Archive: November, 2010
Re Level 3 Communications Inc.'s claim that "Comcast threatens the open Internet" by "effectively putting up a toll booth" to impose fees for carrying massive movie traffic to L3 client Netflix's online customers; Comcast's reply, that it's just doing what it, L3 and other networks have long done, charging for moving data without discriminating as to content; and the FCC's pending "Net neutrality" rules:
- Craig Moffett, Bernstein Research: "Obviously, an overt violation (by Comcast) of the Net Neutrality principles would endanger not only (FCC's plan to expand Internet regulation) but would also potentially threaten Comcast's pending merger with NBCU...
"Level 3's implied claims of traffic discrimination... appear unfounded... Still, Level 3's charge is likely to create something of a political firestorm... at least with the general public and, just as importantly, with the technology press. In our view, this is very likely its intent... Whether Level 3's charges ultimately influence the FCC's Net Neutrality eliberations, or the Comcast NBCU merger, remains to be seen."
- Tony Wible, Janney Capital Markets: The L3-Comcast fight "will increase the scrutiny from the FCC and helps bring into focus the looming government proposals for a newbroadband policy that we believe will support Net Neutrality but will also condone Usage Based Billing for data service.
"This move will have a profound effect on the media industry," boosting fees on consumers, especially for the "20% of Internet users (who) account for 77% of the traffic," and thus increasing profits, plus competition, investment, and overall Internet use. Comcast and other Internet providers will gain; Netflix and other Internet users will lose.
Home prices fell in 18 of 20 major US markets during September, S&P/Case-Shiller data shows here. The typical US home price "declined 2.0% in the third quarter of 2010," after rising nearly 5% in the second quarter.
Prices fell in 18 sampled markets and rose (just a little) only in 2: battered Las Vegas, and government-inflated Washington, DC. In the Northeast, prices fell 1.3% in the Boston area, 0.3% around New York.
S&P doesn't count metro Philly; why not? "The S&P/Case-Shiller Home Price Indices use data from filings in county tax offices for property tax purposes. These filings tend to have long delays in Pennsylvania which would result in similar delays in publishing an index for Philadelphia," says S&P spokesman Dave Guarino. Plus, he adds, Boston, NY, Philly, Washington - it's all Northeast, right?
"While housing prices are still above their spring 2009 lows, the end of the tax incentives and still-active foreclosures appear to be weighing down the market," S&P reports. "September was the fourth consecutive month" where sales prices "decelerated."
Slow housing means a slower economy. In a report to clients, Guggenheim Securities LLC analyst Jay McCanless says he expects a 10% drop in sales by Horsham-based nationwide high-end tract-home builder Toll Bros. Inc., from around 765 in the fourth quarter of last year. He noted Toll reduced the number of developments it plans this fiscal year to 195, from earlier estimates of up to 210.
Cheesesteak, pizza, hoagie shops and takeouts are being replaced by fancy tablecloth-and-wine establishments in Center City at the rate of nearly one a month - even with the recession, says a new report.
Since 2006, the number of takeouts and sandwich joints in Center City has fallen, from 210, to 171 - while the number of "fine dining" restaurants rose from 238 to 278, reports Paul Levy's Center City District in its new Retail Report here. See especially the table on Page 5.
Example? Try 1001 Spruce St., formerly Logan's Pizza, now home to Kanella, "which is impossible to get into without a reservation," District spokeswoman Linda Harris tells me. Instead of a slice and a Frank's, Kanella serves stuff like roast organic duck leg with fancy greens and sweetened pomegranate sauce, a bargain (I guess) at $22.
The number of "casual dining" restaurants (Applebee's?) rose even faster than "fine dining" places, to 128, from 72 four years earlier. Coffee and tea houses also rose, to 60, from 41. Bakeries were flat, around 50.
Almost 1 in 8 Center City retail sites is vacant; the empty rate has gone up two years in a row, but it's still lower than it was for most of the 2000s.
Milestone Partners, Radnor, has bought a piece of Learn It Systems LLC, a Baltimore firm that says it provides tutoring and other public-school services to 25,000 low-income school students in 11 states, including New Jersey.
