Philly Deals: Office tenants have the real estate advantage, analyst says

Posted: June 20, 2012

Commercial-real-estate pros have been reduced to playing "musical chairs" as tenants enjoy their pick of nicer, cheaper offices instead of having to build or lease new space, analyst John W. Guinee writes in a report to clients of brokerage Stifel Nicolaus & Co.

Almost the only places in America where office demand and rents are rising are three hopping "media, entertainment and technology" centers: Silicon Valley; New York City's Midtown South (including "Silicon Alley"), and San Francisco's South of Market (SoMa).

Office space in midtown Manhattan is renting in the $45-$65-per-square-foot range, double or more what space fetches in Center City. (That explains why the big University City institutions, Penn, Drexel, CHOP, are expanding east across the Schuylkill.) In lower Manhattan's Wall Street financial district, leasing remains "slow."

Washington, D.C., was the only growing metro property and jobs market back in 2009, when President Obama and his Democrats were pushing "stimulus" programs. But "we are relatively pessimistic" about metro Washington now, given Iraq and Afghanistan war cutbacks and the prospect of a Republican sweep in November — or continued divided government — that "would likely result in Federal budget cuts," Guinee adds.

Brandywine Realty Trust, Radnor, has suffered with the "soft" Washington and Philadelphia markets; growth, "if any, [will] come from occupancy gains" (its current vacancy rate is about one-eighth) "and not from rental rate growth," except maybe at the popular Radnor Financial Center, Guinee writes. And Philadelphia's Liberty Property Trust is "shifting" out of small-market offices and into warehouse and industrial properties.

Maybe that's the future: With finance and government remaining weak, warehouse and distribution companies (think have "decided to ignore the global economic noise and proceed with running their businesses," Guinee concludes.

Whose money?

A string of prominent Pennsylvania General Assembly members — Fumo, Perzel, DeWeese — have lately been convicted and sentenced to prison for spending public funds on their campaigns or other private causes.

What happens when desperate, careless or shameless municipal officials grab money raised for one public purpose and shift it to pay for another? That's against the law, too. But the punishment is not so clear.

We know more about what can happen when politicians' bottomless need for cash is combined with a lack of effective oversight since last winter's bombshell audits by the Harrisburg Authority showed millions had been diverted to city coffers from Harrisburg's $300 million incinerator refinancings since the 1990s — while an additional $34.5 million had been extracted from suburban towns through bogus charges for the city-run sewer system since 2005.

Carlisle lawyer Scott Wyland appealed to Harrisburg receiver David Unkovic on behalf of six suburban towns that suspected they'd been overpaying. Unkovic confirmed the overpayments. His successor as receiver, Gen. William Lynch, met with Wyland last week to talk about how the towns will get the extra money back without destroying the aging drainage network, which needs work.

Lynch "seemed receptive," Wyland told me. "We think we are tracking toward a resolution" that would involve Harrisburg lowering suburban sewer charges for years to come, until the overpayments are refunded.

Was the diversion against the law? Yes, said Wyland: "The Pennsylvania Sewer Rental Act says any revenues collected by the city for sewer service have to remain in the sewer account and be used for that purpose. So it's a violation of the statute."

So what? Federal and state prosecutors have so far declined to comment on whether they will investigate or charge past Harrisburg-area officials for what they did with the people's money.

Wyland wants to financially "reconcile" what towns paid and what they owed. Will that be enough to make Pennsylvanians confident their money is going where leaders say it's going?

Contact columnist Joseph N. DiStefano at 215-854-5194,, or @PhillyJoeD on Twitter.

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