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The joint venture partners plan to convert the neighboring Old City properties to new uses, sources said.
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Philadelphia developers Lubert-Adler Real Estate Funds and Keystone Development and Investment are finalizing a deal to purchase the Bourse building and 400 Market St., according to multiple industry sources.
The joint venture partners plan to convert the neighboring Old City properties to new uses, sources said.
The purchase would be Lubert-Adler's latest investment converting a historic property amid the office downturn and would add to Keystone's portfolio of properties surrounding Independence Mall.
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A wedding venue is expected to replace the nearly vacant food hall that currently occupies the first floor of the 10-story Bourse, according to the sources. Above the venue, several floors of the 129-year-old building would be converted into a hotel with some office space remaining in the upper floors. Located at 111 S. Independence Mall East, the 302,600-square-foot Bourse building sits across from Independence Hall and the Liberty Bell Center.
The 12-story, 173,700-square-foot office building at 400 Market St. would be converted to either apartments or a hotel, sources said.
The two properties are owned by KKR Real Estate Finance Trust Inc. (NYSE: KREF), a subsidiary of New York alternative investment giant KKR. In an April 24 earnings call, KKR Real Estate Finance Trust COO Patrick Mattson said the firm had an agreement to sell two Philadelphia buildings.
KKR took control of the buildings from MRP Realty in December through a deed in lieu of foreclosure. KKR Real Estate Finance Trust lent $182.6 million to MRP Realty in 2019 for the Old City portfolio, according to Securities and Exchange Commission filings.
MRP, based in Washington, D.C., had put the Bourse and 400 Market St. up for sale in January 2023 as part of a portfolio of four Old City buildings, but it was unable to find a buyer. At the time, the Bourse was 39% occupied and 400 Market St. was 45% occupied, according to Cushman & Wakefield’s marketing materials.
The 13-story, 209,700-square-foot office building at 325 Chestnut St. and the 10-story parking garage at 401 Ranstead St. were also part of the MRP Realty portfolio listed for sale.
In April, Mattson said two remaining Philadelphia properties not included in the agreed upon sale are a parking garage and a “well-occupied office” building. When MRP Realty put the portfolio up for sale, 325 Chestnut St. was 72% occupied, according to Cushman & Wakefield marketing materials.
The deal falls in line with Lubert-Adler raising several hundreds of millions of dollars in recent years to acquire distressed properties affected by the Covid-19 pandemic. In October, Lubert-Adler CEO Dean Adler said “this is the time to back up the truck and invest money.”
Lubert-Adler and Keystone did not respond to multiple requests for comment.
Lubert-Adler and Keystone both have experience converting properties to new uses. In 2021, Lubert-Adler purchased the 120-year-old, 19-story, 885,365-square-foot Bellevue at 200 S. Broad St. and is converting the office space into apartments and working on renovations to the hotel and event space. A "reimagined" Sporting Club at the Bellevue debuted over the fall.
The firm also redeveloped the former PECO plant at 1325 N. Beach St. into The Battery, with 173 apartments, 100,000 square feet of event space and 135,000 square feet of office space. Lubert-Adler also partnered with PMC Property Group to redevelop 2400 Market St., which is now home to Aramark, Audacy and the Fitler Club.
Keystone has been redeveloping the 912,245-square-foot Curtis building from office space to life sciences lab space. It also owns The Washington, a 20-story, 986,960-square-foot office building at 510 Walnut St., where the developer is considering a partial conversion to residential.
Buying the Bourse building and 400 Market St. would give Keystone ownership of buildings surrounding Independence Hall on three sides. Lubert-Adler, meanwhile, has experience using historic tax credits for redevelopment projects.
KKR Real Estate Finance Trust estimated a fair value of $76.5 million for the four former MRP properties held for sale, federal filings show.
On a Feb. 7 earnings call, Mattson said KKR took a $59 million loss on the Philadelphia office investment.
The trade, if it closes, would add another data point for the Center City office market as it resets in the post-pandemic era. Philadelphia's central business district has seen few large buildings change hands in recent years, leaving buyers and sellers with a lack of comparisons to inform office deals.
