FINE HOMES GUIDE SPECIAL SECTION
DESPITE SANDY, AREA RESIDENTS STILL HEADED TO JERSEY SHORE
REGION’S BUSINESS
PHILADELPHIA EDITION
A JOURNAL OF BUSINESS AND POLITICS
REAL ESTATE MARKET SEEING
UP$, DOWN$ While Center City and its surrounding neighborhoods continue to attract younger, wealthier residents, some city and suburban neighborhoods continue to decline
DEMOCRATS HOPING TO CHALLENGE GOVERNOR CELEBRATE SESTAK EXIT MAYOR PROPOSES TAX HIKES ON ALCOHOL, CIGARETTES ECONOMY, COSTS DRIVE STARTUPS
23 MAY 2013
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23 MAY 2013
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CONTENTS
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Market’s 22 Uneven Return 26
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Kensington Brewery Gets Crowdfunded Makeover
Visitors Return to Jersey Shore
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REGION’S BUSINESS A JOURNAL OF BUSINESS & POLITICS
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Economy, Costs, Culture Driving Young Startups
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‘Going Green’ On The Road
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Benjamin’s Desk Continues Startup Grind
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23 MAY 2013
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WEEKLY BRIEFING
Flower Show Blames $1M Loss On Forecast The Philadelphia Flower Show lost about $1.2 million this year because of forecasts that called for a severe winter storm, officials said, according to an Associated Press report. “It was a snow drumbeat, and it was relentless,” said Drew Becher, president of the Pennsylvania Horticultural Society, according to the report. Online ticket sales were up 7 to 15 percent from last year’s pace before the forecasts, Mr. Becher said, proving that visitors were not turned away by ticket prices or the quality of the show, which on average brings in about $1 million in profit for the society, according to the report. Meteorologist Greg Heavener of the National Weather Service in Mount Holly, N.J., blamed television and radio stations for hyping up the forecast, saying, “They hype it up for ratings and viewership, and all meteorologists kind of take the blame for it,” according to the Associated Press.
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TOURISM
Convention Center Labor Issues Lead To Financial Woes A $780 million expansion that promised to bring new business to the $1.3 billion Pennsylvania Convention Center has failed to produce positive results, AxisPhilly reported in an in-depth article. Though the center has 20 major conventions scheduled for 2013, it has only eight booked for 2016, according to the report. That would drop the center’s economic impact from $510 million this year to about $230 million in 2016. “Read the post-convention reports and the mantra is the same: the groups like the new convention facility; their attendees love the city, but the same complaint echoes again and again in these reports: Labor hassles, labor costs, labor overtime,” Tom Ferrick wrote in the AxisPhilly report.
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23 MAY 2013
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JOBS
State Unemployment Drops to 7.6 Percent The state’s unemployment rate dropped threetenths of a percentage point to 7.6 percent in April according to employment statistics released by the Pennsylvania Department of Labor & Industry. Unemployment decreased 17,000 to 496,000. This was the third largest decrease on record, behind only March 2013 and July 1983. Employment was up 13,000 to 6,008,000. This increase tied September 2012 for the second largest employment increase in the past twelve months. Private sector jobs were up 8,300 to the highest level since September 2008. The largest gains were in professional and business services, leisure and hospitality and educational and health services, which all reached record-high job levels in April. HIGHER EDUCATION
Sluggish Employment Report for Pa. Colleges The number of jobs in higher education was essentially unchanged in the first quarter of 2013. Meanwhile, the number of advertisements for job openings in higher education continued to grow, but at a moderating pace, according to a new report from HigherEdJobs. The analysis of U.S. Bureau of Labor Statistics data found the total number of jobs in higher education was down incrementally, decreasing 0.4 percent, and was eclipsed for the second consecutive quarter by U.S. job growth rate, which grew by 1.5 percent. The “market share” of higher education jobs compared to all U.S. jobs was lower in Q1 2013 by 0.02 percent compared to the same quarter last year. TRANSPORTATION
PHL Nears New Expansion After City Council Vote A 15-year expansion project at the Philadelphia International Airport moved one step closer to reality after a City Council committee approved purchasing Tinicum Township properties, Newsworks reported. In order to expand the airport, the UPS facility would have to move into the purchased space. “It is about trying to make the necessary improvements to the airport to reduce delay to enhance capacity for the future to redesign and rebuild our facility so we can set the airport up to handle the needs of the city long term,” airport CEO Mark Gale told Newsworks.
WEEKLY BRIEFING
SugarHouse Expansion Could Hit Jackpot BY BROOKE HOFFMAN A week after it took public input on the proposal, the Pennsylvania Gaming Control Board approved the expansion of Philadelphia’s first casino, SugarHouse, on the Delaware riverfront in Fishtown. The expansion, which has been the subject of buzz for a while, suddenly comes into play as six other casinos are fighting for the city’s second gaming license, like an older sibling grasping for attention upon the arrival of a newborn. The arguments for all casino developments hinge on potential income and jobs, but does the approved plan improve Sugar House or prepare it for competition? The Gaming Control Board granted SugarHouse permission to open in two phases when it originally approved its license. SugarHouse’s original proposal for its second phase increased the gaming area by about 40,000 square feet, including a highlimit room, a dedicated poker room, and new focus on Asian table games. The plan included a 10-story parking structure and a second floor with conference and event space.
While six applicants battle it out for the city’s second casino license, SugarHouse, its first, got the okay from the Pennsylvania Gaming Control Board for its planned second phase expansion. G. WIDMAN FOR GPTMC
All of those elements remain in the revised plan the PGCB approved, but the garage is smaller — seven stories instead of 10 — and there are fewer additional slots in a slightly smaller enlarged gaming hall. According to a report in Plan Philly, during the public input meeting, General Manger Wendy Hamilton explained there is a demand for the space: “We already are getting requests for everything from weddings to corporate events.” The expansion would create
450 full- and part-time jobs along with up to 700 construction jobs over the next two years of construction. Plan Philly also discussed how an increase in revenue for SugarHouse could also benefit the Penn Treaty Special Services District, which the casino helps fund to the tune of $500,000 annually — “an amount that would increase to $1 million each year.” This article was originally published on the Philadelphia Real Estate Blog at PhiladelphiaRealEstate.com.
Table Game Revenue Revel Admits Errors Up 8.9 Percent In Pa. In Restructuring Plan The Pennsylvania Gaming Control Board announced recently that revenue generated from the play of table games at Pennsylvania casinos during April 2013 was 8.9 percent above table games revenue produced last April. This April’s gross table games revenue generated by 11 casinos was $61,552,334, or about $5 million higher than in April 2012 when revenue totaled $56,499,624.
Atlantic City’s newest casino told the New Jersey Casino Control Commission last week that it needed to quickly focus on customer satisfaction after making approximately $2.4 billion’s worth of errors in its first year of operations, the Press of Atlantic City reported. “Everyone deserves a second chance. We’re looking for a second chance,” Jeffrey Hartmann , Revel’s interim CEO, told the commission during a bankruptcy hearing, the Press reported. As part of Revel’s restructuring, it will add more affordable restaurants, end its no-smoking policy, add more diverse entertainment and employ a new marketing strategy, according to the Press report.
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23 MAY 2013
REGIONSBUSINESS.COM
WEEKLY BRIEFING
CONSTRUCTION
City Officials Discuss Philly Construction City officials joined members of the Philadelphia construction industry Friday to discuss the city’s economy and the industry’s future. Deputy Mayor Alan Greenberger, Councilman Bill Green, Councilwoman Maria Quinones-Sanchez and Licenses and Inspections Commissioner Carlton Williams comprised the panel organized by the General Building Contractors Association Friday at the Ritz Carlton. PHILADELPHIA
Innovation Summit Begins This Week The 2013 Mayors’ Innovation Summit — which began Wednesday — “seeks to provide an important forum for dialog among mayors, information and technology officers, civic innovators, technology executives and the non-profit sector to share their vision of the city of the future,” according to Temple University. The three-day event will allow city leaders and technology experts to showcase the collaborative and strategic efforts they believe can solve the city’s most important challenges. PHILADELPHIA
City Receives $1.2M ArtPlace America Grant ArtPlace America announced the award of grants totaling $1,195,150 to implement four projects that animate public spaces through art in University City, Frankford, and the Delaware River waterfront. The projects, River Stage at the Waterfront, FringeArts on the Waterfront, Destination Frankford, and The Department of Making + Doing, were chosen from more than 1,200 applications as exceptional examples of creative placemaking.
