RIDC plays big part in economic development

As posted by: Pittsburgh Live

Donald F. Smith is joining a regional economic development corporation as president, but that doesn't mean he'll disconnect completely from the two universities where he's been director of economic development since 2002.

Smith is leaving the joint post he held for the University of Pittsburgh and Carnegie Mellon University to become president of the Regional Industrial Development Corp. of Southwestern Pennsylvania sometime in January.

Still, Smith likely will continue to deal with Pitt, CMU and other schools that foster development of spinoff companies.

The RIDC historically has played a key role in development of some of the commercial buildings that served the needs of the universities themselves as well as firms developed by students and faculty, and outside companies looking to move close to the schools.

For example, the corporation partnered with CMU on buildings including the Software Engineering Institute in Oakland and the Collaborative Innovation Center on the school's campus.

Smith played a role in development of the innovation center, the only building in the world with Intel, Apple and Google employees under one roof.

"I believe that the RIDC can still be a resource for the universities," Smith said.

With the universities attracting more than $1 billion a year in research dollars and helping to spawn spinoff companies, officials have estimated that more than 1 million square feet will be needed to house such firms over the next 10 years.

That's one of the reasons why the city's Urban Redevelopment Authority announced plans to develop up to nine buildings at the Pittsburgh Technology Center in South Oakland.

The RIDC has considered building an addition to its 2000 Technology Drive building at the Pittsburgh Technology Center, where Cleveland developer Ferchill Group's $46 million Bridgeside Point II is under construction.

And the RIDC is general partner in Almono LP, a nonprofit partnership of four local foundations that teamed in 2002 to buy the 178-acre former LTV Steel site in Hazelwood. A $400 million development that could create 2,400 jobs and include housing, commercial space, community amenities and green space is planned there.

One of Smith's tasks will be to help choose a master developer for that property, which could be a location for companies looking to move close to the Oakland universities.

The Pittsburgh Zoning Board of Adjustment on Thursday will review plans to put nine parking spaces on a lot at 44th and Calvin streets in Lawrenceville for The University of Pittsburgh Medical Center's Children's Hospital. The board will review Atallah Khali's request to put 10 parking stalls at the rear of a three-story, 12-unit apartment at 343 McKee Place, Oakland. Brandy Mangham will seek approval for a child care center for up to 12 children at 52 Grape St., 30th Ward. Pennsylvania American Water wants to use 640 square feet in a one-story building at 317 Knox Ave., Knoxville, for chemical storage abutting its existing pump station.

Construction activity for the year in Pittsburgh reached $891 million through October; 201 permits valued at $102 million were issued, the Bureau of Building Inspection said. The largest permit was $30 million for a six-story parking garage at Bakery Square, 6425 Penn Ave., East Liberty. Although permits for only four single-family houses were issued, they brought the totals for the year to 157, compared to 67 for all of 2007.

The Green Building Alliance and its executive director, Rebecca Flora, will review the latest local and national green building initiatives at the alliance's annual meeting at 7:30 p.m. Wednesday at the Regional Enterprise Tower, 425 Sixth Ave., Downtown.

A Rite Aid pharmacy has opened at 7345 Saltsburg Road, Penn Hills. It has more than 11,000 square feet. The company plans to open about 85 stores nationwide this fiscal year.

A sales center has opened for the 28-unit Residences condominiums at Three PNC Plaza, Downtown. Howard Hanna Real Estate Services operates the center and said three of the units have been sold.

Daniel Friedson, along with artists, law students and volunteers, has opened an arts and entertainment incubator in the former PNC Bank office at 6000 Penn Ave., East Liberty. Friedson, who runs the Community Economic Development Clinic at the University of Pittsburgh School of Law, said most activities are offered on Saturdays. The incubator offers low-cost facilities and space for performing artists.

Urban Homesteaders in Allegheny County will receive a $94,710 agriculture planning grant from Commonwealth Financing Authority for the Blackberry Meadows Farm Commercial Kitchen/Farmers Market in Fawn Township. The Pittsburgh History and Landmarks Foundation will receive an $83,000 agriculture planning grant for the Farmers' Markets in Washington and Westmoreland counties.

One of Bernardo Katz's former properties in Beechview has been sold. S&T Bank foreclosed on, then acquired, in June 1550-54 Beechview Ave. Clement M. Okoye purchased it for $180,000, according to a deed filed in Allegheny County. The property includes a one-story bank building, three-story mercantile apartment building and one-story mercantile building.

A community shopping center at 560 Route 51, Pleasant Hills, has been sold to Progress CL LLC, in care of Superior Realty Group of Brooklyn, N.Y., for $3.75 million, according a deed filed in Allegheny County. Robert I. Glimcher of Glimcher Venture Holdings Inc. was the seller; Goldy Rabinowitz signed for Progress, part of Highfield Two Associates LLC.

Mall Vacancies Grow as Retailers Pack Up Shop

Shopping Venues See Uninhabited Rate Reach 8%, But Not All Is Bad in Commercial Sector as Apartment Rents Rise

Vacancy rates at U.S. malls and shopping centers continued their steep rise in the third quarter as slumping sales forced retailers to close stores.

Malls are seeing their highest vacancy rate since 2001, according to data released by real-estate-research firm Reis Inc. For shopping centers, the rate is the highest since 1994.

In contrast, the apartment market, particularly Philadelphia apartments, remained one of the most healthy real-estate markets in the third quarter, benefiting from the struggling home-sales market. Many would-be buyers, unable to get mortgages or worried about the darkening economy, are renting apartments instead.

In the top 79 U.S. markets, apartments posted a slight increase in the vacancy rate to 6.1%, up from 6% from the previous quarter, and a rise in rents of roughly half a percentage point, according to Reis.

Shopping centers and apartment buildings fall in the category of commercial real estate, which has fared better in the credit crisis than residential. Until recently, most commercial landlords had struggled with the financing drought, but the so-called "fundamentals" of their properties -- vacancy rate, rent and expenses -- remained healthy.

Now that is changing. In the retail sector, vacancy rates have climbed and rent increases have slowed for the past year. The vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, to its highest level since late 2001, according to Reis.

For strip centers and other open-air shopping venues, the vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, according to Reis. Meanwhile, retailers' closures outpaced new leases by 2.8 million square feet in U.S. strip centers in the third quarter, the third consecutive quarterly net decline. It is the first nine-month period of so-called negative net absorption since Reis started tracking the data in 1980.

The combined vacancy rate for malls and strip centers in the third quarter was 8%, up from 7.8% in the second quarter. Vacancy tends to be higher in strip centers during economic slowdowns because they have more independent, local tenants, which are more vulnerable to drops in sales than are the national retailers found in malls.

Still, the economic slump has taken its toll on national retailers. Among those that have closed stores in recent months are Starbucks Corp., Dillard's Inc. and Linens 'n Things Inc. More closures likely are on tap, as retailers such as Circuit City Stores Inc. struggle with dwindling sales.

"Almost every retailer has slowed their expansion by 50% to 70% for 2008," said David Brinbrey, chairman and chief executive of the Shopping Center Group, an Atlanta retail brokerage.

Retail landlords are hurt directly by slumping sales because many of them have leases that, in addition to base rent, give them a small portion of payments based on the tenant's sales growth. And retailers feeling the pinch from the shopping slowdown increasingly are asking for rent concessions.

Landlords have little choice but to give breaks to solid tenants. "Chances are, if they're a good merchant, we're going to work with them to get them through this bad time. There's no reason to have an empty space," said Rick Caruso, chief executive of Caruso Affiliated, which owns 10 high-end shopping centers in Southern California.

Sam Chandan, Reis's chief economist, noted that the growing weakness of retailers can be seen in the decline of retail jobs, which have fallen by more than 250,000 nationally in the past year. "Apart from declines in automobile dealers and parts sellers, the last month's declines are broad-based, including department stores, food and beverage retailers, furniture, and electronic and appliance stores," Mr. Chandan said.In the apartment sector, the vacancy increase has been more gradual. But the scarcity of job opportunities for recent college graduates has sapped a primary customer base for apartments, analysts say. And some people who are losing their jobs are moving in with family and friends.

Some foresee rent increases stalling or declining in the coming months as other economic indicators sour. "As unemployment rises, it will be harder for these [apartment] companies to push rent in terms of renewals and new leases," said Michelle Ko, an analyst with UBS Securities LLC.

Analysts report strong apartment occupancy and rent growth in markets including San Francisco, Boston, San Diego and the Pacific Northwest. Rents and occupancy have suffered in boom-bust markets such as Phoenix and Orlando, Fla. But some previously strong apartment markets, namely New York and Charlotte, N.C., might suffer from the loss of financial jobs amid the banking shakeout.

By: Kris Hudson
Wall Street Journal; October 6, 2008

Philadelphia's Commercial and Apartment Rental Markets Red Hot

The Lofts at Logan View pictured to the left. One of Center City Philadelphia's most popular residential addresses.

