Wharton Journal

Issue date: 2/19/07 Section: News

As students walk from Center City to campus or exit the El at 40th and Market, it is impossible to miss the signs of development and revitalization taking place in University City. It seems that new stores, condominiums, and apartments are popping up everywhere. Businesses are relocating as land is being redeveloped to meet the needs of today. The University of Pennsylvania has recently revealed intentions to extend and develop the eastern boundaries of campus to the Schuylkill River.

The Trammell Crow Company recently purchased the Divine Tracy Hotel located at 20 S. 36th Street. The new development, a privately-owned student resident hall, is being led by Wharton Alum, Joe Ritchie (WG'99), with significant contributions from another Wharton Alum, and former Wharton Journal staff writer, Joe Kewish (WG'06).

The Divine Tracy Hotel was opened in the early 1900s and purchased in the 1950s by the Palace Peace Mission, a religious movement started by the Reverend General Jealous Divine. His followers often referred to him simply as Father Divine. The hotel was still in operation until it was sold to Trammell Crow in September 2006. The hotel was unique in that it maintained high moral standards espoused by the Peace Mission faith. These standards which applied to all guests included, "no smoking, drinking, obscenity, profanity, vulgarity, undue mixing of sexes, receiving of gifts, presents, tips, or bribes. Ladies and gentlemen are housed on different floors." Even with these guidelines, the Divine Tracy enjoyed high occupancy and catered to "a harmonious blend of cultures catering to individuals, groups, college students, professionals and foreign visitors." Clean accommodations and reasonable rates (only $50.00 per night) made the Divine Tracy Hotel a gem hidden within University City.

In early 2006, Joe Ritchie, a Vice President at Trammell Crow's Conshohocken office and who lives in West Philadelphia, heard rumors that the Divine Tracy was possibly up for sale. "I had an interest in doing business in the neighborhood and was looking for sites, but this is not something that would have been uncovered without being referred to me. This is one opportunity that found us." After meetings with the broker who sold the Divine Lorraine Hotel, another Peace Mission property located at Broad and Fairmount in Philadelphia, and a facility tour, Ritchie knew that the well maintained property had tremendous potential.

The first scenario that Ritchie and his team developed was to convert the historic building into a boutique hotel. "University City has an under-served hospitality market," commented Ritchie, "If you want to stay in University City you basically have two choices, the Inn at Penn and the Sheraton." Despite the initial investigations, Ritchie's team determined that the room shapes and sizes and the extensive common space did not meet the needs of today's hotel market. Rather than forsake the building, the team turned its attention to serving another large market, Drexel and Penn students.

This investigation proved more appealing to the real estate development team. Ritchie indicated that, "The market potential is great, there are around 45,000 students with waitlists at both Penn and Drexel each year for housing. Market forces were favorable and we could accommodate the use with minimal alterations to the building." Besides the purchase price of the building, which was not disclosed, the other major expenses focused on safety, technology, and amenity space enhancements. The project contained a number of great advantages, as Ritchie noted, "It is urban, there is cross pollination potential with students from two great universities living in the same housing complex, and we are able to deliver a deliver a high end product that we expect will be received very well."

While Ritchie led the six member team, negotiated the purchase of the property, and gave the internal sales pitch to the Trammel Crow investment board, Joe Kewish, Senior Associate at Trammel Crow's San Antonio office, performed the detailed analysis required to support the project goals. Market sizing models were created, supply and demand was investigated, macro and micro economic factors were studied, and revenue and expense models were developed in order to create the project's pro forma.

The end result of the efforts will be a new privately-owned resident hall named the Stratum on 36th. The new facility, scheduled to open for the Fall 2007 semester, will boast fully furnished hotel styled rooms with approximately 260 beds in single or double occupancy configurations with en suite baths. The Stratum will also contain a state of the art exercise facility with tanning beds, a game room with pool tables, a theater room with gaming consoles (i.e., Xbox 360 or Nintendo Wii), weekly maid service, a business center with wireless broadband connections, and a 24-hour front desk. A resident life program with special events and parties and resident assistants that live in the building are also planned for the facility. Students will enjoy an upscale dining experience with three different meal plans supported by a bistro style eatery that will cater to the diversity of students' tastes. While the resident hall approach is most familiar to undergraduates, the project is a great option for Wharton students who want to live close to Huntsman Hall and have all their furnishings, utilities, food, and amenities included. Details about the Stratum can be found at its website www.the-stratum.com.

Not only will the new project provide for the living needs of students, but it will also contribute to the local economy. The facility will be managed by Campus Advantage, an Austin, TX property management company. Campus Advantage plans to staff the Stratum with maintenance, house keeping, and food preparation personnel. Although exact numbers for the number of required staff is still not determined, the primary labor pool will be provided by local Philadelphia residents.

There is no doubt that Ritchie's and Kewish's experience at Wharton have helped them in their career and on this project. As Ritchie noted, "The interesting thing about real estate is that it touches on almost everything you learn at B-school. In every opportunity, one has to consider macro and micro (i.e. supply and demand analysis, interest rate movements, etc.), marketing, pricing, positioning, and the valuation and structuring of the deal. For the Stratum, we had a great asset in a good location; we just needed to figure out the right product. It required a bit more of a creative process than most deals." Kewish added, "I was very satisfied that many of the things I studied in the Real Estate program were directly relevant to my work. At Wharton, I learned a lot of different things that, individually, might not have seemed exceptionally relevant, but the diversified curriculum absolutely helped me understand and contribute to every facet of this project."

When asked what characteristics are key for success in real estate, Ritchie noted two attributes. "First, an entrepreneurial spirit is required - a fire in the belly. One needs to be driven to aggressively and constantly pursue opportunities. Secondly, one needs to cast a wide net. There is a network of people you need to know and who need to know you. This is how business is driven. It is a non-traditional recruiting process and the best way to get to job opportunities is to talk with as many people in the industry as possible. It requires making calls and speaking with alumni. It is all about pounding the pavement." Kewish indicated, "being personally invested in the work that I do makes it much more enjoyable and easier to find success."

Development of the Stratum has a personal meaning for both Ritchie and Kewish. Kewish explained, "working on a project so close to Wharton reminded me why I enjoy real estate - the ability to create something tangible and lasting that people will identify with. Knowing the neighborhood and thinking about Wharton students living at The Stratum added a level of personal interest and excitement that would not necessarily always be the case in real estate development." For Joe Ritchie the redevelopment of the Divine Tracy Hotel is one more step in the process of making University City a premier urban center. Ritchie, who bought a home in West Philly when he came to Wharton in 1997, has lived here ever since. "I moved here when the University encouraged students not to live in West Philly. It was a very different place then. Huntsman Hall wasn't here, the Fresh Grocer at 40th and Walnut didn't exist, the Penn Book Store and Inn at Penn had just been completed." Reflecting on the past, Ritchie commented, "In the last 10 years, there has been a tremendous transformation in the neighborhood; as a student, as a resident of the neighborhood, as a parent committed to living and raising a family in the neighborhood, I love the tremendous diversity in terms of ethnicity, political persuasion, and income levels. There are challenges no doubt. There are places in the area that have been left out; rising property values and taxes threaten to make life for some more difficult. Nevertheless, the neighborhood is safer and there is a growing vitality that can be felt by those who live here." For Wharton, it is just one more example of alumni giving back to a community and legacy that has given them so much.

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