PHA Seeks Developer Partners For More Affordable Housing
Preservation Achievement Award Winners The following awards were given out last week:
BY GREG MECKSTROTH
T
he Philadelphia Housing Authority has been in the news in recent years for its high-performance sustainable development seen in new construction public housing across the city. The authority, the fourth largest in the country, is once again on the forefront of public housing innovation, this time launching a formal process to form new development partnerships as part of its “6 in 5” initiative, which is designed to create or preserve 6,000 affordable housing units over the next five years. Since the Authority has been de-densifying a lot of its public housing sites for more than a decade, replacement sites have been identified to make up the unit gap from the original sites. Federal funding to build new sites has shrunk and the agency has decided partnering with other development groups that build affordable housing is the way to go. To do this, the agency has issued a request for proposals (RFP) for a local unit-based operating subsidy program to assist developments that serve low-income households. The subsidies may be used for existing, newly constructed, or renovated housing
James Biddle Award For lifetime achievement in historic preservation: John Andrew Gallery Public Service Award For preservation in the public interest: Preservation Pennsylvania
units, and will provide long-term financial assistance to property owners. PHA has done this in the past, notably on senior housing complexes across the city, but this is the biggest, most expansive effort to partner with private developers to build low-income housing. It’s a move out of necessity: PHA no longer believes it can provide affordable housing alone and is turning to these types of partnerships to fill the demand. PHA is accepting proposals for the program through the end of 2014. Developers and others interested in viewing the RFP can request a copy by following the instructions posted at http://www.pha.phila.gov/ business-opportunities.aspx. This article was originally published at PhiladelphiaRealEstate.com.
Study: Residential Property Would Shoulder AVI Burden As a result of the property tax overhaul known as the Actual Value Initiative (AVI), residential property will account for a greater share of Philadelphia’s total property value — and thus the property tax burden — in 2014 than in 2013, according to a new report from The Pew Charitable Trusts. For the residential sector as a whole, the added tax burden could be as much
DEVELOPMENT
as $72 million annually, with another $11 million in taxes on the “stores with dwellings,” which dominate neighborhood commercial corridors. Meanwhile, the burden shouldered by the commercial and industrial sectors would fall by about $55 million and $20 million, respectively, each year. In all, Philadelphia collects about $1.2 billion per
year in local property taxes for the school district and city government. As explained in the report, AVI: The Shift in the Property Tax Burden, several proposals made by Mayor Michael Nutter and members of City Council, including a homestead exemption for all owner-occupied residences, would lessen the magnitude of the changes, perhaps significantly, but likely not eliminate it.
Rhoda and Permar Richards Award For service to the Preservation Alliance: Marian Kornilowicz Board of Directors Award For exceptional contributions to historic preservation: The Union League of Philadelphia Community Action Awards For achievement by community organizations: — Friends of the Wissahickon — Nicetown Community Development Corporation 50th Anniversary Recognition Society Hill Towers 2013 AIA Philadelphia Landmark Building Award Keystone National Bank, 1887/1890 1326 Chestnut Street Willis Hale The Henry J. Magaziner EFAIA Award PennPraxis PRESERVATIONALLIANCE.COM
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23 MAY 2013
REGIONSBUSINESS.COM
WEEKLY BRIEFING
TOURISM
Please Touch Museum Leader Stepping Down Philadelphia’s Please Touch Museum President and CEO Laura Foster will step down after five years at the helm, the Associated Press reported. Ms. Foster’s contract with the Fairmount Park-based museum ends in November, but it was not clear when she will officially leave her position. Chairwoman Salle Stetson told The Philadelphia Inquirer that she and Ms. Foster had discussed the moves for months and said a national search for a replacement will begin soon. The museum began renovating Memorial Hall in 2005 and relocated to the site from 21st Street in 2008. It has been struggling to prepare future debt payments stemming from that move, according to the report.
Memorial Day in Philadelphia Below are some of uwishunu. com’s top picks for where to celebrate Memorial Day weekend in and around Philadelphia: ?bk^phkdl Zg] ?hngmZbgl Zm Ehg`& wood Gardens: “On Saturday, May 25 at 9:15 p.m. fireworks illuminate the night sky at Longwood Gardens’ Fireworks and Fountains event. Tickets to the event are available online and also include all-day access to Longwood Gardens.” F^fhkbZe =Zr Ikh`kZffbg` Zm the National Constitution Center: “From Saturday, May 25 to Monday, May 27 the National Constitution Center celebrates military heroes with a number of family-friendly activities for museum guests. “Each activity is included in the price of museum admission. The museum also provides guests with extended hours on Sunday, May 26.”
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Ab]]^g <bmr ?^lmboZe ;eh\d IZkmr3 “It’s the kick off weekend for the second annual Hidden City Festival, and an epic block party is set to go down at 12th and Wood Streets in the Callowhill neighborhood. From 7 to 11 p.m. on Saturday, May 25, local bands and DJs provide music for folks to dance up a storm at the Reading Viaduct. Food trucks will be on site serving up a variety of sweet and savory fare, and craft beer will be available as well. Tickets are available online.” F^fhkbZe =Zr IZkZ]^% L^kob\^ and Reception at Laurel Hill Cemetery: “Laurel Hill Cemetery is home to the burial plot of General George Gordon Meade, a war hero from the Battle of Gettysburg. “On May 26 honor the famed war hero, and all war heroes, at the cemetery which will host a service and wreath-laying.”
OKLAHOMA TORNADO
Pottstown Hotel Raising Funds for Tornado Victims Owners of the Comfort Inn & Suites Pottstown were quick to respond to the devastating loss of life and property from a massive tornado in Moore, Oklahoma. The hotel announced plans on Facebook to donate up to $1,000 to the American Red Cross of Oklahoma City via a “Like A Thon.” Through Tuesday, the hotel will donate $1 for every “Like” on the Comfort Inn & Suites Pottstown Business Page (Facebook.com/PottstownCI), up to $1,000. If your business is donating to this cause, email Terrence Casey at tcasey@ regionsbusiness.com.
23 MAY 2013
REGIONSBUSINESS.COM
WEEKLY BRIEFING EXECUTIVE BOOKSHELF
WHO TO FOLLOW
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Le Bec Fin Closing Philadelphia’s famous Le Bec Fin will be formally closing its doors after more than 40 years on Walnut Street. Chef Justin Bogle will replace the restaurant with a “progressive American” menu with ultraseasonal ingredients, Zagat reported.
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23 MAY 2013
REGIONSBUSINESS.COM
Survey: Sandy Didn’t Change Most Summer Plans
T
he summer travel season is about to kick off with Memorial Day weekend — and it’s the first big tourism test for the Jersey Shore after the devastation of Hurricane Sandy. According to a new AAA poll released today, 79 percent of Philadelphia-area and New Jersey residents say the storm did not change their summer travel plans. Some travelers may spend less time at the Shore, or visit a different town, if their usual destination is not available. But others are making extra efforts to patronize Jersey Shore businesses to help revive the local economy. AAA estimates that 404,000 Philadelphia area residents will travel 50 miles or more from home this Memorial Day weekend, unchanged relative to the holiday period in 2012. Of those traveling in the Philadelphia area, 90 percent plan to drive to their destination. And 22 percent of those Memorial Day weekend travelers plan to visit the Jersey Shore. An overwhelming majority (71 percent) of respondents believe that the Jersey Shore will be open for summer travelers with an even greater majority (75
BY THE NUMBERS
79%
People who said Superstorm Sandy did not change their summer vacation plans
6%
People who said they had to find a new location down the shore because the usual location was hard hit
71%
People who believe the Jersey Shore will be ready in time for Memorial Day weekend
The bridge between Sea Isle City and Avalon remained closed to traffic last month, but shore officials say both towns will be ready for Memorial Day weekend. TERRENCE J. CASEY
percent) believing that the ocean and bay water will be safe for swimming and boating. AAA’s post-Sandy travel poll also finds nearly 60 percent saying their favorite Shore area wasn’t harmed.
“People are very informed, and some travelers have already visited the Shore personally, to find out if their favorite resort is available before they book travel with us,” said Jenny M. Robinson, Manager of Public and Government Affairs for AAA Mid-Atlantic. “Wildwood and Cape May continue as the most popular shore destinations for the Philadelphia region, and that part of the Jersey Shore was relatively unscathed by Sandy, so people are planning trips there just as before.” Despite Sandy, visitors — especially NJ residents — are determined to get back to the Jersey Shore AAA’s poll, commissioned by the AAA Clubs of New Jersey, finds that “Jersey Strong” isn’t just a saying. The poll asked: “Are you making an effort to visit Shore towns hurt by Hurricane Sandy, to increase tourism and support local businesses?”