Philadelphia's commercial real-estate and apartment leasing market is holding steady in the midst of the growing economic carnage. Philadelphia's office market, more than the suburbs', has benefited from a steady growth mixed with very little supply.
Historic Landmarks reports that their Philadelphia Apartments have one of the lowest vacancy rates in years. Apartment, retail and warehouse vacancies are at or below averages for the 54 major metro areas as recently audited and surveyed by Real Capital Analytics, a New York-based research firm.
To be sure, the geographic proximity of the region to the crisis on Wall Street -- with Philadelphia about two hours south of Manhattan, give or take -- is a concern among some Philly area's real-estate professionals. As with most markets globally, sales of retail and apartment buildings have slowed since the credit crunch began in the summer of 2007, however the market for Philadelphia apartments remains red hot.

The Philadelphia metro area, home to about 5.1 million people, saw continued growth in its education and health-services sector. And so far overall job growth has remained in the positive territory as of July compared with the year-earlier period, albeit just barely at 0.1%, according to the Bureau of Labor Statistics.

For now, the new luxury lofts and urban condo style apartments offered by Historic Landmarks are at or near capacity with many waiting lists forming. Historic Landmarks has medical student apartments and grad student apartments in some of Philadelphia's most in-demand neighborhoods. Historic offers lofts and Center City apartments, Parkway apartments, University City apartments and Old City apartments.


Many Philadelphia apartment brokers have been asking for rents in the Manhattan-esque $40-per-square-foot range which still seems a little too rich for the City of Brotherly Love.
Historic landmarks apartment buildings and historic building renovation and preservation projects remain true to the city's past architectural leanings and Philadelphia's great historical past. Demand is high for urban living in luxury lofts and upscale Philadelphia apartments.


To Tour any of our Philadelphia apartments and historic buildings in downtown Philadelphia call: 877-563-6754.

City's Property Market, at Least, Defies Curse

Some sports fans in Philadelphia feel their teams are victim of a real-estate curse.

That is because none of the city's major professional teams -- the Phillies, Flyers, Eagles and 76ers -- have won a championship since before 1987, when Malvern, Pa.-based Liberty Property Trust's One Liberty Place rose above a statue of William Penn that tops City Hall. Mr. Penn's hat previously set the bar for the city's skyline.

The American Commerce Center, shown in renderings, would change the look of Philadelphia's skyline.

Fortunately, Mr. Penn doesn't seem to have focused his chagrin on the real-estate market.

So far the Philadelphia area's commercial real-estate leasing market has held steady in the midst of the growing economic carnage. The city's office market, more than the suburbs', has benefited from "steady, unspectacular growth married with little supply," says John Gattuso, senior vice president and regional director of Liberty's urban development group.

While the metropolitan area's office vacancies rose to 14.5% in the second quarter (and rents are expected to decline slightly in the second half of the year), they are still below the national average of 15.6%, according to Boston-based Property & Portfolio Research, a real-estate research firm. Apartment, retail and warehouse vacancies rose in the second quarter but held at or below averages for the 54 major metro areas surveyed by PPR, while rents were still rising in all but the retail sector.

To be sure, the geographic proximity of the region to the crisis on Wall Street -- with Philadelphia about two hours south of Manhattan, give or take -- is a concern among the area's real-estate professionals. As with most markets globally, sales of office, retail and apartment buildings have slowed since the credit crunch began in the summer of 2007, although sales of office buildings valued at $5 million or more this year through August fell just 14% compared with last year's period. That is better than a 77% drop nationwide over the period, according to Real Capital Analytics, a New York-based research firm.

The Philadelphia metro area, home to about 5.1 million people, saw continued growth in its education and health-services sector. And so far overall job growth has remained in the positive territory as of July compared with the year-earlier period, albeit just barely at 0.1%, according to the Bureau of Labor Statistics.

For now, the new 975-foot-tall glass-encased Comcast Center tower that officially opened this year seems to reflect the market's strengths. Designed by Robert A.M. Stern Architects, the building has created a buzz with a 25-foot tall high-definition video screen in its lobby.

The building also has leased all of its roughly 1.2 million square feet of office space, much of it as the new headquarters of cable giant Comcast Corp., says Liberty Property's Mr. Gattuso. It has also done so despite skepticism early on from some brokers who said asking rents in the $40-per-square-foot range were too rich for the City of Brotherly Love, Mr. Gattuso said.

That success may be encouraging other developers. One project planned near the Comcast Center is the American Commerce Center. If built, it would rise about 1,500 feet high and include office, hotel and retail space, according to Peter Kelsen, an attorney for Philadelphia-based Hill International Real Estate Partners LP, which is developing the project.

Citing Hill's joint-venture relationship with a large pension fund, Mr. Kelsen said he's confident the group will have the financing. Developers also need some preleasing commitments and for the city to remove a height limit on the property, he says.

The scale is just one of the project's striking elements. New York firm Kohn Pedersen Fox Associates' design includes a glass facade and futuristic-looking cutouts as well as a lower section that abuts a higher tower that together look something like a chair. "It's not going to be very colonial," Mr. Kelsen says, referencing the city's past architectural leanings.

There's even hope that the tall-building curse may soon vanish. The new Comcast Center gave a nod to Mr. Penn by welding a small statue of the city's founder to one of its beams.

By: Maura Webber Sadovi
Wall Street Journal; September 24, 2008

Renting Makes More Financial Sense Than Homeownership

I have something un-American to confess: I rent an apartment, despite having enough money to buy a house. I plan to keep renting for as long as I can. I'm not just holding out for better prices. Renting will make me richer.

I normally write about stocks for SmartMoney.com, but the boss asked me to explain to readers my reason for renting. Here goes: Businesses are great investments while houses are poor ones, so I'd rather rent the latter and own the former.

Stocks vs. Houses: Returns

Shares of businesses return 7% a year over long time periods. I'm subtracting for inflation, gradual price increases for everything from a can of beer to an ear exam. (After-inflation or "real" returns are the only ones that matter. The point of increasing wealth is to increase buying power, not numbers on an account statement.) Shares have been remarkably consistent over the past two centuries in their 7% real returns. In Jeremy Siegel's book, "Stocks for the Long Term," he finds that real returns averaged 7.0% over nearly seven decades ending 1870, then 6.6% through 1925 and then 6.9% through 2004.

The average real return for houses over long time periods might surprise you. It's zero.

Shares return 7% a year after inflation because that's how fast companies tend to increase their profits. Houses have their own version of profits: rents. Tenant-occupied houses generate actual rents while owner-occupied houses generate ones that are implied but no less real: the rents their owners don't have to pay each year. House prices and rents have been closely linked throughout history, with both increasing at the rate of inflation, or about 3% a year since 1900. A house, after all, is an ordinary good. It can't think up ways to drive profits like a company's managers can. Absent artificial boosts to demand, house prices will increase at the rate of inflation over long time periods for a real return of zero.

Robert Shiller, a Yale economist and author of "Irrational Exuberance," which predicted the stock price collapse in 2000, has recently turned his eye to house prices. Between 1890 and 2004 he finds that real house returns would've been zero if not for two brief periods: one immediately following World War II and another since about 2000. (More on them in a moment.) Even if we include these periods houses returned just 0.4% a year, he says.

The average pundit, planner, lender or broker making the case for ownership doesn't look at returns since 1890. Sometimes they reduce the matter to maxims about "building equity" and "paying yourself" instead of "throwing money down the drain." If they do look at returns they focus on recent ones. Those tell a different story.

Between World War II and 2000 house prices beat inflation by about two percentage points a year. (Stocks during that time beat inflation by their usual seven percentage points a year.) Since 2000 houses have outpaced inflation by six percentage points a year. (Stocks have merely matched inflation.)

Stocks vs. Houses: Valuations

But while stock returns have come from increased earnings, house returns have come from ballooning valuations, not increased rents. The ratio of share prices to company earnings (the price/earnings ratio) has remained relatively steady. It's about 16 today, close to both its 1940 value of 17 and to its 130-year average of about 15. Not so, the ratio of house prices to rents. In 1940 the median single-family house price was $2,938, according to the U.S. Census, while the median rent was $27 a month, including utilities. That means the ratio of prices to annual rents was 9. By 2000 the ratio had swelled to 17. In 2005 it hit 20. We can adjust for the size of dwellings, but it doesn't make much difference. The ratio of single-family house prices to three-bedroom apartments is 19. In SmartMoney.com's home town of Manhattan, where more detailed data is available, the ratio of condo prices per square foot to apartment rents per square foot is 22.

Two main events have caused house valuations to inflate since World War II. First, the government subsidized housing by relaxing borrowing standards. Prior to the creation of the Federal Housing Authority in 1934 house buyers who borrowed typically put up 40% of the purchase price in cash for a five- to 15-year loan. By insuring mortgages, the FHA permitted terms of up to 20 years and down payments of just 20%. It later expanded the repayment periods to 30 years and reduced down payments to 5%. Today down payments for FHA loans are as low as 3%. Aggressive lenders offer loans with no down payments or even negative ones so that house buyers can borrow the full purchase price plus closing costs. Some require little documentation of income, assets or ability to pay.

That means more Americans can win loans for homes, and they can win them for far more expensive (larger) homes than their incomes previously allowed. Two-thirds of American households own homes today, up from 44% in 1940, even though the percentage of Americans living alone has tripled during that time. The ratio of house values to incomes has risen 260% in just under four decades.

