Eric Blumenfeld Realty Management (EBRM) recently secured $44 million in financing to restore the Divine Lorraine Hotel in Philadelphia. According to the article:
“EBRM will renovate the 9-story property into a boutique residential community comprised of 109-rental units to sit above 20,000 s/f of restaurant and retail space.”
But Blumenfeld did not receive ordinary financing. Instead EBRM largely circumvented the private sector capital markets and received a substantial portion of its financing courtesy of the Pennsylvania taxpayer:
“The hotel’s revitalization involved coordinating with an array of state and city governmental agencies and programs, including the Philadelphia Redevelopment Authority which provided a $2,500,000 loan and $1,000,000 grant, the Pennsylvania Redevelopment Assistance Capital Program which provided a $3,500,000 RACP grant, the Philadelphia Industrial Development Corp. which provided a bridge loan for the state grant, and the parks department which is anticipated to provide $8,000,000 in historic tax credits financing.”
In total EBRM received over $15 million in government grants, loans, and tax credits, including a RACP grant, which my research shows simply shuffles economic activity around Pennsylvania and puts taxpayers on the hook for paying back the bonds that fund the program – with interest.
I appreciate the renovation of historic landmarks but I don’t think taxpayers should have to help with the financing. Boutique apartments are a private good and as such their provision is best left to the market, without assistance from public funds. Some businesses choose to pursue government grants and subsidies rather than create a business plan that private investors are willing to finance – and who can blame them? It’s often easier to work with local governments that are just waiting to throw money at any business venture that promises jobs than to go through the trouble of creating a profitable business capable of attracting investors.
If you’re a Pennsylvania taxpayer thinking about moving to Philadelphia I recommend a new unit in the remodeled Divine Lorraine. At least that way you might get something for your money.