Center City Site Selected By Conrail

Posted: March 31, 1990

Conrail yesterday came to the end of the line in its long search for a corporate headquarters and announced it will lease a new office tower to be built at 20th and Market Streets.

After a 2 1/2-year search during which the freight railroad company was courted by nearly every major developer in the city and suburbs, Conrail said it would lease 27 floors of a 41-story building to be built at the Commerce Square development.

"The competition was fierce. We just came up with what, for Conrail, was a better mousetrap," said Edward D. Fox Jr., senior partner of Maguire Thomas Partners of Los Angeles, which is developing the $500 million Commerce Square project with IBM.

"It's been a long time, and we're very happy to have concluded this process," said Bruce B. Wilson, senior vice president for law at Conrail.

Conrail is the last of several major local companies - including Cigna Corp., CoreStates Financial Corp. and Independence Blue Cross - to make up its mind about a new corporate headquarters. The Commerce Square building is likely to be the last in the current wave of skyscrapers being built in Center City.

The railroad expects to move 3,090 employees now working at four different Center City offices - including the company's current headquarters at Six Penn Center - to the new building, which will be called Two Commerce Square.

Construction is set to begin late this year and be completed in 1992.

Commerce Square is being developed jointly by Maguire Thomas Partners and IBM, which is a major tenant in One Commerce Square, a granite office tower topped by diamond shapes, that opened in 1987.

The new building will be a twin to One Commerce Square and will be linked by a public plaza that already has been built.

Early in its search, Conrail considered proposals from suburban developers, but Wilson said yesterday that the company did not seriously consider leaving Center City because many of its employees use rail transportation to get to work.

"Philadelphia has been a railroad headquarters city for a long time, and we felt it was desirable to remain a railroad headquarters city," said Wilson. ''We felt that as long as we could come up with a package that did not disadvantage us financially, we were going to stay in Center City."

Conrail's decision came a day after Mayor Goode proposed increasing city taxes.

"The mayor is elated," Goode's spokeswoman, Karen Warrington, said of Conrail's announcement. "He thinks this decision really speaks to the viability of Philadelphia."

Wilson said Conrail chose to stay in the city despite its higher tax rate.

"We made the decision to stay in Center City, but that doesn't mean we're not concerned about the financial health of the city," he said.

"When you haven't decided where your headquarters will be, it's hard to play a meaningful role, but this company and its management are deeply involved in the community and will continue to be involved in coming up with solutions to some of these long-term problems - not the least of which is the transportation system."

Howard W. Randolph Jr., general chairman of the Transportation Communications Union, System Board 86, which represents 2,000 clerical workers - the largest group of Conrail employees involved in the move - said the workers were pleased with Conrail's decision to stay in Center City:

"We're very happy they will stay here where our members have easy access to trains."

Conrail's search was delayed, in part, by chairman Richard D. Sanborn's death in February 1989, six weeks after he took the office.

Earlier this year, Conrail announced plans for a major restructuring, but Wilson said that had not delayed the office search.

Wilson said that as Conrail's search dragged on - and more and more office space was developed in Center City - the deals presented to Conrail by developers grew sweeter.

"In all, we're very happy that it worked out the way that it did," said Wilson, who declined to disclose the financial terms of the lease.

Conrail has agreed to lease Two Commerce Square for 15 years and has options to extend its lease to 30 years. Bank of America will provide interim financing with a seven-year loan.

When the building is completed, Maguire Thomas will have to lease an additional 200,000 square feet, but Fox said that would not be difficult

because that space would be in one large block at the top of the tower.

Richard Jones, president of Jackson-Cross Co., the Philadelphia real estate company, agreed that Maguire Thomas' extra space in the new building should be leased easily.

However, he said, Conrail's move creates additional vacancies in older buildings.

"The new buildings are all leasing," he said, "The bigger concern is for the older spaces they pull tenants out from."

Employees will move to the new building from leased space at Six Penn Center, One Liberty Place, 3201 Arch St. and 15 N. 32d St., the former Food Fair building.

Maguire Thomas and IBM also own the next block west on Market Street, where the former After Six factory stands. They are planning to redevelop it if they can land a major tenant.

Fox said Commerce Square offers a view of Conrail's trains passing through 30th Street Station. And during lease negotiations, Maguire Thomas officials were always pleased when a Conrail train came into view below.

"I wouldn't say that was the prime reason for our choice," said Wilson, ''but it is a nice side benefit."

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