A second event helped boost house demand in recent years. Share prices plunged in 2000. The Federal Reserve, fearing that the decline in stock wealth would cause consumers to stop spending, reduced the federal-funds rate, the core interest rate that determines the cost of everything from credit cards to mortgages, to 1% by the summer of 2003 from 6.5% at the start of 2001. Since most of the cost of financing a house over 30 years is interest, monthly house payments shrank and demand for houses soared. In some markets a string of big yearly increases in house prices led to panic buying.

Stocks vs. Houses: Conclusion

For house returns over the next 20 years to match those over the past 20, the government and private lenders would have to "up the ante" by relaxing borrowing standards further. Given the recent attention paid to swelling foreclosures, that seems unlikely. I suspect real returns will turn negative over most of the next two decades, but that house prices won't necessarily dip. Since 1963 they've done so in only two years, vs. 18 for stocks. That's because homeowners mostly just stick it out rather than sell during soft markets. But if house prices remain flat, they produce negative real returns due to the creep of inflation. According to calculations made by The Economist in the summer of 2005, house prices would have to stay flat for 12 years with annual inflation at 2.5% for the ratio of prices to rents to fall from its 2005 perch to merely its 1975 to 2000 average.

So to sum up why I rent: Shares right now cost 16 times earnings and over long time periods return 7% a year after inflation. Houses right now cost 19 times their "earnings" and over long time periods return zero after inflation. And they look likely to return less than that for a while.

On the following page I've tried to anticipate and address questions and objections.


Questions/Objections
"You can't live in your stocks" or "Renters throw money down the drain."

Rent is the cost of owning shares with money you would otherwise spend on a house. Houses have ownership costs, too: taxes, insurance and maintenance. Rent costs about 5% of house prices each year if we apply the price/rent ratio of 19. House incidentals often cost around 2%. If you have $300,000 and a choice between spending it on a house or shares, you'll pay $6,000 a year in incidentals if you buy the house or about $15,000 a year ($1,250 a month) in rent if you buy the shares. But the shares will return $21,000 a year after inflation while the house will return zero. (My numbers work out even better than these. I pay a smidgen less than $1,250 a month for rent, while house prices in my neighborhood are far higher than $300,000.)

Note that houses and shares have transaction costs, too. Home buyers pay around 1% in closing costs when they buy and 6% in broker commissions when they sell. Share buyers pay $10 trading commissions, which are negligible for buy-and-hold investors.

"House buyers get tax breaks."

So do share buyers, but both are a bad deal. The interest on loans for houses (mortgages) and shares (margin balances) is tax-deductible. But the rates are almost always too high. A big house loan presently costs 6.1% interest while a big stock loan costs about 9%. For the returns, we can forget about inflation because it helps debtors while hurting investors, making it a wash for those who borrow to invest. Still, nominal returns of 3% for houses and 10% for stocks aren't high enough to justify those rates. The tax breaks aren't really breaks at all. Moreover, a majority of homeowners don't claim them. Their incomes are low enough to make the standard deduction a better deal.

"What about the pride of home ownership?"

It's not for me. I define ownership as no longer having to pay for something and being able to do as I please with it. I own my coffee maker. House owners must pay taxes each year even when their mortgage payments are done. In certain markets they can't even make changes to the houses they've paid for without seeking the approval of others. Personally, I feel the pride of ownership for shares of businesses, and I'm proud to occupy a nice place while leaving the burden of poor returns and maintenance to someone else.

"You seem to knock government housing subsidies, but they've helped many Americans afford homes."

My inner socialist agrees. My other inner socialist worries that the government has effectively raised prices to the point where the middle class can't afford houses, or buries itself in debt to own them. My inner capitalist is too busy watching shares to care about house prices. My inner conspiracy theorist notes that while politicians tout the social benefits of homeownership none mentions its tax benefits to the government. I pay no taxes on the overall value of my stock portfolio, just on my cashed-in gains and collected dividends. But Americans pay taxes on the full $11 trillion worth of housing they own plus the $10 trillion worth of it they're still paying off.

"Houses are bigger than apartments."

True, and both can be rented. A third of renters live in single-family houses. I prefer an apartment for now. I like not having to fill it with stuff. I like using a fifth of the energy of the average American. I like being 20 minutes from work and (this is unique to New Yorkers) not having owned a car in 10 years. I like not stressing over whether to get the marble countertops or the imported tiles or the 52-inch flat screen. I'm not especially frugal; I spend a teacher's salary each year on restaurants and travel. But I guess I'm too busy or lazy right now to bother with a big house and its innards.

"Are you saying I should sell my big house and rent an apartment instead?"

No, unless you have more space than you need and moving wouldn't be disruptive to your family, and you want to cash in on recent housing gains, make more money over the next couple of decades, use less energy while simplifying your life, and you don't mind seeming odd to friends. In which case, yes. But really, I'm not trying to win anyone over. Strong demand for houses keeps my rent cheap.

"Renting is for poor people."

True. But it's for rich people, too. The average renter makes about $34,000 a year, but while the percentage of renters declines after incomes exceed $20,000 and rents exceed $600 a month, it jumps again once incomes top $150,000 and rents top $1,200 a month. In other words, poor people rent modest apartments for lack of choice. Middle-income people buy houses. High-income people, presumably with a dose of financial savvy, often rent nice apartments instead of buying.

"You say houses return zero. But I've made a fortune on my house in recent years."

I'm referring to inflation-adjusted returns over long time periods, absent external boosts to demand. You're referring to gross returns over a short time period that combined lax borrowing standards and ultra-low interest rates. Over the next 20 years I believe houses will return zero or slightly less after inflation and that stocks will return 7%.

"So you're never going to buy a house? What about raising a family?"

I might buy one eventually, but the longer I can put it off the more I'll get out of the shares I'll have to sell to afford it. I'm 34 now with a fiancée and a fish. I'm going to try to rent for at least 10 more years. If I have kids I'll probably move into a big apartment or a house once they reach running-around age. I'll rent, most likely.

By: Jack Hough
Yahoo! Real Estate; September 26th, 2008

City's Property Market, at Least, Defies Curse

Some sports fans in Philadelphia feel their teams are victim of a real-estate curse.

That is because none of the city's major professional teams -- the Phillies, Flyers, Eagles and 76ers -- have won a championship since before 1987, when Malvern, Pa.-based Liberty Property Trust's One Liberty Place rose above a statue of William Penn that tops City Hall. Mr. Penn's hat previously set the bar for the city's skyline.

The American Commerce Center, shown in renderings, would change the look of Philadelphia's skyline.

Fortunately, Mr. Penn doesn't seem to have focused his chagrin on the real-estate market.

So far the Philadelphia area's commercial real-estate leasing market, particularly Center City Philadelphia apartments, have held steady in the midst of the growing economic carnage. The city's office market, more than the suburbs', has benefited from "steady, unspectacular growth married with little supply," says John Gattuso, senior vice president and regional director of Liberty's urban development group.

While the metropolitan area's office vacancies rose to 14.5% in the second quarter (and rents are expected to decline slightly in the second half of the year), they are still below the national average of 15.6%, according to Boston-based Property & Portfolio Research, a real-estate research firm. University City Apartments, retail and warehouse vacancies rose in the second quarter but held at or below averages for the 54 major metro areas surveyed by PPR, while rents were still rising in all but the retail sector.

To be sure, the geographic proximity of the region to the crisis on Wall Street -- with Philadelphia about two hours south of Manhattan, give or take -- is a concern among the area's real-estate professionals. As with most markets globally, sales of office, retail and apartment buildings have slowed since the credit crunch began in the summer of 2007, although sales of office buildings valued at $5 million or more this year through August fell just 14% compared with last year's period. That is better than a 77% drop nationwide over the period, according to Real Capital Analytics, a New York-based research firm.

The Philadelphia metro area, home to about 5.1 million people, saw continued growth in its education and health-services sector. And so far overall job growth has remained in the positive territory as of July compared with the year-earlier period, albeit just barely at 0.1%, according to the Bureau of Labor Statistics.

For now, the new 975-foot-tall glass-encased Comcast Center tower that officially opened this year seems to reflect the market's strengths. Designed by Robert A.M. Stern Architects, the building has created a buzz with a 25-foot tall high-definition video screen in its lobby.

The building also has leased all of its roughly 1.2 million square feet of office space, much of it as the new headquarters of cable giant Comcast Corp., says Liberty Property's Mr. Gattuso. It has also done so despite skepticism early on from some brokers who said asking rents in the $40-per-square-foot range were too rich for the City of Brotherly Love, Mr. Gattuso said.

That success may be encouraging other developers. One project planned near the Comcast Center is the American Commerce Center. If built, it would rise about 1,500 feet high and include office, hotel and retail space, according to Peter Kelsen, an attorney for Philadelphia-based Hill International Real Estate Partners LP, which is developing the project.

Citing Hill's joint-venture relationship with a large pension fund, Mr. Kelsen said he's confident the group will have the financing. Developers also need some preleasing commitments and for the city to remove a height limit on the property, he says.

