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Inquirer Daily News

Archive: January, 2010

POSTED: Thursday, January 14, 2010, 2:35 PM

Big is bad. That's the Obama administration's justification for proposing a new tax on the nation's biggest financial institutions, at a time when the government is also trying to prod them into lending more money to businesses and consumers to get the economy growing again.

Obama wants to "recover every single dime the American people are owed" from the Troubled Asset Relief Program (TARP). He's proposing a new tax of 0.15% on banks' investments, including Treasury and Fannie Mae securities, to raise "up to $117 billion" over the next 12 years. "My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people," the President added.

Obama's bank tax doesn't make any discrimination between institutions like Citigroup that made big, stupid mortgage bets, or Goldman Sachs that encouraged, exploited and profited from others' stupidity, or PNC and those other big meat-and-potatoes lenders that didn't cause the blow-up but still got caught when property values plunged. Obama wants to tax them all, indiscriminately. By contrast, General Motors and Chrysler, who also got TARP money, won't be hit by the tax at all.

POSTED: Thursday, January 14, 2010, 1:47 PM

How weak is the Philadelphia-area office market? 

Companies looking to move last year could expect starting rents around $24 a square foot and free rent for a year.
That compares to $28 a square foot, and free rent for five months, in 2008, according to Grubb & Ellis' annual report, reviewed with commercial real estate dealers in a Union League presentation this morning. (Both numbers assume contracts for a full floor, for at least ten years.)

On the other hand, tenant improvement breaks have fallen to around $45 a square foot, from $47 the year before.

What's 2010 look like? Grubb & Ellis predicts vacancies in the region will keep rising, to peak at nearly 15% in 2011, up from less than 10 percent in 2008. As usual, downtown Philadelphia demand is greater and costs are higher. But nobody's building anything.

 

POSTED: Thursday, January 14, 2010, 1:28 PM

The credit card industry, one of the Philadelphia region's big job growth engines in the 25 years ending 2005, keeps shrinking.

Advanta Corp. of Spring House is bankrupt, laying off hundreds over the past year and endangering over $1 billion in uninsured savings for small investors. Much larger employers - the giant U.S. banks that issue Visa and MasterCard - Bank of America, JPMorgan Chase & Co., Citibank, which together employ over 12,000 card workers in Wilmington and its suburbs - are also hurting, says analyst Scott Valentin at FBR Capital Markets.

Card lending fell from almost $1 trillion in December 2008, to under $800 billion in September. Valentin tells me he expects it will drop "6 to 9 percent" this year. That's because more Americans are out of work and can't pay their bills, and because the new US credit card law makes it harder to boost interest rates for people with bad credit. "The lowest-credit segment is going to suffer the greatest shrinkage. Those accounts will be closed." Credit cards will be restricted to higher-income Americans.

"We've pegged Bank of America shrinking the most, JPMorgan a little, and Capital One somewhat. Citibank, it's hard to tell," Valentin said. BofA employs around 8,000 in Wilmington at the former MBNA Corp. JPMorgan employs around 5,000 at Chase Card Services, formerly First USA Bank. Citi employs several hundred card workers in suburban Wilmington's Pike Creek Valley. Capital One has no major operations here.

Valentin thinks card specialists American Express Corp. and Discover Card will outperform other card lenders, partly because they're so highly specialized and don't have other businesses to fall back on.

Credit card banks lost money last year. Valentin expects they'll be profitable again, after losses peak later this year, but at long-term margins of 1.5 to 2 cents for every dollar lent, compared to past profit levels of 3 percent or more. Home lonas, by contrast, return about 1 percent.

POSTED: Thursday, January 14, 2010, 3:44 PM

Stopped by to see developer Carl Dranoff in his Symphony House office this morning. His crews are finishing work on  down at 777 South Broad Street; the grand opening's scheduled for March 11.

Dranoff had originally seen 777 as another condo project, like Symphony House. Instead, it's high-end apartments.  Sign of the times: "People are buying less, and renting." They're worried about prices going down.

"This is, so far as I know, the only new residential building that will be delivered in Philadelphia in 2010," Dranoff told me as he leaped up flights of stairs, greeting foremen by name.  "There's probably going to be a hiatus of several years before the next big project in Philadelphia gets built. The spigot is off" for most construction. Though, he quickly added, housing developers Bart Blatstein and Eric Blumenfeld are still pushing conversion projects along North Broad.

Dranoff still thinks South Broad Street "could be like Columbus Ave. or Amsterdam Ave." on Manhattan's busy mid-West Side. He's got ideas, he's got proposals, he's got potential partners. But they'll have to wait until "the next big real estate shortage" drives rents up sometime in 2012 or later. Meanwhile Dranoff is applying for government funding to keep his suburban and out-of-town projects in sight: 

NEWARK NJ: On Tuesday, he says, New Jersey approved $38 million in "Urban Transit Hub tax credit grants" for Dranoff's 44-story building and 600-space parking garage near Newark' Amtrak station. 

The tax program is designed to allow developers to sell the credits to big corporate taxpayers at a modest discount (used to be 10-15%, now more like 20-30%). The program was designed to promote office and business projects, but there haven't been a lot of takers, so New Jersey has been letting residential builders in, Dranoff says.

