Here's why:
* Prepositional phrase: It consists of a preposition ("close") followed by its object ("by").
* Adverb: It modifies a verb, adjective, or another adverb, providing information about location, time, manner, etc.
Example:
* "The park is close by." (modifies the verb "is")
* "I live in a house close by the school." (modifies the adjective "close")
While "close" can be an adjective on its own, in this context, "close by" acts as a unit to modify another word, making it function as an adverbial phrase.