The scale is just one of the project's striking elements. New York firm Kohn Pedersen Fox Associates' design includes a glass facade and futuristic-looking cutouts as well as a lower section that abuts a higher tower that together look something like a chair. "It's not going to be very colonial," Mr. Kelsen says, referencing the city's past architectural leanings.

There's even hope that the tall-building curse may soon vanish. The new Comcast Center gave a nod to Mr. Penn by welding a small statue of the city's founder to one of its beams.

By: Maura Webber Sadovi
Wall Street Journal; September 24, 2008

Converting Instead of Constructing

Condo conversions take a slower pace today, but the trend still exhibits reasonable revenue potential.

Condo conversions make economic sense in expensive housing markets like Washington, D.C., Philadelphia and Miami, among others where converted rentals remain the best option for entry-level buyers. Companies like Apartment Investment and Management Co. (AIMCO), CityView and J.A. Reinhold Residential look to capitalize on the for-sale trend.

Jeffrey Reinhold expects the conversion trend to stay hot for a long time to come. The CEO of Philadelphia-based Historic Landmarks for Living even formed a separate company to focus just on this niche. J.A. Reinhold Residential aims to solely turn multi-family rentals into condos for sale. The new firm’s initial purchase included five apartments in the area for about $88 million, two of which are being converted into a $55 million to $60 million process. Reinhold’s 110 unit Locust Point will see $9 million in upgrades or approximately $100,000/unit, which would sell from the mid-$200,000’s to mid $400,000’s. The 108 unit Lofts at Logan View will get $7 million in renovations. A one-bedroom could sell for more than $270,000, while the two bedroom could fetch $450,000 or more. Reinhold believes his affordable luxury product will appeal to first-time homebuyers who wish to live in the city but cannot afford the high home prices. The strategy works well for the company since it bypasses land and construction costs to build in such a central location. Another bonus; no oversupply worries because the area isn’t overbuilt and enjoys a robust economy.

Historic Landmarks for Living owns and operates nearly 2,000 apartments in urban areas and is able to provide Baltimore Apartments, St. Paul Apartments, Minneapolis Apartments, Chicago Apartments and Philadelphia Apartments. As a private company it doesn’t look for a fixed IRR. Reinhold remains on the search for suitable investment opportunities to purchase an asset. He keeps his options open to convert the company’s existing portfolio as favorable market conditions dictate.

As the CEO of Historic Landmarks for Living, the company responsible for rehabbing and managing some of Philadelphia’s most interesting rental properties, Jeff Reinhold knew there was an abundance of historic buildings in Philadelphia that could be converted into sophisticated luxury homes.

Yet in the current housing market in Philadelphia, many condominiums are geared toward a wealthier demographic, leaving little choice for young professional homebuyers who want to stay in Center City. For Reinhold, the lack of affordable condominiums presented a new opportunity.

“As the market was starting to appreciate in price, we were starting to see homes and condos inching up towards the $700,000 to $1 million range — prices the -first-time homebuyer really couldn’t afford,” says Reinhold. “In front of me was this great niche waiting to be created.”

Last year, Reinhold launched a new residential real estate company called J.A. Reinhold Residential. The concept was simple: Take well located multi-family properties and turn them into for-sale condominiums. Because the units would be conversions and not new construction, Reinhold could offer the properties at a lower price point, making them accessible to the first-time homebuyer. The first two properties J.A. Reinhold Residential has converted are the Lofts at Logan View at 17th and Callowhill streets and Locust Point at 25th and Locust streets on the Schuylkill River in desirable Fitler Square and adjacent to Schuylkill River Park. Both buildings are conveniently located, with the Lofts at Logan View situated by the Parkway’s museums and minutes away from the Center City business district, and Locust Point set equidistant to both Center City and University City. The sales of offices at both properties are now open with fully furnished models. The properties are being renovated inside and out. Locust Point and Lofts at Logan View are beautiful examples post-industrial architecture, with features like 13- to 17-foot timbered ceilings, exposed brick walls and dramatically tall windows showcasing striking views of the city. The units themselves have been renovated with the high-end details common to luxury condominiums, such as granite countertops, Decora cabinets and hardwood flooring. Pricing at Locust Point, which also boasts 70 parking spots, begins in the high $200,000s for a one-bedroom condo.

“At that price points you would generally have to look for something south of South Street or in Northern Liberties— it would be difficult to find a condominium within walking distance of Center City,” says Reinhold.

A longtime Center City resident himself, Reinhold found his work extremely satisfying, and particularly enjoys the creativity that goes into re-imagining existing architecture. Reinhold eventually hopes to expand the company to other cities, and believes that his conversion model is fulfilling an unmet need in the real estate market. “I know that people really appreciate living in historically significant properties,” Reinhold says. “With our company we’re taking what are already tremendous buildings and doing something truly different — restoring them at a luxury level that is still affordable.”

Apartment Buildings Affected By Declines in Housing Market

Job-Loss Worries Pressure the Sector; Rent Rates Decline

For the past year, apartment buildings have been one of the few bright spots in the real-estate industry as people forced out of the home-buying market by foreclosures or the credit crunch have turned to renting.

But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities. Some cities, however, have not been affected nearly as much. For instance, the rental markets for Philadelphia apartments and Minneapolis apartments remain strong.

"In many markets, our new prospects are beginning to resist the current and increasing levels of market rents we've enjoyed over the past quarter," David Neithercut, chief executive of Equity Residential, told investors during this month's earnings call. While the Chicago-based apartment owner, one of the largest in the U.S., reported an increase in funds from operations of 1.5% last quarter, it lowered its estimates for comparable-property revenue growth.

'Shadow Market' Competition

Investors have been buoyed by the thousands of Philadelphia apartment rentals that have entered the market in the past year, including buyers locked out of the for-sale housing market and those who defaulted on their mortgages. The one downside of the housing crisis for apartment owners has been the "shadow market," made up of unsold homes that owners have put on the rental market.

But that competition isn't nearly as big a problem as job-loss trends. "A lot of folks think it's the shadow market that's softening rents. It's really a jobs issue," says Richard Campo, chief executive of Camden Property Trust. The Houston-based REIT saw rents fall 1.4% last quarter from a year earlier in Phoenix. Arizona shed some 87,000 jobs in June and July. Meanwhile, rents are up in cities such as Houston, where job growth remains strong and where Camden saw 4% rent growth last quarter. Nationally, the apartment owner expects to see rental growth of 2.5% this year, compared with 4.1% growth in 2007 and 7.4% in 2006.

The biggest impact from job losses could be seen in cities such as Charlotte, N.C., and Atlanta, which haven't seen large shadow markets develop. "That group in the middle is starting to show signs of slowing," says Haendel St. Juste, an analyst at Green Street Advisors Inc. "When you look at the markets that are starting to slow, it's spreading beyond the markets that were burdened by housing."

That led to disappointing second-quarter results at Mid-America Apartment Communities Inc., a Memphis, Tenn., REIT with 42,000 rental units. The company reduced its 2008 revenue forecast by 1% and saw year-over-year revenue growth for the second quarter fall to 2.6% from 3.8% last year. The results surprised some investors because Mid-America has long been considered to have one of the least-volatile portfolios. Analysts blamed the declines, in part, on a weakening economy across the Southeast.

Atlanta-based Post Properties Inc., meanwhile, announced that it canceled its planned 300-unit apartment building in Charlotte and delayed three Florida projects.

Cap-Rate Problems

For investors, concerns about falling rents and rising vacancy has resulted in a decline in prices for apartment buildings. The "capitalization rate," which measures the relationship between the price and cash flow of properties, dropped one-quarter of one percent from the second quarter of 2007 to second quarter of this year, according to Real Capital Analytics Inc., a real-estate research firm. The cap rates are now at levels last seen at the end of 2004, the firm says.

The decline in prices has led to a pickup in sales activity. Real Capital Analytics reported last month that sales in June were "well above" recent months' figures, with $5.5 billion already having closed or in contract in the third quarter compared with $8.7 billion in sales in the second quarter.

Apartment-building sales already were far outpacing deals involving other commercial property, such as office buildings and strip malls. The availability of credit from government-sponsored Fannie Mae and Freddie Mac has buoyed values and fueled new deals. Turbulence at the mortgage titans, which together with Ginnie Mae hold 35% of the mortgage debt on multifamily housing, riled apartment owners last month as investors worried about the fate of Fannie and Freddie. But those worries dissipated as the housing bill signed into law last month made the government's implied guarantee of Fannie and Freddie's $5.2 trillion in mortgage securities more explicit.

"There is seemingly no limitation to how much production we can sell to them," says Peter Donovan, who heads up CB Richard Ellis's multihousing group. "I think the market is maybe a little surprised by that."

Indeed, Fannie Mae announced last month that it would increase its commitment to buy loans on multifamily housing of up to $5 million to provide additional liquidity for rental housing. Fannie said it invested $20 billion in multifamily housing in the first half of the year. While that is down 25% from $27 billion in the first half of 2007, the number of total deals has fallen by 45%. Multifamily also remains a safe investment so far this year: Delinquencies on Fannie- and Freddie-backed multifamily loans in the first quarter were just .09% and .04%, respectively.