This will happen when? "The city approved the site in October. We're doing design work. I'm securing money. I expect to break ground in 2011." Was supposed to be this year, but "everything's turned out to be slower than we expected." Nearly half the capital "will be public subsidies or tax credits," including federal New Markets credits, Urban Transit Hub tax credits, and affordable housing tax credits, for "artists' housing, " since the New Jersey Performing Arts Center is across Center Street.

CAMDEN: "You remember I did the Victor Building" at the former RCA plant, in 1990? "I got development rights for the area all around it." He wants mid-rises, townhomes, all up and down the waterfront, "from the stadium to the pier, it's ten acres, nice views" of Philadelphia. "The first project is Radio Lofts," in another ex-RCA factory. "86 condos in a historic building. The groundbreaking's next month."

ARDMORE: "Like Newark, we’re in the design phase. And it's a public-private partnership, with public subsidies." Sidewalks raised so you can walk right on the train, as at Suburban Station. A 600-car garage. "Septa's putting up $10 million. We're working with Amtrak, too." The project has applied for $32 million in federal stimulus funds. "And $6 million from a state Redevelopment Assistance Capital Grant. $6 million from the Federal Transportation authority, since we're designing this train station to meet federal guidelines. And we'll improve the tunnel under the station."

Private money? "Our money will be in the 120 apartments," and adjoining office and retail space. When? "Could start to happen late this year, if we get the stimulus money."

Dranoff says national developers "have shied away from Philadelphia. It's hard to assemble land here. It's hard to develop." Symphony House is "93 percent sold," and that enabled him to pay off the $98 milion he borrowed ($40 million from US Bank, whose new Philadelphia office is run by former Mellon Banker Ron Bloch; around $25 million each from PNC and Citizens, the rest from Alabama-based Compass Bank.)

As an owner-operator, "we have never sold a building... I'm not leveraged. I knew this day was coming. We are an inherently cyclical business." He remembers the mid-1970s real estate bust, the early 1980s credit crunch, the S&L real estate crisis ten years later. "You learn to plan for the next downturn. Position yourself well with plenty of cash in the bank. You survive, and you win." 

POSTED: Wednesday, January 13, 2010, 10:17 AM

"U.S. commercial property prices have plunged more than 40 percent from their October 2007 peak, while the default rate on commercial mortgages more than doubled in the third quarter of 2009 to 3.4 percent from a year earlier, according to data compiled by Moody’s Investors Service and Real Estate Econometrics." The real estate hangover could last for a decade, Bloomberg reports here.
 
Time to abandon thoughts of a career in offices, warehouses, stores, apartments? To the contrary: “There will be giant opportunities that come out of this,” veteran New York property operator Kenneth Laub tells Bloomberg. 

"Hedge funds, foreign investors and real estate companies will step in and take advantage of falling property values to make acquisitions at prices as low as one-third of their peak 2007 value...

"New consulting and advisory services will emerge in the industry as property owners seek ways to restructure their finances, lure tenants or sell off stakes to prospective buyers, Laub says. 'We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before.'"

POSTED: Wednesday, January 13, 2010, 8:28 AM

Web editor David Ralis was up too late last night, and he noticed this on Forbes.com: an interview with ex-Eagles owner Norman Braman, Palm Beach-based auto dealer, holding forth on the economy (he fears inflation) and investments (he's buying gold, not stocks): "When (2007 mortgage bear John) Paulson set up his gold fund, I put some substantial money into it." Of course, Braman also believed in Bernie Madoff.

POSTED: Wednesday, January 13, 2010, 4:18 PM

Lower Bucks Hospital Inc. has filed for Chapter 11 bankruptcy protection. New CEO Albert Mezzaroba filed in federal bankruptcy court in Philadelphia, one month after the hospital defaulted on bond payments due to higher costs and a drop in patients. Investment bank SSG Capital Advisors LLC, West Conshohocken, has been looking for possible new owners.

Hospital facilities stay open, 1,000 workers still employed. Lower Bucks owes $35 million to federal Pension Benefit Guaranty Corp. and $25 million to Bank of New York Mellon Inc. among other debts. Case is 10-10239-elf (USBC E.D.Pa.) More in tomorrow's Inquirer.

The filing comes despite an attempt by the Pennsylvania General Assembly to bail the hospital out with state gambling revenues.

Read more: Albert A. Mezzaroba, Lower Bucks president and CEO, tells the court in an affidavit why Lower Bucks Hospital filed for bankruptcy.

POSTED: Wednesday, January 13, 2010, 3:28 PM

Guardian Capital Partners, Wayne, says it's finally finished a two-year effort to raise $50 million, to make investments in small and midsize companies in the region. "It's a good time to be buying low-end middle-market companies," now that prices are down and capital is scarce, partner Hugh Kenworthy 3d tells me.

Kenworthy, former head of Brynavon Group, and partners Peter H. Haabestad and Scott D. Evans are looking for manufacturing and service companies along the East Coast, "the closer the better. The greater Delaware Valley really is our primary focus."

About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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