Why MODsolar moved to Center City Philly

February 2, 2015 Mike Dershowitz

The story of every company is the personal story of the entrepreneur(s) that make it happen.  So a bit about my story to explain why we’re so excited to announce that ModSolar has moved from its suburban home in Ardmore to North 13th St., in Center City.

I’m a city kid.  When people ask me where I grew up, that’s how I identify myself.  Whether it was growing up in a 1700’s house with a spiral staircase connecting its tiny floors, or the fact that Rittenhouse Square (not so lovely in those days) was my backyard and playground, this was what I knew, and it seemed fine to me.  Many years later, when I married and moved out to the ‘burbs to start a family (which I now have – 3 kids) and had to get the space we needed, it seemed like a logical choice.  But I always bugged my wife about moving back.

We settled in Bryn Mawr on the leafy Main Line.  The first room we re-did in our house was to change a bedroom into an office for me.  It was my first real home office, and I felt like I finally had the space I needed to work.  My wife contends that there would not be a ModSolar today if we hadn’t redone that room.  She says that my mind needed the physical space to let it go wherever it would to create something of value.  Maybe she was right.

So as the company grew, first our home office changed to 600 square feet of class “C” space in Paoli (cheaper, more flexible lease).  It was fine for us back then, but it had its drawbacks – we came to joke that the Wawa down the road (really the only lunch option around) was the “MODsolar Cafeteria.”  Continued growth meant that we needed more space, still in the ‘burbs, but closer to the train to attract employees.  By this time, I had two children, so convenience was paramount, and we settled into our class “B” 1800 square feet of space in Ardmore, happy to be near the train and much better food options.  Our Ardmore office was 7 minutes from my house – in traffic.  It also helped that Kevin Ilsen, my co-founder and our CTO, lived around the corner from me in Bryn Mawr (he found us our house, actually).  So we both wanted to stay on the Main Line, and we were happy that we could.

In March of last year, we were a few weeks away from signing a contract with one of the largest companies in our industry, which would have required 30% growth in staff.  It would have quickly put us on the brink of being on top of each other in our current location.   We knew what we wanted next  – something cool.  Ephemeral though it was, we knew it when we saw it.  So we started looking, and looking, and looking.  That big contract never signed, but as fall approached and there was no slow down in growth, it was clear we were outgrowing where we were and had to widen our search for an appropriate location – for something cool.

So I relented when our broker, Mahoney Realty in Ardmore, said: “How about the city?” At this point, I was just glad they returned our calls since they had been working with us since March (Kudos to Jim Wilson and the team over there for persistence in the sales process).  I relented, and in addition to the two properties we liked on the Main Line, we started looking in the city.

There is just something about how the grit of a city, even one as nice as Philly has become in the last 25 years, motivates me and gets my creative juices flowing.  By mid-November, we had narrowed it down to 3 properties and started taking a serious look at the numbers.  Now, we really started to worry that there was no way we could afford something in the city.  The first thing that honestly shocked us was the price – I mean really shocked us.

I know what you’re thinking – the city is expensive.  Wrong, dead wrong.  Now, I’m not saying we needed to be on the 35th floor of 1 liberty place (nor would we want to, BTW – we’re not lawyers for Pete’s sake!), I’m sure those prices are comparable to the Main Line.   But when we started looking at converted warehouse spaces, or green office spaces near the river, or beautiful early-deco brick masterpieces on Chestnut St., we were shocked – shocked I tell you – at how much savings we were looking at compared to what we would have to spend to do the same on the Main Line.

How much?  For buildings (any tech startup, really) we would want, we were looking at savings of 30-60% on a square footage basis.  That is not a typo – 30-60%!  We were in business.

Ok, but what about the taxes right?  We had heard horror stories and were scared about them too. Luckily, there happens to be about as close as you can find to a city tax expert in my family – former deputy city comptroller and two-time city comptroller candidate, my step-brother Brett Mandel –  the self-proclaimed “budget bulldog” for the city of Philadelphia.

In early December, Brett and his wife Laura held a birthday brunch at their house in Center City for his mother (my step-mother – Sharyn Dershowitz).  Over smoked fish, Brett casually asked: “How is the office hunt going?”  I told him about our search, and how we were finding properties we liked, but that we were scared to death of the BPT…um, I mean BIRT.  “It’s not as bad as you think,” was his response.

Since everyone is busy, I’ll give you the crib notes about business taxes in the city, which Brett helped explain and we learned: They really aren’t as bad as you think.  While you do face the City Wage tax (and we grossed up our employee’s salaries), the City has done a lot to reduce taxes for businesses that are based in Philly but do most of their business outside of the city.

Here’s where I think Philly gets tech start-up friendly in a hurry.  Most of the taxes that have traditionally been the biggest concern for the business community have a qualification for where your income is earned.  This makes a huge difference in the BIRT you’ll face moving into the city.  In addition to that, there’s also a tax credit right now for new job creation in the city.  $5,000 for each job you create – and you can carry it forward.  We’re moving 20 jobs into the city and plan to hire another 10-20 folks by the end of this year.  So by the end of the year, we could have tax credits worth $200,000.  (For those of you who want to geek out on the details, look at my bulleted list here. Note that some tax information was corrected on Feb. 12, 2015.)

After we did the evaluation, the last reason not to move into the city fell.  We got the “cool” space we wanted, with greater access to talent, close to transit, more space to let ourselves be free, great prices on rent, and a tax bill that wouldn’t kill us.  We seemed to have created/found it all.  And because prices were so much lower in the city for our “cool” space, we were able to comfortably upsize and remove the hassle of having to deal with offices for at least several years. We went from 1,800 square feet to almost 9,500 square feet, but we only tripled our costs.  Don’t underestimate the effect this has on your company – the space gives you the freedom you need to let your entrepreneurialism take you where you’re going to go.

For me, I’ve come full circle. As a significant milestone, my birthday is upon me in May; I have to admit that having a fast-growing company in Center City is really who I wanted to be after all.  While I don’t live back in Center City (yet!), I can say that when I walk off that train and head up 13th street to start the day, looking forward to the creaking of our hardwood floors, the high ceilings, the energy folks seems to have in this new space, the room to grow, I get excited as I approach the door.  The energy of it all overtakes me, and I’m ready for a great day.  I guess it’s just the city kid in me after all.