By: Nick Timiraos
Wall Street Journal; August 20, 2008

Earthlink Bids Philly Adieu

Barring last-minute heroics, EarthLink will end its municipal Wi-Fi work in Philadelphia in June as part of its effort to get out of the muni Wi-Fi business.

The Philly deployment had less than 6,000 subscribers and the city government had bowed out long ago. EarthLink, which has said it has spent more than $20 million on the deployment, has filed a federal lawsuit asking that its future responsibility be limited to $1 million as specified in its original agreement with Philadelphia.

EarthLink has been turning over its muni Wi-Fi networks to city governments or otherwise extracting itself from various deployments since late last year. It recently pulled out of New Orleans and turned over networks to Corpus Chisti, Texas, and Milpitas, Calif. Other deployments, in San Francisco and Sacremento, never got beyond the planning stage.

That leaves Anaheim, Calif., as its last Wi-Fi deployment. It's still negotiating its exit there with city officials.

New CEO Rolla Huff has refocuces the company on its ISP business, receiving judos from Wall Street for putting it on the road to profitability.

This may put a damper on some who use free Wi-Fi networks frequently. Many apartments, lofts, and other living communities provide free wireless, and soon, may be losing the privaledge. If you are looking for free wireless in downtown Philadelphia, head to the Packard Motorcar Building. Historic landmarks is proud to offer free Wi-Fi it the common area of the building.

Suburbs a Mile Too Far for Some

Historic Landmarks See an Increased Demand for Urban Lofts

Abandoning grueling freeway commutes and the ennui of San Fernando Valley suburbs, Mike Boseman recently found residential refuge in this Southern California city. His apartment building straddles a light-rail line, which the 25-year-old insurance broker rides to and from work in Los Angeles.

Richard Wells is more than a generation older but was similarly attracted to the Pasadena apartment building. The British-born scientist retains what he calls a European preference for public transportation despite his nearly 30 years in California. Plus, he said, the building's location means, "I can walk to a hundred restaurants, the Pasadena symphony and movie theaters."


Messrs. Boseman and Wells embody trends that are dovetailing to potentially reshape a half-century-long pattern of how and where Americans live: The driveable suburb -- that bedrock of post-World War II society -- is for many a mile too far.

In recent years, a generation of young people, called the millennials, born between the late 1970s and mid-1990s, has combined with baby boomers to rekindle demand for urban living. Today, the subprime-mortgage crisis and $4-a-gallon gasoline are delivering further gut punches by blighting remote subdivisions nationwide and rendering long commutes untenable for middle-class Americans.

Just as low interest rates and aggressive mortgage financing accelerated expansion of the suburban fringe to the point of oversupply, "the spike in gasoline prices, layered with demographic changes, may accelerate the trend toward closer-in living," said Arthur C. Nelson, director of Virginia Tech's Metropolitan Institute in Alexandria, Va. "All these things are piling up, and there are fundamental changes occurring in demand for housing in most parts of the country."

Christopher Leinberger, a visiting fellow at the Brookings Institution and a developer of walkable areas that combine housing and commercial space, describes the structural shift as the "beginning of the end of sprawl."

Recipe for Reurbanization

Todd Zimmerman, a housing consultant and an early advocate of pedestrian-friendly community planning known as New Urbanism, said demographic and cultural factors explain a big part of the trend. Baby boomers and millennials are the country's two biggest generations, with some 82 million and 78 million people born during their respective eras. Both flocks are leaving their nests and finding that higher-density urban housing fits their lifestyles.

"Millennials and baby boomers are in perfect sync. They are at a stage where they both want the same thing," said Mr. Zimmerman, a co-managing director at Zimmerman/Volk Associates Inc. in Clinton, N.J. He said the populations of Americans in their 20s and in their 50s are rising and will add eight million potential housing consumers by the time their numbers peak in 2015. "You've got a recipe for reurbanization on a dramatic scale," he said.

While baby boomers may be looking to downsize their homes and simplify their lives in urban condominiums, millennials often look to cities as a way of rebelling against the suburban cul-de-sac culture that pervaded their youth, Mr. Zimmerman said. That is no different than past generations of twentysomethings, but the numbers of millennials are larger.

Even families who sought the suburbs or were priced out of cities now have an economic imperative to find their way back closer to town. Transportation is the second-biggest household expense, after housing, and suburban families face a relatively greater gas burden. At the same time, distant suburbs, or exurbs, where housing growth was predicated on cheap gas, have experienced the biggest declines in home values in the past year, according to a May report by CEOs for Cities, a nonprofit group of public- and private-sector officials that seeks to promote urban areas. "The gas-price spike popped the housing bubble," said Joe Cortright, the report's author.

The demand for housing near urban centers isn't going to snuff out suburbs overnight. Several satellite towns around cities continue to lure jobs and are reinventing themselves with their own city centers. About half of the walkable urban areas that Brookings's Mr. Leinberger identified in a recent survey are located in suburbs, though generally close to major cities.

A Challenge for Cities

While high gas prices are a boon to New Urbanism and other "smart-growth" planning concepts, in practice such mixed-use projects often are harder to execute -- from acquiring local approval to securing Wall Street financing -- than the traditional suburban tract-housing model. The challenges for cities are considerable, from investing in public-transportation systems to creating incentives for developers to accommodate the new urban housing demand.

Cities such as Denver, Charlotte, N.C., and Portland, Ore., are making investments in public transportation and spurring the construction of symbols of the new housing era: multifamily residential and retail complexes at or next to transit stations. Reconnecting America, a nonprofit group committed to transit-oriented development, estimates that the number of households near transit stations will soar to 15 million by 2030, from six million now.

Even in the auto mecca of Southern California, attitudes are changing, and transit-oriented development is gaining traction along subway, light-rail and commuter-train lines serving Los Angeles. In Pasadena, an apartment and retail complex built around the Del Mar light-rail station is doing brisk business. Some 95% of the 347 units are rented, the highest occupancy rate since the building opened two years ago, said Dave Brackett, executive vice president of Archstone, which owns the building.

Fuel-Efficient Fun

Mr. Boseman, the insurance salesman, found his way to Archstone Del Mar Station from Encino, to the west in the San Fernando Valley. The 75-minute commute from Encino to downtown Los Angeles tried his patience and lightened his wallet. "I'd go through a tank of gas every four days," he said.

After a year, he and his girlfriend decided to move to downtown Los Angeles. They rented a renovated loft, and dumped one of their two cars to avoid the expense and parking hassle. But the area wasn't lively enough at night, so they looked along public-transportation lines for their next apartment.



Pasadena, home to the Rose Bowl, is a leafy city with stately houses and a thriving shopping area in a reinvigorated old downtown. Archstone Del Mar Station is near the commercial center, and a 26-minute ride on one of Los Angeles's metro lines. With a train change, Mr. Boseman is at work within 35 minutes from his doorstep. He also takes the light rail into Los Angeles on weekends for entertainment events. With his car use limited to Saturday and Sunday at most, he said, "I'm filling it up once a month."

Mr. Wells, too, got rid of one of his cars after moving into Archstone Del Mar Station 10 months ago, and "my aim is never to use the car I kept," he said. The 71-year-old scientist reckons he has saved 500 gallons. Last week, he moved out of the apartment building -- but not far. For the same rationale, he bought a condo at the next light-rail station along the metro line.

In Los Angeles's central Koreatown neighborhood, developer Urban Partners LLC last year opened a 449-unit apartment building with 36,000 square feet of retail space atop a subway station. Twenty percent of the units are rented at below-market rates in an effort to provide affordable housing without an "hour or two commute," said Dan Rosenfeld, an Urban Partners principal.

With more than 30 U.S. cities that have or are developing commuter-rail systems, demand for mixed-used, mixed-income projects is bound to increase, said Mr. Rosenfeld. But even with an emphasis on public transport and walkable urban neighborhoods, one staple of American culture is so entrenched that it is bound to take years to reverse.

"We never reduce the amount of parking at our developments. People still want their cars," he said. "Nothing would make us happier than to reduce the expensive underground parking."

by Jonathan Karp
Thursday, June 19, 2008provided byWSJ

City of Brotherly Love is Named Best for Grads

Historic Landmarks Plays Key Role Providing Urban Lofts For Grad Students in Historic Neighborhoods

Joey Hyde, a 25-year old physics grad student at the University of Pennsylvania, likes living in downtown Philadelphia because he can get around without a car, make spontaneous plans with friends or his fiancée for a night on the town, and enjoy a great meal at his favorite upscale Cuban restaurant for half of what it would cost in Manhattan.

“Philadelphia is pretty livable for people my age,” says Hyde, a Florida native who moved to the city at 22 after completing his undergrad degree in Pittsburgh. “It’s a lifestyle like New York’s, but much more affordable. People here can bunk up together like in Brooklyn if they want, but real estate is a lot less expensive than in New York.”

Hyde’s assessment sums up new findings from Apartments.com and Careerbuilder’s CBCampus.com job site, which today released their list of the top 10 most affordable cities for young college grads. The survey ranks Philadelphia at the top of the list, based on research criteria including the population of people age 20 to 24, the number of entry-level job openings suitable for new grads, and the average cost to rent a one-bedroom apartment.

