PhillyDeals: Capital One helping to build Phila.

Harrisburg's incinerator would be sold to pay part of the $300 million-plus owed to bondholders, based on a state plan.
Harrisburg's incinerator would be sold to pay part of the $300 million-plus owed to bondholders, based on a state plan. (PAUL TAGGART / Bloomberg)
Posted: August 28, 2013

Capital One Corp. is still best known as a credit-card lender that spends a lot of money trying to convince consumers to borrow more. But the Virginia-based loan giant, which waged a costly effort to diversify in the 2000s, has also become one of the biggest lenders to Philadelphia construction projects.

The bank's growth here dates to the financial-collapse year of 2008, when it hired a team to build up its East Coast commercial real estate projects headed by veteran business banker Rick Lyon, who trained at the old Philadelphia National Bank and served its successors for 28 years.

Banks come and go, but lenders who specialize in developer loans soldier on. Deals by Lyon and his Philadelphia-area team headed by Glenn Gallagher include:

$35 million for Joseph and Robert Zuritsky's Parkway Corp.'s taxpayer-subsidized, plastic-fronted Home2Suites hotel next to the Pennsylvania Convention Center in Center City this year;

$100 million (split with PNC Bank) for the Grove at Cira South tower, targeted to future MBAs and MDs at neighboring Penn and Drexel by a joint venture of Jerry Sweeney's Brandywine Realty Trust and Ted Rollins' Campus Crest Communities Inc.

$30 million for PREIT-Rubin's 2011 conversion of the former Strawbridge & Clothier at 801 Market St. into offices for The Inquirer and related media.

$35 million for Bruce Toll's Dublin Terrace apartments in Fort Washington in 2009.

These are among 25 builders Capital One says it has funded in the region, trailing only Wells Fargo and PNC, and ahead of Citizens and Bank of America, since the bank came into the market.

Apartments, hotels, conversions - hospitals and colleges - what about prospects for new office towers and other projects that would signal a revival in big-business hiring?

"There's not a lot of growth in office," Lyon said. Not even in New York, where Capital One is also active.

A plan for Harrisburg

Cash-strapped Harrisburg's state-appointed financial receiver has published a plan to sell the money-losing city incinerator, lease the parking garages to private operators for 40 years, trim the city budget, and pay part of the $300 million-plus that bondholders are owed for the city's long borrowing binge.

According to the Harrisburg Patriot-News, which met with an aide to receiver William Lynch to discuss the settlement's practical impact, the sale of the incinerator to Lancaster County's trash authority should raise about $130 million, and the parking lease should raise about $260 million. The city gets a few million dollars in parking revenues - parking fees will go up - plus $16 million for economic development and city worker pension payments. Suburban towns that sued the city for overcharging for sewer services will get back $11.2 million over six years, less than half of what they demanded.

Lender CIT will get $21.5 million of its $37 million incinerator-finance claim paid; incinerator operator Covanta will get $9.5 million of its $26 million claim; and contractor JEM Group will get about 40 percent of its $1.8 million claim. Dauphin County and its bond insurer will get a minimum $210 million of their nearly $300 million claim, plus partial parking revenues that could pay off the rest of their credit over 25 years.

  Councilman Brad Koplinski, who opposed the state's takeover two years ago, said the deal, which has general support from the state, city, bondholders and other creditors, is "a global solution with shared pain."

"The receiver's team has come up with some innovative solutions in financing our debt, including using vehicles like tax-exempt bonds," he said.

Lawyer Mark Schwartz, who represented the City Council in its failed attempt to resist receivership, said he plans to challenge the bonds' tax-exempt status, which he called "a rip-off of the taxpayers."


Contact Joseph N. DiStefano at 215-854-5194 or JoeD@phillynews.com.

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