Half of the New Jersey residents polled (50 percent) answered “yes,” with the majority (82 percent) believing that the money they spend at the Shore will directly help small businesses to rebuild. Of Pennsylvania residents polled, 28 percent also said they were making an effort to support local Jersey Shore businesses. Long term stays have decreased, but more beach goers are planning on taking at least one day trip. Of those day trippers, 20 percent plan more than six trips and 28 percent plan to take between one and three trips. For those who had to alter their usual travel location, the most popular response (16 percent) was to visit another New Jersey Shore spot rather than go out of state. However, 8 percent of respondents plan to visit Ocean County, Maryland instead, and 5 percent plan to visit Delaware beaches.
404,000
Philadelphia area residents who will travel at least 50 miles from home for the holiday weekend
75%
People who believe the ocean and bay water will be safe for swimming and boating Memorial Day weekend
82%
People who believe the money they spend at the Shore over the weekend will directly help small businesses rebuild
16%
People who are changing travel destinations but still going to New Jersey
23 MAY 2013
REGIONSBUSINESS.COM
DEALBOOK DEVELOPMENT
Subaru Considering Navy Resource Real Yard for New Headquarters Estate Buys Alabama Site Philadelphia-based Resource Real Estate Opportunity REIT, recently announced it has purchased Autumn Wood Apartments in Birmingham, Alabama, for $8.5 million Autumn Wood is a 196-unit multifamily residential community that consists of 12 buildings and sits on over 17 acres. The property is located in the city limits of Hoover, in Jefferson County, within the greater Birmingham area. The purchase of Autumn Wood was an “off market” acquisition that was brought directly to Resource Real Estate. RRE was able to close this transaction on an all-cash basis and on an accelerated timeframe, which motivated the seller to approach RRE.
Cherry Hill, NJ-based Subaru is considering the Navy Yard for its new corporate headquarters, according to a report in the Philadelphia Business Journal. The car manufacturer has been looking to move out of its current, 115,000-square-foot facility (where it has been located for more than 25 years) into about 225,000 of real estate, according to the
report. The move could happen as early as 2015. Subaru has also broke ground last year on a 526,000-square-foot distribution center and training facility in Florence, NJ, according to the report.
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HEALTH CARE
Worldwide Medical Moving To Bristol Hamilton, NJ-based laboratory equipment company Worldwide Medical Products will be moving operations and about 40 employees to a 68,000-squarefoot building on Wharton Road in Bristol Township’s Keystone Industrial Park, according to a report on PhillyBurbs. com. “We just needed more space,” Director of Operations Chris Conway told PhillyBurbs.com. “We’re just out of space here.” Mr. Conway also said the company plans to hire an additional 30 employees in the next few years. Worldwide Medical Products received $2.24 million in low interest financing from the Pennsylvania Industrial Development Authority to fund the $4.6 million move, according to the PhillyBurbs. com report.
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23 MAY 2013
POLITICAL COMMENTARY
REGIONSBUSINESS.COM
Mayor Proposes Alcohol, Tobacco Tax Hikes
Timothy Holwick is a freelance writer covering Philadelphia government. Find more coverage at citycouncilmatters.com. CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness.com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.
Philadelphia Mayor Michael Nutter has proposed a tax hike on liquor and tobacco, namely packs of cigarettes, in order to help fund the Philadelphia School District. The School District requested $60 million to close its budget gap, and Mayor Nutter’s proposal estimates that his new tax increases will raise approximately $95 million. The first portion of the proposal would increase the liquor tax from 10 percent to 15 percent, which is applied by the drink. That tax increase would take effect July 1 and is expected to raise $22 million. The second portion of the proposal increases the tax on each pack of cigarettes by $2. The $2 increase would be on top of whatever current city and state taxes apply. The tax increase on cigarettes would come into effect January 1 of next year and remain in effect until the school district’s fiscal year ends in July 2014. The tobacco tax hike is expected to raise
$45 million. Mayor Nutter made it clear that while increasing taxes on tobacco will likely have a health impact, the goal of the increase is unequivocally to raise money for the school district. He mentioned that he is no friend of the cigarette industry, that there are about 280,000 smokers in Philadelphia, and that deaths related to smoking are Philadelphia’s No. 1 cause of death. Some portion of the funds raised will be set aside for the Philadelphia Health Department’s efforts toward tobacco cessation. Philadelphia City Council is considering an alternative to the mayor’s plan which would call for a raise in the Use and Occupancy Tax on businesses. This approach is a broad-based tax increase on businesses instead of the more focused impact of a liquor and tobacco tax increase. The Use and Occupancy Tax is a property
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tax specific to commercial property and has been debated along with the Business Income and Receipts Tax in recent years. It is the mayor’s position that the city cannot make such a general tax increase, when he feels they already ask so much of businesses. The mayor’s proposal accompanies other initiatives to raise funds for the school district, most notably Philadelphia’s welldocumented efforts to pursue delinquent property taxes. Mayor Nutter believes those efforts would raise another $28 million in the next fiscal year. Some City Council members, and plenty of Philadelphia businesses affected directly by the liquor and tobacco tax increases, are calling the mayor’s proposal bad policy. In order for his proposal to come into effect, it will have to pass through City Council as well as needing some required measures from the Pennsylvania Legislature.
23 MAY 2013
REGIONSBUSINESS.COM
POLITICS
13
Montco’s Shapiro Launches Statewide PAC BY DANIEL GLEASON AND CARL FELDMAN
M
ontgomery County Commissioner Josh Shapiro is a rising star in Pa. politics, but he won’t seek a promotion this cycle. He’s taken a pass on bids for Governor and Congress and instead announced the formation of a statewide PAC. The initiative, named Keystone Reform, promises to “bring our brand of commonsense reform and pragmatic progress to other counties, cities and across the Commonwealth.” Commissioner Shapiro’s new group also plans on playing a role in future elections and to “spread the ethic of good government” through grassroots efforts through the organization. “People throughout the Commonwealth have seen the progress we’ve made in Montgomery County and are hungry for the same approach to help reform both Harrisburg and Washington,” he said. “Our governing model is based upon an agenda of real reform, fiscal
responsibility and cooperative governing that is delivering real results.” Commissioner Shapiro was often named as a potential candidate for Governor in 2014 and for Rep. Allyson Schwartz’s seat in Congress in PA-13. Though he took no steps toward a run for higher office in 2014, he did not rule out either campaign until this week. In addition to the lofty goal of boosting political pragmatists in the Democratic party, the PAC is a way for Commissioner Shapiro to expand his brand, continue to raise money, and build political alliances. If Gov. Tom Corbett is re-elected in 2014, Commissioner Shapiro will be among the first in line for the Democratic nomination in 2018. Commissioner Shapiro lead the Democratic ticket to a commission majority after 150 years in the minority in Montgomery County in 2011. He previously represented the 153rd district in the PA State House. This article was originally published at PoliticsPa.com.
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23 MAY 2013
POLITICAL COMMENTARY
REGIONSBUSINESS.COM
President’s Scandals Threaten US Confidence
Charlie Gerow is CEO of Quantum Communications, a Harrisburg-based public relations and issue advocacy firm.
CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness.com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.