According to the data, the average price of a one-bedroom apartment in Philadelphia is $962, 58 percent less than the $1,562 monthly rent on a one-bedroom in New York. And, if the survey is correct, there are plenty of jobs available for young workers both in and beyond college.

Finding a place, and finding a job

Of course, many factors play in to a young adult’s choice of where to live—and cities around the country have struggled for years to offer both lifestyle amenities and compelling job opportunities, and in a setting that’s affordable to younger workers.

According to Carol Coletta, president and CEO of Chicago-based research organization CEOs for Cities, roughly two-thirds of young adults consider where they want to live first, then consider how they’ll earn a living.

“Jobs aren’t always the first thing young people are looking for in a city,” she says. “They want a city that’s clean and attractive, offers the lifestyle they want, is safe, ‘green’ and with outdoor amenities, and that has the kind of housing they like. Lastly, they want a city that will enhance their professional reputation.”

However, given the current fragile economy, new graduates may need to consider their employability more carefully as they scope out potential cities. Grads this year face stiff competition now.

“Employers are proceeding with caution as they wait to see how the nation’s economic situation unfolds,” said Brent Rasmussen, chief operating officer at CareerBuilder.com.

According to CareerBuilder research among 3,147 hiring managers at major employers, 58 percent plan to hire recent college graduates this year, down from 79 percent during 2007. The pay isn’t great: Most employers (42 percent) plan to pay salaries below $30,000; 32 percent will pay $30,000 to $40,000 range; 15 percent will pay $40,000 to $50,000; and 11 percent will pay more than $50,000.

Personal versus practical concerns

While housing availability is important to new grads, so too is the opportunity to participate in key industries. The list of top cities includes some usual suspects — Boston, a hub for research and academia; New York, the financial and media capital; Dallas and Houston, where energy and big business thrive.

Frontrunner Philadelphia, along with other cities on the list, has been working to enhance its reputation among younger workers and prevent the “brain drain” that happens when young adults graduate and leave. Phil Hopkins, vice president of research at Select Greater Philadelphia, a regional marketing organization, says his organization and the non-profit group Campus Philly are both working to retain and educate young adults and college grads about local career options before they hit the job market.

“New York is the undisputed financial capitol of the U.S. Washington D.C. is the political capitol,” says Hopkins. “Our strength is in pharmaceuticals and life sciences. There are 85 pharmaceutical companies within an hour and a half of the center city.”

His job, he says, is to make sure students are aware of this.

Nice homes – for now, anyway

Cities focus on attracting young workers both because younger workers are more entrepreneurial and because, once they hit 30, they often land in life circumstances — marriage, home ownership, parenthood, caring for aging parents — which can slow their mobility, says Coletta.

Hyde, who’ll earn a doctorate and get married by the time he graduates from an Ivy League college, isn’t necessarily loyal to Philadelphia. Asked if he wants to work there once he’s completed his education said “Not particularly.”

“The nice parts of Philly are really nice. But the bad parts are awful,” he says. “It’s the flip side of cheap real estate.”

But for a certain type of Gen Y renter, Philadelphia, particularly University City apartments, will offer just the right mix of job and lifestyle options.

Hopkins, the Select Greater Philadelphia executive, says that his son, a 24-year old working at insurer AIG and living with his parents to save money, is now debating whether to move to the New York area or stay closer to home. Because he wants to buy a home, he has no options in Manhattan—and few options in nearby New Jersey cities.

“He can’t afford the monthly payments in Hoboken, Jersey City, or Manhattan,” Hopkins says. “So now he’s thinking about Philadelphia.”

By: Jane Hodges
MSNBC contributor; April. 29, 2008

Turnpike Deal Gets Bumpy

Abertis-Citi Encounter High Costs and Potholes for Infrastructure Investors

America is definitely becoming a mecca for deal-hungry infrastructure funds. Whether investors in this burgeoning asset class making the pilgrimage to these shores will find redemption, however, is far from certain.

A consortium led by Spanish transportation and highway operator Abertis has offered $12.8 billion to operate the Pennsylvania Turnpike for 75 years, edging out local heavyweight Goldman Sachs Group in the process. Moreover, the final price was 20% more than Abertis, along with a Citigroup fund and a minor Spanish partner, had offered in the first round of bidding. From the looks of it, Abertis and Citi have stretched themselves to the limit.

The total size of the deal, which includes a cushion for working capital, will be $14.5 billion, of which about 60% will be funded with debt. In less shell-shocked markets, a toll road might support as much as 80% debt. But with the credit crunch, Abertis and Citi may need to tap several segments of the markets for the $8.5 billion they need.

The high price and modest leverage make the expected return on the partners' $6 billion of equity look unexciting. Abertis expects a low double-digit annual return. Some people who have analyzed the deal think returns could come in under 10%. Either way, most infrastructure investors look for 12% to 15% -- much less than, say, private-equity funds, but enough to compensate for operating risks, a long time horizon, and constraints on prices -- in this case, toll increases will be capped at the higher of inflation and 2.5%.

Abertis wanted a foothold in the U.S., where plenty of investors are eyeing infrastructure assets. If the deal is approved by Pennsylvania's legislature, the turnpike will bring the Spanish group another strategic benefit as well, extending the average life of its portfolio of toll-road concessions from 18 to 28 years. Citi's fund managers, meanwhile, get to put a big chunk of money to work and stake their claim to future deals. Goldman's bid fell about 5% short. Being trumped at the finish might seem unlucky. But with Abertis and Citi now set for rather meager returns, the investment bank may yet wind up a lucky loser.

By: Fiona Maharg-Bravo & Una Galani
Wall Street Journal; May 21, 2008

Brakes Put On for New Malls

Retailers' Demand for Space Wanes as the Credit Crisis Reins in Consumer Spending


Retail construction, which surged in recent years amid easy financing and robust consumer spending, has lost momentum as retailers curtail growth plans and lenders remain stingy.

Many of the largest U.S. developers of malls and shopping centers have reacted to retailers' waning demand for space by postponing by a year or more some of their projects. Other venues will be built piecemeal as leasing progress allows. Still others have been canceled before the start of construction.

The slowdown comes as consumers rattled by the credit crisis rein in spending, causing retailers to rethink their previously aggressive expansion plans. Among the national chains that recently pared their growth plans are J.C. Penney Co., Chico's FAS Inc., Starbucks Corp. and Home Depot Inc. At least partly because of the spending lull, nearly 6,500 U.S. stores are expected to close this year, the highest tally since 2001, according to the International Council of Shopping Centers.

Standing in the way of a recovery are deep-seated problems such as depleted home equity and high personal-debt levels. "We believe it is going to be harder for consumer confidence to come back quickly until some of these issues are resolved," J.C. Penney's chairman and chief executive officer, Myron Ullman, said Monday at the shopping-center council's annual trade show here.

The mood at the five-day conference, which attracted nearly 50,000 attendees and is slated to conclude Wednesday, is cautious. "I'm not afraid for '08 [results]," said Michael Glimcher, chairman and CEO of Glimcher Realty Trust, which owns 23 malls. "Where you get nervous is thinking about '09. Retailers are clearly opening fewer stores, and they're being more aggressive" in negotiations with landlords.

Developers, in turn, are hitting the brakes. This year, they are expected to complete retail projects totaling 136.4 million square feet in the top 54 U.S. markets, says market researcher Property & Portfolio Research Inc. But, next year, newly completed projects will amount to only 70.9 million square feet, reflecting the construction slowdown initiated in recent months. In comparison, the average annual production from 1998 to 2007 was 122.7 million square feet.

Pennsylvania Real Estate Investment Trust, or PREIT, which owns 55 malls and shopping centers, has altered plans more than once because of waning demand from tenants. The developer had lined up Target Corp. and Home Depot to anchor its $73 million Monroe Marketplace shopping center to be built in Selinsgrove, Pa. But Home Depot, which hadn't signed a lease, recently backed out, so PREIT is building only half of the project, with the rest put on hold. Similarly, PREIT recently canceled plans for a shopping center in suburban Chicago.

Massive projects backed by big-name developers are no exception. Real-estate tycoon Stephen M. Ross's Related Cos. recently postponed portions of two enormous mixed-use projects in Los Angeles and Phoenix. Dallas billionaire Thomas Hicks opted this month to redraft plans for his 1.3 million-square-foot, $500 million Glorypark mixed-use development in Arlington, Texas, after a partner's efforts to land department store Dillard's Inc. for the project failed and financial backers balked. Mr. Hicks now sees Glorypark spanning a more modest 400,000 to 500,000 square feet, perhaps hosting more entertainment-focused tenants than retailers. He still plans for the first phase to open by 2011. "It's going to happen," Mr. Hicks said. "But I can't control the capital markets."

A growing list of national retail developers has pared construction plans. Developers Diversified Realty Corp., which owns 740 retail properties and has $650 million of projects in development, has cut this year's development spending by 20%. General Growth Properties Inc., which owns more than 200 regional shopping malls, has cut $600 million from its four-year development budget, now $1.5 billion.