Milestone partner Brooke Hayes won't say how much his firm invested, but notes Milestone typically puts at least $8 million into the firms it backs. Milestone bought out an unnamed original investor in Learn It.
It's Milestone's first school investment. Hayes says his diversified firm, with three funds and over $360 million in client assets, met Learn It through investment banker Anthony Lopez Ona and his firm, Philadelphia-based Mufson Howe Hunter & Co., who advised advised Learn It in the deal. Dan McDonough of Philadelphia law firm Pepper Hamilton LLC advised Milestone.
Philadelphia and Washington DC office tenants "want more free rent," George D. Johnstone, operations chief at Center City's dominant office landlord, Radnor-based Brandywine Realty Trust, told investors at an FBR Capital Markets conference today.
Well, who doesn't? But tenants are actually getting their freebies, Johnstone said, because landlords are afraid to lose them in today's weak market: "They basically want anywhere from three to six months of free rent... Our deals in 2010, about 42% of them had some element of free rent... For '11, about 60% of the deals would have some element of free rent."
That applies especially in suburban and small-building markets, where "B-minus" tenants are upgrading to Class A buildings, attracted by cheaper rents, and demanding sweeteners to pay for "moving cost, telephone cost, cabling cost, et cetera." By contrast, "we are not really seeing a day-to-day demand for high-end tenant improvement costs."
What's good for the tenant is good for the landlord: Brandywine investment chief Thomas E. Wirth said he wants to boost the company's BBB- just-above-junk-bond-quality debt ratings (Corrected) so they can cut its borrowing costs.
But he acknowledges the same banking slowdown that makes it tough for Brandywine to sell small suburban properties (because would-be buyers can't borrow the funds they need) will make it tough for Brandywine to get easier credit terms as soon as it would like.
Despite its big and growing investment in the Philadelphia area (lately expanded to include the ex-30th Street Post Office, Commerce Square, Bell Atlantic/Three Logan), Brandywine wants to sell more of its properties in South Jersey, Delaware, California, and other markets and concentrate on boosting its Washington DC area total from the current 25% of property to around 35%. Already Brandywine gets the largest proportion of its profits from the DC area.
Temporary hiring was up 25% vs last year in the third quarter, and should peak at a 30% peak gain this winter; "staffing services have represented about half of total private-sector hiring" since the recovery began last year, notes Boenning & Scattergood analyst William Sutherland in a report to clients, citing data from the American Staffing Association.
But "the only consistently positive trend is in IT employment," while "the accounting and finance sector, in contrast, continues to decline at progressiely greater rates," Sutherland adds, citing reports by TechServe Alliance, and the federal Bureau of Labor Statistics, which has scheduled an update Friday.
Sutherland is recommending clients hold locally-based CDI and other tech-oriented temp stocks like Computer Task Group and SFN Group, while noting financially-focused Robert Half Group and Resources Connection have done poorly.
From her headquarters office at online retail operator GSI Commerce, Fiona Dias can see the parking lot of the giant, real-world King of Prussia shopping complex. "The mall was packed Black Friday," says Dias, "but I didn't see tons of shopping bags."
The National Retail Federation said the number of online shoppers has increased one-third so far this Christmas shopping season vs last year, a lot faster than the real-world variety. Dias, head of strategy and marketing for GSI, says that means bigger profits for her company, which runs Websites and online logistics and deliveries for Toys R Us, Dick's Sporting Goods, Bath and Body Works, and 100 other big store chains.
Dias says online sales rose across the board: "luxury apparel, value apparel, sporting goods, home products, beauty products." She credited, in part, stores' willingness to eat delivery charges: "Any retailer who thinks free shipping is optional is sorely mistaken. You cannot compete with Amazon if you don't offer free shipping." Doesn't that cut profits? GSI cuts costs with high volume and a tight relationship with United Parcel Service, Dias insisted.
Last year GSI's busiest minute came on "Cyber Monday" after Thanksgiving 2009, in the evening following working hours, when the company rang 789 orders in a minute. But at 11:27 pm Thanksgiving night, GSI beat that record, logging 797 orders. The iPad, Android Verizon phones and other mobile Internet devices have boosted Thanksgiving shopping, Dias says: "Customers were out and about, away from their desktops or laptops - and they were buying."