With scandal swirling around the Obama Administration the famous words of Sen. Howard Baker, repeated ad infinitum, “Who knew what and when did they know it?” ring ever louder. An intense search for truth about Benghazi should predominate all discussion, for that is where Americans in service of our nation were brutally murdered. But other scandals have captured equal and often greater attention. The media is understandably upset about the Justice Department secretly invading the phone records of their reporters and editors. The media’s darling is now in a different role, and his handlers seem unprepared and ill-equipped to handle tough questions from the media that once fed at the trough of Obama charm. The scandal that may have the greatest potential for long-term political harm to the Obama Administration is the Internal Revenue Service’s targeting of conservative organizations for harassment. These groups had their applications for tax-exempt status delayed for months and even years, while others were subjected to endless and burdensome inquiries and audits. All this while “progressive” and politically liberal organizations saw theirs sail through, most notably the Barack H. Obama Foundation. The fact that there is a package of three well-publicized scandals simultaneously threatening the Obama Administration adds
to their political problem. Humans connect with things that come in threes. From the Holy Trinity to the Triple Crown, we naturally remember and hold on to things neatly packaged in groups of three. It’s partly because three things are finite enough to remember but big enough to show a pattern. The pattern with the Obama scandals is especially troublesome for him because they hit at the heart of his core message: that he was different and would provide a transparent government that wasn’t just “politics as usual.” And the strategy, if there is one, that the Administration has employed thus far smacks of cover-up and obfuscation. The first line of defense is an incompetence plea. “We didn’t know” and “these things were done by lower-level personnel” are not big confidence builders. The IRS scandal is Exhibit One. Using the IRS against political opponents isn’t new and didn’t begin with Nixon. FDR and JFK both did it. But having to deal with charges about something that strikes at the heart of every American — we all know the awesome power of the IRS — for nearly four years is something no president has had to do. While we don’t yet know all the facts, there are enough already on the table to cause great concern. Lois Lerner, the IRS director of exempt organizations (and the same person who
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so quickly approved the Barack H. Obama Foundation), made her admissions at an obscure meeting of the Bar Association. She was busted for reading from a script the answer to an unusual question about targeting. The IRS commissioner later admitted that the question — and subsequent answer — was planted. It was an attempt to inoculate and minimize against an imminent inspector general’s report they knew would be damning. That effort to spin the story didn’t last long. Their ploy was outed and, meanwhile, the social media went wild with stories of conservative groups across the country, complete with e-mails and other correspondence proving that the pattern went far beyond low-level employees in Cincinnati and existed far longer than the timeline provided by the good folks at the IRS. The political fallout of most scandals comes from cover-ups and subsequent efforts to hide the truth from the citizenry, more than the underlying bad acts. For this reason the IRS scandal looms even larger. It threatens to undermine any confidence the American people have in this administration. And it is especially chilling considering that the IRS is charged with implementing what is already a massive government overreach — the “Affordable Care Act” — ObamaCare.
23 MAY 2013
REGIONSBUSINESS.COM
POLITICS
Democrats For Governor Celebrate Sestak Exit
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8TH CONGRESSIONAL DISTRICT
Second Democrat Emerges Against Rep. Fitzpatrick
BY KEEGAN GIBSON
BY NICK FIELD
he Democrats running for Governor breathed a collective sigh of relief last week as former Rep. Joe Sestak confirmed that he has his eyes on a 2016 Senate run rather than a 2014 campaign for Governor. He and Rep. Allyson Schwartz were tied at 15 percent each in a late April Quinnipiac poll of a hypothetical gubernatorial primary. Mr. Sestak hosted a fundraiser for Rep. Schwartz’s Occupy movement opponent Nate Kleinman in 2012 and the two are not known to have a warm relationship. But the Montgomery County Congresswoman saluted Mr. Sestak in a statement. “Like Pennsylvanians across the Commonwealth, I admire Rep. Sestak’s lifetime of service to Pennsylvania and our nation,” she said. “In Congress, he was leader on critical issues — including our nation’s military, national security, and veterans affairs. I appreciate his deep commitment to public service and wish him well.” Former Department of Environmental Protection Secretary John Hanger agreed. “Admiral Sestak has already given great service to this country both in his military career and as a member of the U.S. House of Representatives,” said Mr. Hanger. “He will make a great U.S. senator. I wish him the best of luck as he seeks to unseat Pat Toomey, the fourth most conservative senator in the Senate.” Likewise former Pa. Revenue Secretary Tom Wolf of York County. “Admiral Sestak is a champion for Pennsylvania families. He deserves thanks for his past service and continued efforts on behalf of all of us,” Mr. Wolf said. “My campaign for governor will continue to focus on creating jobs and leveling the playing field for the middle-class.” So too from pastor Max Myers. “We are pleased to hear that Joe is making plans to run for U.S. Senate and we strongly support this effort. America desperately needs more people in lead-
Shaughnessy Naughton, a former scientist and publisher, has thrown her hat in the ring and announced her intention to run for the Democratic nomination to challenge Rep. Mike Fitzpatrick in PA’s 8th congressional district. Ms. Naughton’s official campaign website identifies her as a Point Pleasant native who was born and raised in Bucks County. She graduated from Bryn Mawr College with a B.A. in Chemistry in 1999, but after working for Wyeth Laboratories she decided to join her family’s publishing company in 2003. According to her campaign bio “she now owns and manages all of the publishing company’s operations including magazine publishing, graphic design, and website development,” something that’s evident from her glossy site and professional profile photos. “Shaughnessy’s perspective as a small business owner and a scientist will bring a totally unique and much-needed fresh approach to Washington D.C.” it says. Ms. Naughton filed her statement of candidacy with the Federal Elections Commission on May 1, according to Chris Brennan of PhillyClout who first reported her candidacy. This announcement comes just a week after another Democratic candidate running against Rep. Fitzpatrick, Kevin Strouse, was named one of the DCCC’s “Jumpstart” candidates. This designation signals that the Democratic organization believes Mr. Strouse, a Iraq War vet and former CIA officer, is a top recruit and will receive its early support. Perhaps the biggest question raised then by Ms. Naughton’s announcement is whether the DCCC will continue to aide Mr. Strouse or back away and let a primary play out first. Keegan Gibson contributed to this report. This article was originally published on PoliticsPa.com.
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ership that have the abilities and character that we all have come to admire and appreciate in Joe,” Mr. Myers said. Former Pa. DEP Secretary Katie McGinty agreed. “Joe Sestak’s decision to run for the Senate makes a wide open Democratic gubernatorial primary even more of a toss-up,” she said. Pa. Treasurer Rob McCord echoed their compliments. “Joe Sestak’s accomplishments in the U.S. Navy and in the U.S. Congress are exemplary, and I wish him the best of luck in his campaign,” he said. “Pennsylvanians who care about funding education and creating good-paying jobs would be fortunate to have Joe Sestak fighting for them as their Senator.” It’s tough to say which of the Democrats seeking to unseat Gov. Tom Corbett benefits most from Mr. Sestak’s decision to decline the race. Mr. Sestak is well known and lead most of the early primary polls, thanks in part to his statewide run for Senate in 2010. His base in Delaware County would have put him in a pitched southeastern battle with Rep. Schwartz and Treasurer McCord, both of Montgomery County, and Secretary McGinty of Chester County.
Mr. Hanger, Mr. Wolf and Mr. Myers have also announced bids. They live in the Harrisburg area in Dauphin, York and Cumberland counties, respectively. Allentown Mayor Ed Pawlowski and state Sen. Mike Stack (D-Philadelphia) may also compete for eastern Pa. voters. Treasurer McCord, Mr. Pawlowski and Sen. Stack have not officially declared bids. Nearly 20 percent of registered Pa. Democrats live in Philadelphia, 6.2 percent in Montgomery, 4.6 percent in Bucks, 4.1 percent in Delaware and 3.1 percent in Chester counties according to Labels & Lists. A Sestak candidacy would have opened the door even wider for a western Pa. Democrat. His departure probably most benefits Rep. Schwartz, leaving her as the bestknown candidate in the race in SEPA and elsewhere, and the most potent fundraiser. The move also keeps the door open for Treasurer McCord, who would have been hard pressed to win even his own geographic base against both Rep. Schwartz and Mr. Sestak. He’s also now the most prominent male candidate. This article was originally published on PoliticsPa.com.
