When Penn Center Harrisburg hit the market in summer 2022, the asking price for the three-building complex was $22 million.
The half-vacant property in the 2600 block of North Third Street ended up selling for $1.45 million late last month following the bankruptcy of its owner, Penn Center Harrisburg LP.
The buyer is an affiliate of Pennmark, a Philadelphia-area company that is hoping to bring new commercial tenants to two of the buildings and convert a third into housing.
“We’re really excited about the opportunity,” said Dean Cafiero, a manager at Plymouth Meeting-based Pennmark.
The company owns and operates about 3 million square feet of retail, office, residential and flex space, including Gateway Hanover in York County, which the company bought in October 2022.
What’s next: The deal closed in late March, so Pennmark is still working through its plans. But the company has some early ideas.
Among its first priorities is attracting office tenants to Penn Center Two, a vacant building of 30,615 square feet in the middle of the complex.
If Pennmark gets an OK from the city, space will be available starting at a biweekly rate of $99, according to Cafiero.
“It’s got very nice offices there now,” said Cafiero, adding that the goal is to generate cash flow from the property.
Pennmark is mulling residential options for Penn Center Three, a former nursing school of 94,348 square feet, according to Justin Bartholomew, a director at Pennmark.
What about Penn Center One: A former hospital building of roughly 140,080 square feet, it has three tenants.
They include the Pennsylvania Department of Drug and Alcohol Programs, which leases 17,503 square feet, and the U.S. Small Business Administration, which leases 615 square feet, according to bankruptcy court records.
The third is the Department of State, which leases 84,349 square feet, according to court records.
However the state agency is moving out at the end of April, Cafiero and Bartholomew said.
A medical operator has expressed interest in taking up 50,000 square feet in Penn Center One, Bartholomew said, declining to name the operator.
A Harrisburg official said the city has not yet seen any “clear strategic goals for development” but is hoping to discuss the property with Pennmark.
“We would like to schedule a meeting with them to clarify and potentially align or realign our objectives for Penn Center,” city economic development director Jason Graves said Friday in an emailed statement. “However, we only want to partner on projects that promise actual and impactful development.”
How did we get here: Penn Center Harrisburg LP put the complex up for sale in July 2022 at an asking price of $22 million.
An effort to reach Penn Center’s bankruptcy attorney was not successful. But in a previous interview one of the owners, Michael Daley, said he and his partner were ready to retire.
They purchased the buildings in 2004 for $4 million and spent $15 million to $20 million converting the former hospital into offices, Daley said at the time.
The original listing agent was real estate firm Marcus & Millichap but the partnership then turned to NAI CIR.
The Lemoyne-based real estate agency conducted auctions on the Ten-X real estate platform in July and September 2023, according to Robin Zellers, CEO of NAI CIR.
The winning bidder in the July auction defaulted, Zellers said, declining to reveal the company. Pennmark won the second.
But, according to court filings, “A dispute arose between the Debtor and Pennmark as to what was being purchased and the sale did not come to fruition.”
Penn Center then filed for Chapter 11 bankruptcy in December.
The bankruptcy trustee retained NAI CIR for the bankruptcy sale process.
The price was initially set at $2.65 million, according to court records. But it was reduced to $1.45 million after the Department of State said it was moving out, Cafiero said.
“It was really complicated,” he said of the process overall.
Nearly $1.2 million of the sale proceeds is going to Lancaster-based Fulton Bank, one of Penn Center’s largest creditors, according to court documents. The bank was owed about $12 million, according to the documents.
The background: Penn Center One was built as a hospital in the 1920s.
It eventually became part of PinnacleHealth, which was acquired by Pittsburgh-based UPMC in 2017.
UPMC owns and operates a neighboring building, the Polyclinic Medical Building, at 2501 N. Third St.
