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PhillyDeals: Few tenants moving into Philadelphia's Center City offices

Philadelphia's Center City office vacancy rate has topped 15 percent, the worst since 2004, according to data collected by Studley Inc., the national tenant-rep firm.

Philadelphia's Center City office vacancy rate has topped 15 percent, the worst since 2004, according to data collected by Studley Inc., the national tenant-rep firm.

That's up from less than 10 percent just two years ago.

"There's been a period of stagnation," with few tenants moving in as the economy slows, Greg Soffian, the Studley agency's Philadelphia branch manager, told me.

Philadelphia's chemical industry has been pulling out: Arkema Inc. is consolidating its Center City offices at its King of Prussia labs. Sunoco Inc. is trying to sublet its headquarters as it sells off businesses and cuts staff. And Dow Chemical Co. has vacated parts of the landmark former Rohm & Haas Co. building on Independence Mall since it bought the firm last year.

Studley's larger rival, CB Richard Ellis Group Inc., estimates the Center City vacancy rate at about 14 percent, the highest since 2005, says spokeswoman Maureen Anastasi.

Soffian says Brandywine Realty Trust's $129 million purchase of the former Bell Atlantic building in a stock deal with Blackstone Group L.P. earlier this month "changes the dynamics of the market." Though national real estate values had fallen about 40 percent, building owners had mostly resisted cutting deals at lower prices, in hopes the market would recover. The surrender could spark more low-price deals - enabling buyers to cut rents and still turn a profit.

Soffian expects Brandywine will try to keep rents above $30 per square foot on the upper floors, but may accept less if it can rent larger blocks of space on the lower floors to big law firms looking for high-rise space as their old leases expire.

At least one corporate employer is still expanding. Comcast Corp. has sublet the 42d and 43d floors of the Bell Atlantic tower - a longtime hub for Comcast's rival, Bell Atlantic successor Verizon Communications Inc. - after the space was vacated by Aramark Corp., the Philadelphia-based food-service giant.

Aramark has been consolidating its workforce operations to its Market East headquarters and other existing Center City space, said spokeswoman Kristine Grow.

SEC hits N.J.

The Securities and Exchange Commission's state and local government finance fraud unit, which is based in Philadelphia, says it has "charged the State of New Jersey with securities fraud for misrepresenting and failing to disclose to investors in billions of dollars worth of municipal-bond offerings that it was underfunding the state's two largest pension plans" in 2001-07.

That means the buyers of $26 billion in Jersey bonds - who relied on the state's promises - didn't realize the real risks of buying the state's bonds, said Elaine C. Greenberg, head of the SEC's Municipal Securities and Public Pensions Unit.

The SEC said New Jersey created the "false impression" and the "fiscal illusion" that its teachers' and state workers' plans were solvent, even as the state inflated pensions without raising money to pay for them. That exposed the state to up to $12 billion in future funding shortages, tax increases, or service cuts that could make it harder to pay its bond investors.

No harm done, says New Jersey: "No rating agency has lowered the state's credit rating" as a result of the revelations of the pension fund's true condition, a statement released by Treasury spokesman Andy Pratt contended. "The state did not admit or deny the SEC's findings," the statement disclosed, though it did promise no "future violations."

New Jersey plans a $2 billion note sale Friday. Rating cuts typically mean a borrower (such as the state) will have to pay more to get investors to buy its debt.

While it's tough to put a dollar figure on the cost, "clearly our position is this was material information an investor would want to know before purchasing these bonds," Greenberg told me. "New Jersey engaged in fraud by failing to disclose that material information, over a six-year period." The SEC's Mary P. Hansen and Suzanne C. Abt ran the investigation.

New Jersey is now doing a better job warning investors of their risk, Greenberg added. But risk disclosure "remains an area of concern for us."

States and cities should be "adequately disclosing their pension fund liabilities," Greenberg said.