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Economy, Costs and Culture Driving Young Startups RJ METRICS
BY ANDREW EISER
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n response to a lackluster economy, more university students are turning toward entrepreneurial endeavors, creating their own businesses and, in turn, careers they can continue after graduation. The experience of creating one’s own job just may be a defining act for a new Lost Generation, created not entirely by war but by seismic shifts in the American economy across industries. If you graduated college near the depths of the Great Recession around 2009 and likely for some years to come, the idea of entrepreneurship, particularly the novel vehicle of technology, is likely becoming an increasingly viable employment direction. Unemployment among the young, declining costs for launching a venture and high profile startup culture is changing the field for young talent. A neat example of this change are the cofounders of Center City business analytics shop RJMetrics. Bob Moore and Jake Stein graduated in 2006 from prestigious Ivy League schools — Princeton and Wharton respectively — and began careers in investment banking, as had been the norm for people of their skills and backgrounds for decades. Then something changed. Lehman Brothers went under, and the
prestige of Wall Street has crumbled. Like thousands of their peers, the pair traded in their suits for jeans and launched a business venture of their own. Deborah Diamond, president of regional retention nonprofit Campus Philly, said students are realizing they need to have an entrepreneur’s state of mind, constantly thinking about what they can bring to the table, in order to be successful during a time when the concept of permanent employment and retirement is foreign. That’s why Campus Philly and Ms. Diamond have taken an interest in the technology community in Philadelphia, which is largely driving entrepreneurship dialogue. For example, with the Campus Philly Tech Crawl, Ms. Diamond said students have a chance to see the burgeoning startup community, helping to push the trend along. And with a generation heavily influenced by technology, Ms. Diamond said students have the tools to become founders of their own businesses. It’s playing out in the region’s universities: The University of Pennsylvania launches a minor in “engineering entrepreneurship” Undergraduate and venturefocused PennApps becomes one of the world’s largest annual hackathons
Drexel University unveils its entrepreneurship minor and $12.5 million soon-to-launch entrepreneurship school Temple University‘s Fox School of Business has grown its own entrepreneurship focus and promoted its buzzy cross-department, youth-focused Urban Apps and Maps Studio The University of the Arts has its Music Business, Entrepreneurship and Technology curriculum After 12 years, the Wharton VIP program has seen growing interest A pack of undergraduates launched nvigor, meant to plant the seeds of local technology and entrepreneurship opportunities across regional campuses First Round Capital launches the Dorm Room Fund to get early access The message is clear: for many disciplines, a college degree is no longer a guaranteed ticket to employment, so the focus is to get students out into the world to find new paths. The declining costs of launching a venture and the employment situation has all but made that trend a certainty. This article was originally published by Technical.ly Philly at TPhilly.com
Steadily, but almost quietly, Philadelphia has become a hotspot for entrepreneurs. The combination of great ideas, available capital and a welcoming environment have set the stage to make 2013 a breakout year for innovation and new businesses. To Learn More ... For more information on sponsorship opportunities or to suggest story ideas, call our main office at 610-940-1656. The web: RegionsBusiness.com Facebook: Facebook.com/regionsbusiness Twitter: @RegionsBusiness Sponsored by
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MEETUP CALENDAR
Philly B2B Breakfast Power Hour
REGIONSBUSINESS.COM
EEB Hub’s Navy Yard Headquarters Is Next Step Of Long-Term Vision
Time: 7:45 to 9 a.m. Date: Friday, May 24 Place: Le Pain Quotidien, 1425 Walnut Street, Philadelphia, Pa. Cost: $10 “Come out and join the Philly B2B Breakfast Power Hour in the Center City of Philadelphia as we launch our new Business before Breakfast meetings. The meetings are designed to help all types of area business professionals meet other professionals to exchange information and warm leads to assist in growing their businesses.”
TechBreakfast Time: 8 a.m. Date: Thursday, May 30 Place: Behrakis Grand Hall, Drexel University, 3210 Chestnut Street, Philadelphia, Pa. Cost: Free “Interact with your peers in a monthly morning breakfast meetup. At this monthly breakfast get-together techies, developers, designers, and entrepreneurs share, learn from their peers through show and tell / show-case style presentations.”
Bootstrappers Breakfast Time: 8 a.m. Date: Tuesday, May 28 Place: Elephant & Castle, 1800 Market Street, Philadelphia, Pa. Cost: $5 At a Bootstrappers Breakfast® we have serious conversations about growing a business based on internal cashflow and organic profit.” MEETUP.COM
Steak Shop’s Name Change Draws Ire, Praise BY BRANDON BAKER
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BY JULIANA REYES The Energy Efficient Buildings (EEB) Hub broke ground on Building 661, slated to be its new headquarters, late last month, The Philadelphia Inquirer first reported. The 36,500 square foot space has been vacant for nearly two decades. The five-year, federally-funded $129 million research initiative run by Penn State has been operating out of Building 101, adjacent to the headquarters of Benjamin Franklin Technology Partners and several investment funds. The EEB Hub is focused on developing ways to make buildings more energy efficient. It’ll use its new headquarters as a “living laboratory” for its work. The EEB Hub’s new headquarters will be finished next April, said Laurie Actman, the EEB Hub’s deputy director. It’s one part of the effort’s long-term vision: even after
the five-year grant runs out, Ms. Actman said the hope is that EEB Hub will continue its research. “We intend to be a permanent part of the Navy Yard,” she said in an interview with Technically Philly earlier this year. The EEB Hub will focus on longterm planning this fall, Ms. Actman said. The Hub is an integral part of the growing technology community at the Navy Yard, a place that Ms. Actman hopes will be ”the premiere place in the country for any company who’s innovating in the building technology space.” One part of this push is the Hub Commercialization Center, a business incubator for clean tech companies that the Hub is running with Benjamin Franklin Technology Partners. This article was originally published by Technical.ly Philly at TPhilly.com
ifty-one-yearold Joe Groh has endured quite a barrage of insults since changing the name of Chink’s Steaks Shop to Joe’s Steaks & Soda Shop in April. But for a man with Mr. Groh’s thick skin, “sticks and stones” might be an apt description for how he’s taken the insults. “This older woman who had been coming here for 40 years came right up to me [after the name change] and said, ‘Joe, you make me sick. The sandwich is great, but you make me sick.’ And I said, ‘I’m sorry?’ But I knew what she meant,” Mr. Groh said. “This was just the right thing to do.” Mr. Groh’s steak shop, located at 6030 Torresdale Ave., has been a Philadelphia cheesesteak staple since it opened in 1949 under the management of Samuel “Chink” Sherman. Mr. Groh, who worked at the shop “peeling onions and mopping floors” as a 16-year-old in 1979, bought the shop from Mr. Sherman’s wife Mildred in January 1999. Mr. Groh said he felt a slight burn from the negative feedback he initially received after changing the name. “It kind of hurts when people want to rip you right to your face. But after a while I just had to stop reading it. ‘Sell-out -- #Joe,’ they’d write,” Mr. Groh said. But that’s not to say all of his customers have responded so negatively to the change of name, which was initiated after more than a decade of public outcry regarding the perceived racial insensitivity of the name. That’s also not to say that it has negatively impacted business. “It surprised me, older customers who have been coming here since before even I was born, they’ve been very nice about it. ‘Congratulations Joe, you’ve been here a long time. You earned it.’ And then there are other people who are so pissed off, that they’re not coming anymore,” Mr. Groh said. “But once the hoopla went away, we didn’t drop. We’re right back to where we were before, every week.” Though the shop’s name has changed, its offerings have remained the same — something Mr. Groh takes pride in. From the old-fashioned booths to the soda fountain, Joe’s — “Chink’s” — remains primed for nostalgia. “Everything from the 1950s, we still have,” Mr. Groh said. “Walking in here, it’s like stepping back in time.”
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Taking ‘Going Green’ On The Road Via Food Truck Food is served in recyclable and biodegradable food containers, with a mobile farmers’ market planned to usher in the change of seasons. Business: Farm Truck But maintaining their business Founders: hook of locally-grown food isn’t Eliot Coven and Kris Pepper always as easy as plucking a tomato Contact: from their garden. farmtruckphilly@gmail.com “It’s always a struggle [to use locally-sourced foods],” Mr. Coven BY BRANDON BAKER said. “A lot of the time it’s easier to Farm Truck founders and Phila- get stuff from Mexico than it is to get delphia University graduates Eliot stuff in your backyard.” Mr. Coven makes the most of his Coven and Kris Pepper take “going green” to a whole new level — strato- quality-over-quantity approach to business, and further attributes the sphere, even. The food truck, which can most steady stream of business since its often be found parked at Drexel inception three months ago to a University or the University of food-truck know-how and a unique Pennsylvania, uses locally-sourced ability to relocate when business ingredients from Common Market gets slow. He also noted the advanand Weavers Way co-op to prepare tages to parking in University City, its seasonal dishes — including a as opposed to being stationed next strawberry and bacon sandwich on to the notoriously prosperous Temthe way for the summer months. ple University food trucks. CAPITAL SEEKERS
“Temple is an interesting place, because it has so many established food trucks there already that it’s hard to get a parking spot. It’s a nightmare — there’s so many trucks opening and so many new ones opening every day that parking is one of the biggest issues,” Mr. Coven said. “But opening a food truck, we can seek out our demographic, as opposed to waiting for them to come to us.” In the long-term, Mr. Coven and Mr. Pepper hope to be able to make ambitious changes to their truck’s operations — whether through bootstrapped success or through funding. “We’re a food truck, but we don’t want to be 80 years old and moving and grilling chicken,” Mr. Coven said. “We want to be constantly moving the business, whether it’s a franchise or a brick-and-mortar restaurant. Eliot Cover and Kris Pepper, Philadelphia University alumni and We’re always looking for new things founders of Farm Truck are taking locally-sourced food on the to do with the truck.” road in Philadelphia. SUBMITTED
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REGIONSBUSINESS.COM
In Their Words: Benjamin’s Desk Continues Startup Grind DIARY OF A STARTUP
Philly co-working space Benjamin’s Desk continues to expand beyond its office walls, extending its influence to entrepreneurs across the region and, for that matter, the world. In their words, Michael Maher and his team talk expansion, summer guest speakers and broadening the co-working base.