Others, such as shopping-center developers Regency Centers Corp. and Weingarten Realty Investors, plan to do more "phasing" by building projects in segments as new tenants warrant it. Macerich Co., which owns 72 malls, will phase the construction of two shopping centers near the Phoenix site targeted as the eventual home of its Prasada mall. "It's testimony to the fact that we're not going to build something until it's ready to be built" as dictated by market demand, said Macerich CEO Art Coppola.

Some retail developers point to benefits amid the economic slowdown. The lack of financing means fewer new projects are surfacing to compete for land and tenants. Additionally, as economic conditions have damped construction prospects, many of the largest retail landlords are seeking to buy cash-strapped development projects unable to land financing. "We see this as a huge opportunity, but we think the deal terms that are available are only going to get better," said David Oakes, chief investment officer at Developers Diversified.

By: Kris Hudson
Wall Street Journal; May 21, 2008

Comcast's Surprise

Philadelphians have been giving good reviews to the numerous architectural flourishes in the city's first new skyscraper in 15 years, the headquarters of cable giant Comcast Corp.

The lobby features a 120-foot-tall winter garden and artwork titled "Humanity in Motion" by Jonathan Borofsky. Atop steel poles that crisscross the lobby are fiberglass-and-Kevlar figures of people frozen in mid-stride.

Meanwhile, there's a three-flight glass stairway connecting the executive floors and a 400-seat employee cafeteria overlooking the city skyline. It's named Ralph's Cafe, after Ralph Roberts, who founded the company in 1963.

But there's one more design surprise being saved for the building's official opening in a few weeks: The entire back of the lobby will be a huge video wall, a company spokeswoman says. It will feature special artistic programming rather than be tuned to any of Comcast's channels. The wall is a "fun gift to Philadelphia," the spokeswoman says.

Wall Street Journal; April 30, 2008

Good Enough Equals Great in Commercial Real Estate

Sometimes average isn't so bad, especially amid economic uncertainty.

Several commercial real estate industry observers have issued reports in recent days, examining how the Chicago market is faring. What they found in general: Chicago real estate markets and Chicago Loop apartments may not be outperforming, but neither are they in distress.

Studley, which specializes in representing tenants in commercial real estate transactions, found the overall Chicago market for office space to be healthy for landlords but, in recent months, beginning to tilt in favor of tenants.

For Class A office properties, "total rent, $42.11 [per square foot], posted its fourth consecutive year of increase," Studley said, adding that owners asked for higher rates in 2007 during the peak of the investment sales market.

But that could change.

"As vacancies and rental rates flattened toward the end of 2007, the market could see a turn toward a tenant-favored environment as rental rates fall and concessions rise, especially in non-trophy buildings," Studley said. Concessions include anything from office improvements to free rent.

Moody's Investor Services had its own take on various types of Chicago commercial real estate. Moody's described the city's central business district as having a moderate number of vacancies, weaker than New York or San Francisco but stronger than Dallas or Philadelphia.

Chicago's suburban office markets improved, according to Moody's, but supply still remained on the high side. For industrial properties, Chicago was graded as having a moderate amount of vacant space.

Cushman & Wakefield recently noted a nationwide slowdown in office demand.

"The combination of three straight months of employment declines and broad economic uncertainty caused a mild slowdown in leasing activity in the first quarter," said Maria Sicola, executive managing director and head of research for Cushman & Wakefield.

But the Chicago central business district vacancy rate wasn't much changed, the company said.

"The vacancy rate remained relatively flat during the quarter at 12 percent, up from 11.9 percent at the end of the year," it said.

Nationally, office vacancies rose from 9.7 percent at the end of last year to 9.9 percent in the first quarter.

Ellis chosen as marketer: CB Richard Ellis has been chosen to handle marketing and leasing for Northwest Village, a mixed-use project at the northwest corner of Interstate Highway 90 and Illinois Highway 53 in Rolling Meadows. The real estate giant cited the project's close proximity to Woodfield mall.

When complete, Northwest Village is expected to offer 500,000 square feet of retail space, 1,000 resident units, two hotels and office space.

Amcol's move: Amcol International Corp. will be occupying a 72,000-square-foot international headquarters and lab at the southwest corner of Forbs Avenue and Higgins Road in Hoffman Estates. Amcol will move in during the third quarter of the year.

Amcol, which is publicly traded, offers a wide range of specialty mineral products.

Second-Home Buyers Go Condo

Vacation Houses Lose Out In a Weak Market; Coping With Pool Rules

The second-home market is in a slump. But one type of vacation property is still showing signs of life: condos (see Ballantyne Condos & Matthews Condos.

A new National Association of Realtors study estimates that sales of vacation homes in 2007 fell 31%, to 740,000, from 2006. But sales of condos dipped only slightly -- down 2.8% -- while sales of detached homes dropped 38%. The upshot is that condos cornered a substantially larger share of the vacation-home market last year: 29%, up from 21% in 2006.

Condos, including South Charlotte Condos, are selling better than single-family vacation houses for a number of reasons. They don't require their owners to maintain lawns, trim shrubs, paint the exteriors or replace roofs -- increasingly important concerns to an aging population. Condo communities also tend to offer amenities such as pools and clubhouses. And condos usually are cheaper to buy, and easier to resell, than houses.

Yet the prices of vacation condos haven't held up. Median prices fell almost 10% to $180,000 last year from the year before, while prices of single-family second homes remained flat, says the Realtor group. Part of that decline reflects the general downturn in the housing market, but the price pressure on condos also comes from investors who bought units in resort markets during the real-estate boom and now are trying to get rid of them. While the price-cutting is bad news for existing condo owners, it can make the units seem like relative bargains to buyers compared to houses.

Tod Phelps and his wife, Shelly, are among the second-home buyers attracted to condos. The couple since 2001 have owned a three-bedroom house on Beech Mountain, N.C., a 2½-hour drive from their primary home in Greensboro, N.C. But Mr. Phelps, an information-technology executive, says he is tired of spending weekends cleaning gutters and painting doors, and paying at least $3,000 a year to have people mow the lawn, weed flowerbeds and plow the drive in winter. "I didn't expect it to be as much trouble as it was," he says. Now the couple plan to sell the house and replace it with a "ski-in, ski-out" condo in the same community.

Condos are also making inroads in vacation spots where they've rarely been seen before, including beach villages along Lake Michigan. Some of these are attracting a new type of buyer used to an urban environment. Mary Morrissey, a government policy consultant in Chicago, and her husband recently bought a $350,000, two-bedroom loft at the Vineyards, a converted winery in Harbert, Mich. It features such downtown design elements as concrete fireplaces and window seats, exposed ductwork and soaring ceilings. The unit is much more open, light and fun than the usual cramped cottages found in the area, Ms. Morrissey says, and the contemporary style was the main reason they were attracted to it. "We never even thought about buying a single-family home," she says.

And in some places, such as Hawaii, prices have risen so high in recent years that condos are the only viable choice for many buyers. Maui broker Georgina Hunter says $1 million buys a two-bedroom condo in a resort with golf, pool and fitness center, but isn't enough for a single-family home. Since acquisition costs are so high, many buyers look to rent out their places when they're not vacationing there. Here condos also have the edge: Local zoning allows most condos to be rented for a short period, while most houses must be rented for at least 180 days. "You just get more bang for your buck," Ms. Hunter says.

But condos aren't popular in every second-home area. In New York's Hamptons, people prefer detached houses because they offer a yard, extra rooms and privacy -- "exactly what New Yorkers often lack in their primary residences," says Rick Hoffman, East End Regional vice president for the Corcoran Group brokers.

Condo living also can require an attitude adjustment as owners contend with close-by neighbors and live under a condo association's rules. Wayne Zawila, an Orlando, Fla., futures trader, paid $619,000 a little over a year ago for a three-bedroom weekend getaway in Daytona Beach, Fla. He thought the fourth-floor condo would be more secure and easier to manage than the Galena, Ill., lakefront house he used to own, which he once drove to at 3 a.m. because he was worried the pipes had frozen. But though condo life can be more carefree, at least when it comes to security and exterior maintenance, it's not rules-free. Mr. Zawila sometimes chafes under communal regulations he's never had to deal with before, like the one that bans him from smoking cigars while lounging in the pool. "It drives me nuts," he says.

Because many affluent second-home buyers like the common ownership and upkeep of exterior elements but still want a detached house, some builders are combining them in "condo homes." That setup attracted Sue Anne Davidson-Kalkus, a retired antiques dealer in Rome, Ga., and her husband, Tony, a retired Army colonel, who were married last year. A few months ago they listed her four-bedroom vacation retreat on 10 acres on Lookout Mountain, Ga., for $1 million and started searching for an easy-care vacation condo in the $600,000 range in New England, nearer to Mr. Kalkus's grown children. But after owning a custom-built place, Mrs. Davidson-Kalkus found the apartment-style condos she looked at to be "very ordinary." So the couple has just inked a deal to buy a detached, two-bedroom condo home at Winnapaug Cottages, a 35-acre development in Westerly, R.I. Their $300-a-month homeowner's fee covers landscaping, garbage collection, snow removal and exterior maintenance. "This is the best of both worlds," she says.


