to the commission on behalf of Pearl Properties.

“It is the applicant’s intention to restore both storefronts to their original form, so as to enable them to contribute to the streetscape experience and vibrancy of the immediate neighborhood rather than continuing to be a symbol of blight,” Clarke said.

The new rear entrance next to the garage on Seventh is not the only alteration to Pearl’s project since it was last seen by the public in early 2024.

The developer needed permission from the city’s Zoning Board of Adjustment to proceed and also negotiated over the project’s design with the Society Hill Civic Association in exchange for its support.

Pearl has made changes to accommodate the neighborhood group’s demands that the floors closest to the street reflect the surrounding buildings.

“The original design has no compatibility with Jewelers Row,” a 2024 document about the negotiations from the Society Hill Civic Association said. “It is monolithic. The materials were invasive.”

Renderings of the ground floor levels, marked “final negotiated design” and dated to September 2024, show that Pearl responded to that feedback by creating a podium for the building that better matches the surrounding historic buildings.

This was partly achieved by using brick and other materials more akin to Pearl’s neighbors and partly by splitting the facade into units that appear more like the commercial townhouses of Jewelers Row.

“There were arguments, but we accepted it because we thought it was a good product, a good design, good quality,” said Paul Boni, chair of the zoning and historic preservation committee of the Society Hill Civic Association.

“They have other holdings in the city that we checked out,” Boni said. “And something needs to be built there. This is a nice big building with a lot of density. It’ll be a good addition.”

Neither Pearl Properties’ Reed Slogoff nor project architect DAS responded to a request for comment. Boni declined to comment on when the project was likely to break ground.

The Historical Commission staff approved Pearl’s plans to demolish the rear of the two one-story buildings on Seventh Street, noting that they are both only 13 feet wide and 18 feet deep.

“The small buildings would be used as entrances to the interior motor court of the high-rise building,” the staff notes read.

The Seventh Street addition to the design will be considered by the commission’s Architectural Committee on July 28 and can then be considered by the full committee as soon as August.

Pearl Properties is also moving forward on its Harper Square development at 113-121 S. 19th St. near Rittenhouse Square, another long-awaited luxury apartment tower. The company installed a tower crane in May to begin construction.