Two weeks after our successful kick-off to Startup Grind Philadelphia, we are gearing up for the next event in the series. The event held May 1 with Wayne Kimmel, founder and managing partner of venture capital firm Artists & Instigators, inspired a crowd of more than 50 Philly entrepreneurs that packed into our space to hear Wayne’s secrets to success. His enthusiasm for the city and the talent that is produced here was palpable and energized the crowd. If you missed the inaugural event, you can check out the video at startupgrind.com/ Philadelphia. Our next Startup Grind event will be held 6 to 9 p.m. June 5 with Gabriel Weinberg of DuckDuckGo, a search engine that allows users to search anonymously (it doesn’t track your personal information), but generates instant answers to your search. Future speakers will include Alex Hillman, founder of fellow co-working space Indy Hall and Apu Gupta, CEO and co-founder of Pinterest, Instagram Analytics and marketing tool Curalate. The eighth floor of Benjamin’s Desk is
well underway and is scheduled to open July 1. Four private offices are being built out in addition to the three that are on the seventh floor. One office on each floor is available, and are open to the public on a first come, first serve basis. If interested, contact us at info@ benjaminsdesk.com. The new space will also allow for more flexibility for the mobile nine-to-five workforce complete with flexible tables and chairs that can be easily moved and configured. A two-level desk bar for those coworkers who simply want to come in to ‘plug and play’ for an hour or two will be along one side of the space. We’re also seeing many positive signs for co-working and Philly. We recently had visits from both Venture for America and IE Singapore. Venture for America is a global program for young and talented college graduates that has recently expanded to Philadelphia. The organization’s mission is to revitalize American cities and communities through entrepreneurship. Through their fellowship program, Venture for America trains gradu-
ates and sends them to startups where they spend two years growing those companies and learning the ins and outs of becoming entrepreneurs. We have extended our space at Benjamin’s Desk as a home base for the organization’s Fellows when they come to interview in Philadelphia. IE Singapore is the Government of Singapore’s Trade Promotion Board, a division of the Singapore Ministry of Trade & Industry. IE Singapore is working on launching a program with Singapore-based tech start-ups who are interested in exploring the U.S. market. Our meeting with their marketing officer was both enlightening and inspiring. The Singaporean economy is booming in tech and other startups alike. We were honored that the agency reached out and met with us about potentially housing and helping to grow some of Singapore’s innovative tech companies and introducing them to the U.S. market. Hearing about organizations like these continues to drive us to make our space a collaborative, innovative and inspiring place for all entrepreneurs, both global and local.
Q&A
23 MAY 2013
REGIONSBUSINESS.COM
WAYNE KIMMEL’S
STARTUP STRATEGY
The founder and managing partner of Artists & Instigators offers insight into who, not just what, makes for a worthwhile investment.
What is the elevator pitch for your company, Artists & Instigators? Artists & Instigators is a venture capital company that invests in amazing, next-generation, innovative ideas. What types of companies do you typically look to invest in? We always look to invest in amazing people and nice people. That’s one of our big things. It’s a very important thing for our business. We look to do anything and everything we can to help our companies and our CEOs be successful, and typically the kinds of companies that we invest in are very early stage businesses. Sometimes it could be two people and an idea. Over the years, we’ve had a number of companies that have had successful exits and really amazing businesses. They’ve truly transformed the way consumers interact in different industries, whether it was in the food industry or the weight loss industry or the health care industry. Now we’re changing the music industry, the gaming industry. Why do you look to the creative industry when others look just at science, technology and math? You can’t be successful if you’re not creative, and you can’t be successful if you’re not truly instigating the market or trying to change something in a market. To be a real market leader, you’ve got to do something to change things. You’ve got to be amazingly creative. You have to be someone that’s looking at things differently. I’m a big proponent in people that can look out and, quite frankly, see the future. We like to invest in people that see the future. Most companies that we invest in are companies that are looking to change the way people do things today. What would it take to draw more investors to the Philadelphia region? The natural resource that this region has is our young people, our smart, our energetic, our incredible young people. And if you’re an investor anywhere around the world, you should be trying to tap into the amazing young people that are here in Philadelphia. Our universities do an incredible job of recruiting the top young people from around the world and they bring them to Philadelphia every single year. I believe, and so does my good friend Josh Kopelman at First Round Capital, that there is major talent here in Philadelphia. As an investor, I think it would make sense to want to invest here, because the talent’s here. Everything we do, the young people are the ones who know what’s next, because they are what’s next. They are the future leaders. They are our future CEOs. They are our future incredible creative people.
@WayneKimmel
WayneKimmel.com
Read the full interview at RegionsBusiness.com.
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MARKET’S UNEVEN RETURN Philadelphia and its surrounding suburbs have seen a rise in both sales and sales price of homes. But while neighborhoods like Center City are booming, low-income markets continue to struggle
STORY BY DEE ANN DIVIS | ILLUSTRATION BY DON LEE
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he Philadelphia real estate market is bouncing back with some neighborhoods already showing the kind of vigor reminiscent of healthier economic times. Homes across the region are selling, and they are selling more quickly and at higher prices than they were just a year ago — a trend that appears set to continue. The recovery is uneven, however, with many hopeful sellers in both the least and the most affluent neighborhoods waiting months, even years, for buyers to make an acceptable offer. And now their prospects are being muddied by the Philadelphia City Council which is reformulating the taxes that drive the cost of living. Given that most of the households moving into Philadelphia are being drawn from the suburbs, the choices that lawmakers make as they recast the tax code are likely to impact the housing market well beyond the city limits. Many homebuyers, however, are not waiting see to what happens. During the first quarter of the year they snapped up 7.8 percent more properties than they did in 2012, according to data provided by Prudential Fox & Roach, Realtors. The region’s median home price for the
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TEN YEARS AGO IT WAS VERY RARE TO SEE PEOPLE WALKING WITH A BABY STROLLER IN CENTER CITY. NOW IT’S JUST BECOME INCREDIBLY COMMONPLACE. IF YOU GO TO RITTENHOUSE SQUARE ON A SATURDAY AFTERNOON, IT LOOKS LIKE IT COULD BE A DAY CARE CENTER.’ —KEVIN GILLEN, UNIVERSITY OF PENNSYLVANIA ECONOMIST
PHOTO BYHRISTOPHER WOODS
period was up as well, increasing 2.5 percent regionally to $189,500. Fueling the surge is Philadelphia’s historic Center City whose revitalized core of storied streets, enticing eateries and beautiful townhomes is ringed by expanding bands of renovated neighborhoods and fresh construction. “As the core downtown area has become relatively more expensive, a lot of younger households have moved just to the edge of the core area,” said Kevin Gillen, an economist specializing in real estate issues at the University of Pennsylvania’s Fels Institute of Government. “They’ve driven a lot of revitalization and gentrification in these older rowhome neighborhoods that touch Center City as well as spurring a lot of new construction.” Among the new building projects are condo developments that initially failed during the downturn, said Steve Storti, senior vice president of marketing at
Prudential Fox & Roach. Builders are again picking up projects that had either been planned but did not get off the ground or were started but not completed. You are even “starting to see startups again,” Mr. Storti said. Townhomes are featured in other developments such as Toll Brothers’ 2400 South gated community. Replacing what had been a parking garage, the complex includes 68 rowhouses at prices starting in the low $500,000s. An additional 60 condos will be completed by the end of next year. Most of those moving into the city are people that grew up in the suburbs, Mr. Gillen said. “In particular, we have a lot of relatively affluent older baby boomers, empty-nesters moving to Center City, especially into relatively high-end luxury condos (around) Washington Square (and) Rittenhouse Square.