By JUNE FLETCHER
April 18, 2008; WSJ

Builder's open house draws bonanza of brokers

To Long & Foster agent Mary Blair, yesterday's brokers' open house at the Links in West Chester seemed "just like the old days."

"There was excitement about something new, a buildup to a big event - something really special," said Blair, who works out of the real estate firm's Devon office.

That was just what builder John Benson, of the Benson Cos. in Malvern, was hoping to hear.

"We have always been known as a single-family builder, and I wanted to introduce brokers and agents to the fact that we've been shifting to multifamily," said Benson, a third-generation builder.

Yet with so many existing and new homes on the market and sales of both down locally as a result of last summer's subprime crisis, Benson decided he had to do something extraordinary to get brokers - and, ultimately, buyers - talking about his townhouses.

The homes' golf-course views, fine finishes and amenities weren't going to be enough. Nor would the spectacular spread of food for which such events are known. What was needed was something the brokers would remember.

Prizes. Big ones. Just for showing up.

Blair took her chance, dropping her business card into a fishbowl perched on a knee wall near the entrance to the Brentwood, the four-story model for the 12 townhouses that comprise the Links.

In several hours, three cards would be drawn from that bowl, and the winners would share $10,000 in cash. One would get $5,000, two would get $2,500 each.

There was a lot of competition. More than 300 brokers and agents representing the region's major real estate companies (Weichert, Keller Williams, Century 21, ReMax, Prudential Fox & Roach, to name a few), as well as a few lenders, dropped their cards into the fishbowl during the five-hour open house.

The turnout was a lot larger than anyone - Benson, his sales manager Alison Richter and Janet Rubino, the Long & Foster vice president who worked with them on the event - had expected.

"We printed 500 brochures," Rubino said as she reached for another stack. "Maybe we'll have enough."

Food, they definitely ran out of, and the caterers called their office three times for more, she said.

"We never expected that we'd get so many," Benson said. "I'm encouraged because this kind of turnout is a rarity these days."

A typical brokers' open house draws 30 to 50 people, especially in Philadelphia, where things are closer together and agents can walk from event to event.

But Amy Cass of Prudential Fox & Roach's West Chester office was not at all surprised to see the crowd.

"A gourmet lunch is always a big draw," said Cass, who stopped by for a look at the townhouses, which start at $709,000.

And the prizes - if there are prizes at an open house - are "usually a couple of hundred dollars at the most," said Art Herling, Long & Foster's regional vice president.

Besides a shot at the cash, agents will receive bonuses for bringing in multiple buyers ($2,500 for the second, $5,000 for the third).

Just about every agent managed to get past the fishbowl and the kitchen, Rubino said, spending 15 minutes on average touring the townhouse before picking up a brochure on the way out.

Judith Alignon, office manager for Weichert Realtors in West Chester, accompanied her agents to the open house, but not, she said, for the prizes.

"Managers should be aware of the market inventory and trends," Alignon said. "Visiting open houses with their agents is one of the best ways to do that."

Cass said she was intrigued by the description of the townhouses and had to see them for herself.

"The layout is really cool, and the fact that they have elevators is ideal for 55-plus [buyers] without being limited to that group," she said.

"I also was pleased to see that there were garages, which is something we don't have a lot of in the borough. They were also in the rear of the houses, which means it isn't the first thing you see when you drive up."

But wasn't the prize drawing a factor in her coming?

She said it wasn't - and she didn't think she had a chance at winning: "There were a lot of cards in the bowl."

By: Al Heavens
Philadelphia Inquirer; April 23, 2008

Band of civic saviors pays off Kimmel's debt

More than six years after opening night, the $275 million Kimmel Center for the Performing Arts is finally paid for.

In the largest arts bailout in the city's history, several large philanthropies have opened their silk purses to help eliminate the $30 million debt left over from the Kimmel's construction phase, while dozens of individual donors are pitching in to boost the center's endowment to $72 million.

The complex deal - involving the Pew Charitable Trusts, the Lenfest Foundation, Sidney Kimmel, the state and other sources - brings almost $74 million in total assistance to Philadelphia's arts center.

"I think this is a giant step for the Kimmel, and now it's truly out of the woods," Gov. Rendell said yesterday. "Now it can look forward to doing new things and creating new momentum. The debt sort of hung over the center like the sword of Damocles," forcing the Kimmel to incur deficits, curtail operations, reduce staff and defer maintenance.

"I'm just very happy and very relieved," said Kimmel board chairman William P. Hankowsky.

How does the milestone make Kimmel CEO Anne Ewers feel?

"Ecstasy doesn't begin to say it," said Ewers, whose primary focus upon starting the job nine months ago was dissolving the $30 million debt.

Now that the debt has been dealt with, the Kimmel hopes to tackle other hurdles - like improving Verizon Hall's much-criticized acoustic, and enlivening the center during non-performance times.

The cash infusion comes from the city's largest philanthropic forces, and is to be applied in a variety of ways:

The biggest single chunk comes from the center's namesake, clothier and film producer Sidney Kimmel, who has agreed to give $25 million toward the endowment over a number of years, bringing the total amount he has given to the project to $60 million.

H.F. "Gerry" Lenfest, the William Penn Foundation, the Neubauer Family Foundation and Pew collectively have provided $25 million to relieve the debt in a financial deal with Wachovia and Citizens banks.

Rendell is committing $5.5 million in new state money - contingent on the General Assembly's approving new funds for the Capital Redevelopment Assistance Program. The city is kicking in $2 million. These monies will help fund future physical improvements.

Dorrance H. Hamilton has contributed an additional $2.5 million, raising her total commitment to $10 million, to pay down debt and create a cash reserve.

Passing the hat among Kimmel board members produced $13.7 million in contributions from them, and in some cases the corporations they represent.

"It was kind of like a house-closing," said Ewers. "Everyone came to the table at the same time with something - the banks, the board, donors, foundations."

Some came to the table making exceptions to long-standing practice, as Pew president and CEO Rebecca W. Rimel admitted yesterday.

"It's unprecedented for us to come in this way after a capital campaign has closed," she said, "and certainly this debt burden was crippling the Kimmel. But this is an extraordinary community resource and a worldwide asset, home to many performing arts organizations with which we have relationships. So it wasn't just about the Kimmel and its future. It was about all these organizations."

The Kimmel's 2,500-seat Verizon Hall is full-time home to the Philadelphia Orchestra between September and May, and Verizon and the 650-seat Perelman Theater are full- or part-time home to seven other organizations.

The project started life solely as a concert hall for the orchestra, but after years of stop-and-go fund-raising, a new board chairman, Willard G. Rouse 3d, reconfigured the vision as a larger arts center, and promised that the building would be completed and paid for on opening day in December 2001.

Neither promise came true, and the Kimmel has been playing financial catch-up ever since. (Rouse died in 2003.)

"This has been a big cloud over all of us," said Judge Marjorie O. Rendell, a Kimmel board member and one of the project's most persuasive and stalwart cheerleaders. "The fact that we've removed that cloud is a great morale booster as well as a boon to the bottom line."

Contributions to capital campaigns so long after their close are unusual in the arts and culture realm. Other groups, such as the Franklin Institute, have ended capital campaigns without having met their goals and turned the gap into long-term debt, as the Kimmel did. But in the Franklin's case, no foundation has come along with late-in-the-day munificence.

Fund-raising for new buildings typically falls off precipitously after opening day. The Philadelphia Museum of Art has raised $2 million for its Perelman annex since opening the doors in September; it still has $20 million to raise on the $90 million project.

In this case, Rimel worked with Wachovia and Citizens banks to structure the $30 million debt-relief portion of the deal.

"Basically the banks are taking the $25 million" the foundations are providing "as satisfying the [$30 million] debt. The Kimmel will now be debt-free," Rimel said. "The banks are going to invest that money over a period of time and hopefully the wind will be at their backs and they will realize the full amount of the debt obligation. If that doesn't happen it will not come back to the donors. The debt is satisfied."

Janice C. Price, the former Kimmel president under whose watch this effort began several years ago, said she was "thrilled to see it have this outcome. It was a huge challenge to get it kicked off, and this was a critical step for the center in really being able to move fully past that building stage to now focus on the programming and service to the community."

And the financial assist comes along just as another is expiring - an aid package from the Pew, Lenfest and Annenberg foundations that provided millions to the Kimmel and resident companies each year.

Several donors to the current funding package stipulated that their gifts were contingent upon the Kimmel's retiring its debt.

Now that the debt is gone, Ewers said, the Kimmel will concentrate on two other ambitious efforts: enlivening the public spaces of the center, which are currently populated only around performance times, and undertaking an acoustical remake of Verizon Hall.

Questions about the acoustical work involve not only how to fund it, but also whether the hall's original acoustician or another firm should undertake the effort. Strategies for enlivening the public spaces were unveiled last week in a series of ideas crafted by PennPraxis, the University of Pennsylvania planning authority, proposing physical changes to the building.

Ewers said that the Kimmel's prospects for raising money for both acoustical and civic-space improvement have been brightened.

"What's best of all is the ability to reach out to new funding sources for annual support and some of the capital things we're looking for. It's so much easier when you do not have a debt hanging over your head."

By Peter Dobrin

Philadelphia Inquirer; April 23, 2008