In the neighborhoods that ring Center City there are a lot of younger households moving in — singles, young couples, newlyweds and families with one or two kids, Mr. Gillen said. “Ten years ago it was very rare to see people walking with a baby stroller in Center City. Now it’s just become incredibly commonplace,” he said. “If you go to Rittenhouse Square on a Saturday afternoon, it looks like it could be a day care center there’s so many little kids there playing.” “Center City Philadelphia, really for the first time since World War II, is starting to see an increase in population rather than a decrease in population because (people) were moving there for reasons other than work,” Mr. Storti said. “They’re moving there because they like the lifestyle there.” The rest of the city has not fared as well with areas like North West Philadelphia, Northeast Philadelphia and
South Philadelphia struggling with less desirable housing stock. Homes in Center City have an average sale price above $300,000 or $400,000, said Mr. Storti, while homes in these other neighborhoods often sell for less than $100,000. “The pace of the recovery has been relatively uneven both across neighborhoods in the city as well as across different parts of the metro-area,” Mr. Gillen told Region’s Business. Indeed the region experienced an area-wide drop in prices between 2011 and 2012. The median price of a home in the city, for example, dipped from $129,900 in March 2011 to $127,500 in March 2012. It has now fully rebounded to $144,950 — an 11.6 percent change since 2011. That same pattern is seen in nearby Bucks, Chester, Delaware and Montgomery counties. There was a drop from 2011 to 2012 and then a full or
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REAL ESTATE
Region’s Most Sought-After Neighborhoods Philadelphia Center City and the immediately surrounding neighborhoods Bucks County Doylestown (county seat) Yardley New Hope Newtown Chester County West Chester (county seat) Chester Springs Exton Malvern Paoli Delaware County Media (county seat) Chester Heights Havertown Newtown Square
Rendering of a kitchen in Toll Brothers’ 2400 South
nearly full recovery, according to the Prudential data. Chester went from a median price of $$273,500 in March 2011 to $270,000 for the same month in 2012 then up to $286,000 this year — for an overall price growth of 4.6 percent. Delaware county gained 11.4 percent and Montgomery 2.4 percent. Bucks County was the exception. The median price there dropped 1.2 percent from March 2011 to 2013, though the last year did see it recovering somewhat from its 2012 level. Mr. Storti suggested that a lack of new construction may have contributed to the drop in median prices. When developers are in the market offering new homes they “have the ability to price their product a little bit higher than the market,” which would bump up the median home price. Another possibility is a now-ending wave of foreclosures, said Daren Blomquist, vice president of the foreclosure-tracking firm RealtyTrac. Pennsylvania has what is known as a judicial foreclosure process, which delays the processing of foreclosures by some 15 months, Mr. Blomquist explained. “We saw a lot of foreclosures delayed in
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2011, even late 2010, and early 2012 — and now finally some of those delayed foreclosures are coming through the pipeline,” Mr. Blomquist told Region’s Business. “We expected that to happen at some point, and certainly it is bearing out to be happening in Philadelphia.” As of April there were nearly 1,200 foreclosures in Philadelphia and roughly 300 to 400 in Bucks, Delaware and Montgomery counties. Though Chester County had less than 100, like the other jurisdictions, it had more than it did in April 2012. Would-be homeowners should not be terribly concerned, however, said Mr. Blomquist. “I would suspect that probably the second half of this year will see the foreclosure numbers turn lower in Philadelphia,” he said. “We’ve now had a trend of nearly a year and a half where the lenders and servicers have been playing catch-up on foreclosures. So I think we’re getting close to them being caught up.” Once that happens, Mr. Blomquist said he expects prices to rise 5 to 10 percent. That could be disappointing news for real estate investors who, Mr. Blomquist said, had shifted their buying to Philadelphia
when prices rose in previously bargainpriced neighborhoods in California and Arizona. Those buying houses to rent have been making a solid return of around 6 percent Mr. Blomquist said. Sales records indicate that real estate “flippers” have done well too. Though it is hard to know what their costs and net profits are, the average gross profit for a flipped house in Philadelphia is $59,000, Mr. Blomquist said. With foreclosures winding down and bargains still available, it looks like a good time to buy, said Mr. Blomquist. “In fact, compared to other markets that have already passed the bottom and are on the way up, [the Philadelphia area] may be a better place for [buyers] who are willing to stomach a little bit more risk.” Mr. Blomquist is not the only person who senses opportunity in the air. The supply of houses for sale is shrinking across the region and the time it takes to sell a house is dropping as well — signs that the market is starting to favor sellers, Mr. Storti suggested. A market is generally considered to be balanced between home sellers and buyers when there is a six-month supply of for-sale homes. There were between 8.1 and 9.7 months of inventory available in the city and
Montgomery County: Along the rail ‘Main Line’ Ardmore Bala Cynwyd Bryn Mawr Gladwyne Haverford Elsewhere In Montgomery County Blue Bell Skippack STEVE STORTI, PRUDENTIAL FOX & ROACH
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its four neighboring Pennsylvania counties in March 2011 — a supply that has now plunged by more than 50 percent in Chester County and almost as dramatically in the other jurisdictions. As of March of this year Philadelphia had a 5.7 months supply (down 36.7 percent from 2011), Bucks had 5 months (down 42.5 percent), Chester had 4.5 months (down 52.6 percent), Delaware had 5.8 months (down 40.2 percent) and Montgomery had 4.7 months (down 42.0 percent). Despite the tightening of the market it still takes, on average, more than three months to sell a house. The key phrase is “on average.” Some half a dozen real estate agents told Region’s Business that some properties, especially in the highly competitive mid-price range are selling very quickly indeed — and increasingly with multiple offers. “The most activity,” Mr. Storti said, “is between $150,000 and $350,000,” with the average sale price falling in the $200,000s.” The median price in Delaware County in March was $200,500 — Montgomery saw $242,250, Bucks $254,000 and Chester $286,000. But it’s not just about the price. Delaware County, for example offers something more than less expensive housing — it offers style choices. While most of the housing stock in the Philadelphia region are two-story colonials, experts said, Delaware County has Victorians, contemporaries, Colonial homes, twostories and even Cape Cods. “Just about any type of style of home you might be looking for, you can find in Delaware County,” said Noelle Barbone, an associate broker with Weichert Realtors. Homebuyers can also choose between larger, more private homes and those enclaves that offer the conveniences and social connections of more urban neighborhoods. The experts agreed that the latter is increasingly popular. “What is selling well are properties in walkable, relatively dense mixed-use town centers, said Mr. Gillen. “You held your value much better (in these neighborhoods) than if you were in a singlefamily detached home in a traditional suburban, auto-oriented development.” Though condos would likely appeal to many suburban buyers the number of condo developments outside of the city is limited, said Mr. Storti. Many historic communities, especially along the rail line, he said — where
WE’RE SEEING DEFINITELY A VERY HIGH VOLUME OF $1 MILLION-PLUS HOME SALES. WHETHER OR NOT THEY WOULD HAVE BEEN $2 MILLION 10 YEARS AGO MAY BE ANOTHER STORY.’ —KEVIN GALLEN, UNIVERSITY OF PENNSYLVANIA ECONOMIST
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condos would make particular sense — have resisted efforts to increase density. Buyers are also unlikely to see very large developments. Open land for new communities is scarce, even in the counties. Most new construction is single-family houses but in developments having a maximum of 100 to 200 units. Though the choices are shrinking and prices rising, buyers are not closing their checkbooks. In addition to the bidding wars at the lower end of the market, would-be homeowners are snapping up properties priced at $1 million and above. “The demand up to $1.2 million is very strong,” said Robin Gordon, a
Realtor who is also with Prudential Fox & Roach. The demand drops off quickly, however, as the price goes up. “To sell a home priced above $1.2 million you have to be picture perfect.” In fact, she said, there were no properties priced over $3 million sold along the Main Line in 2012. Part of the issue is that the pool of affluent buyers for these properties has always been small, which means it can take years to sell a very expensive home. As a result some of the prices at the upper end of the market are coming down, said Mr. Gillen. “We’re seeing definitely very high volume of $1 million-plus home sales,” he said. “Whether or not they would have been $2 million 10 years ago may
be a different story.” What happens to the market as a whole over the next 10 years may also be a different story — a story that is unfolding now in the Philadelphia City Council. Center City owes its revitalization in part to a decision some 10 years ago to grant a 10-year tax abatement on all real estate improvements. As the new convention center drew people and businesses to Center City, developers began rehabbing some of the beautiful historic houses at the city’s core. Those who bought those properties were able to forego paying taxes on the value of those improvements — even if the “improvement” was a completely
26 new house built to replace a threadbare residence. This did not always sit well with neighbors who did without updated amenities while paying higher taxes. It did not help that the city’s tax assessments also had been wildly inconsistent for years. Now the city is normalizing tax assessments and reconsidering the abatement. Councilmember W. Wilson Goode, Jr. has proposed to both limit the abatement to five years and shave its value by 20 percent each year. “I’ve always viewed this initiative as part of a perspective on comprehensive tax reform, said Mr. Goode. He said the plan is to cut business and wage taxes by over $320 million, “In addition to that I believe we may consider other construction cost subsidies that would be spread across all taxes as opposed to singling out the property tax to use as the only incentive,” Mr. Goode said. Research is underway, he said, on capping the abatement or creating a two-tiered approach where there would be a five-year abatement in areas that don’t need it as much and a 15-year abatement in areas that needed it more. Builders and realtors are alarmed by some of the proposed changes. “If you look at the success everybody’s had on the real estate market over the last 10 years, I think a lot of that can be drawn back to the tax abatement,” said Brian Emmons, vice president of the Philadelphia division of Toll Brothers. “Philadelphia historically has one of the highest costs of construction in the country and the abatement attracts developers who know they can offer that abatement as an incentive to their buyers to purchase a house where they might not otherwise be considering it because the cost of living. “Losing the tax abatement would be a huge loss not only for Toll Brothers, but for all the developers and the city.” Reconsidering the tax abatement is really not based upon whether or not it’s been successful, Mr. Goode said. “Where it has been successful, it perhaps it is not needed,” he said. “Where it has not been successful perhaps some other incentive is needed.” Dee Ann Davis is a freelance writer living in Virginia.
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Old Kensington Brewery Gets Crowdfunded Makeover BY BROOKE HOFFMAN Saint Benjamin Brewing Company is quickly becoming a reality for home brewer Tim Patton. It took about a year to discover the perfect spot and get the ball rolling on construction, but things are now moving along, and with the help of Lucky Ant, the classic face of the brewery’s home in Old Kensington will soon be restored. Mr. Patton’s goal was to find a building with the feeling of breweries like the Brooklyn Brewing Company. “It has this really amazing Old World vibe that you kind of get when you see pictures of breweries in Belgium or England. That was the look I wanted; that was the feel I wanted to have when I walked into my building. I didn’t want them to see cinderblock walls and a metal brew frame like you see in a lot of modern buildings.” His warehouse at 1710 N. 5th Street evokes the exact style he was looking for — the building dates to the 1880s and was even owned by a brewery. According to Mr. Patton’s research, the Theodore Finkenauer Brewery, a fully operational brewery until the late 1800s, originally used the building as a stable. The second floor is a foot-thick concrete slab and there are 18-inch steel beams every four and a half feet, which safely permits the brewery equipment to be on the second floor without having to enhance the structure’s strength. Once the brewery gets going, Mr. Patton plans to add a pub or taproom. He will keep some aspects of the general building design in the pub, like the exposed brick walls, but intends to incorporate more “Ben Frankliny” things, such as the library or the printing press, into the pub’s decor. Overall, he is trying to recreate as much of the building’s original look from photos — especially the exterior. Nate Echeverria, the co-founder of Lucky Ant, connected with Patton through FINANTA, a Northern Liberties-based micro-lender which suggested the pair meet up to explore the project’s possibilities.
Lucky Ant is a crowdfunding website that focuses on helping small businesses build campaigns to raise capital by reaching out to the community. In exchange for contributing to the campaign, supporters receive discounts, rewards, or offers. “This idea [the company] was born from the realization that small businesses all over the country are having a very difficult time accessing capital. When a small business like a yoga studio, nanobrewer, etc. approaches a bank, they are often denied a loan or the minimum loan size is too large for their needs. “We sort of flip the equation around and help these small businesses raise capital directly from their customers and community, hence removing the financial intermediary (i.e. bank) from the equation,” explained Mr. Echeverria. Saint Benjamin Brewery Company was an ideal project for Lucky Ant because it “had a real demonstrable community impact (historic preservation and creating a community amenity) and was a cool business that could offer compelling/unique rewards.” Mr. Patton successfully raised the
$20,000 he sought to begin restoration work through Lucky Ant, surpassing his goal by $1,175. The funds will go towards remodeling the doors, adding lighting, and erecting signage, along with restoring the threefloor frontage. “We want to be able to showcase how cool this old building looks and how cool it would look if all of these scars had been removed that had been put on over the years,” said Mr. Patton. Lucky Ant devised a marketing plan that included gifts such as pint glasses, growlers, and tickets to an exclusive event to be held once the brewery is open. If you are interested in checking out the Saint Benjamin Brewery or just sampling the brew, Mr. Patton will be participating in Philly Beer week. You can find him at the Opening Tap event on Friday, May 31, at the Independence Visitor Center. Then on Sunday, June 2, Patton will be leading a bike ride from Benjamin Franklin’s home to the new brewery. This article originally appeared on the Philadelphia Real Estate Blog at PhiladelphiaRealEstate.com.
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OPINION
Tax Strategies Amid Supreme Court Decision
Christine Finn is senior manager of Marcum LLP in New York.
Cathy Green, CPA, MAcc is senior manager of Marcum LLP in Bala Cynwyd.
CONTRIBUTE Send comments, letters and essays to feedback@ regionsbusiness.com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business.
With the Supreme Court set to rule on two landmark cases affecting the marriage rights of same-sex couples, this tax season requires especially careful planning for the LGBT community. In March, the Supreme Court heard oral arguments on two high profile cases in the current battle over marriage equality in this country. The Windsor case deals with the Federal laws prohibiting marriage equality while the Hollingsworth case takes on California’s state regulations. The Court’s decisions are expected by late June and the legal, tax and financial implications could be tremendous. The Cases United States v. Windsor is the case which challenges the Federal Defense of Marriage Act (DOMA). After spending 40 years together as an engaged couple in a committed relationship, Spyer passed away in 2009 leaving her entire estate to Windsor. Since federal law did not recognize their marriage, Spyer’s estate was subject to $363,053 in estate taxes. In response to the staggering tax bill, Spyer’s estate brought a claim against the government, alleging that the provisions of Section 3 of the DOMA violated the equal protection clause of the U.S. Constitution. Section 3 of DOMA defines “marriage” under federal law as a legal union between one man and one woman.. Hollingsworth v. Perry is a case that challenges California’s Proposition 8. The Hollingsworth case focuses on whether Proposition 8, which amended the state constitution to define marriage as solely between a man and a woman, violates the equal protection clause of the Constitution. The Impact of the Court’s Decision Should the Supreme Court rule that same-sex couples who are legally married for state purposes are entitled to equal tax treatment under federal law, same-sex married couples would be entitled to the same income and estate tax benefits as opposite-sex married couples. These same-sex couples may also be permitted to file amended federal estate and income tax returns. Additionally, if the Court rules that DOMA is unconstitutional, this means it is void “ab-initio” or invalid from its inception. Those clients who have timely filed protective claims for refunds may seek a refund of taxes paid as a result of DOMA, going back
further than the typical three-year statute of limitations. While the Windsor case centers on the federal estate tax implications of DOMA, the Supreme Court’s decision in the matter could have much broader implications for same-sex couples since there are a number of other tax provisions which benefit married opposite-sex couples. Specifically, same-sex married couples could begin to enjoy elections such as the federal gift tax martial exclusion, portability of federal estate tax exemption amounts, the ability (and possible tax benefits) of filing joint income tax returns, no taxation on the benefits received through a spouse’s health insurance plan, social security benefits, Family Medical Leave Act, and spousal beneficiary and rollover elections for qualified retirement accounts, to name a few. Steps to Take With respect to prior filings, same-sex married couples should meet with a tax professional to discuss possibly filing protective claims with the IRS. Upon careful examination of each client’s set of circumstances, an advisor can determine whether a refund could be due or whether the couple has actually benefitted from filing opportunities not available to opposite-sex married couples. For example, under current law, one partner in a married same-sex couple may file as
“single” while the other partner may file as “head of household,” whereas an oppositesex couple would have no such ability. The result could be that the same-sex married couple is enjoying an overall lower income tax liability than if they had been filing as a married couple. In this instance it would be wise for the same-sex couple to elect not to amend prior income tax returns, and a protective claim may not be necessary. Nonetheless, filing a protective claim for estate taxes owed as the result of a death of a same-sex spouse while DOMA is in effect could still prove prudent. With respect to the filing of 2012 income tax returns, same-sex couples should also determine whether or not they benefit from the current tax elections available to them. If it is the case that a same-sex married couple has a lower tax liability filing “single” than they would if they were filing as “married” then the couple should be sure to file their 2012 income tax returns prior to the Court’s decision. If DOMA is struck down in June, samesex couples may no longer have the options of filing “single.” Conversely, if a same-sex married couple’s financial circumstances are such that the couple would benefit from electing “married” on their 2012 income tax returns, then that a couple would be well advised to go on extension in the hope that DOMA is truck down in June.
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OPINION COMMENTARY FROM ACROSS THE WEB
Pension ‘Fix’ Will Be Costly Once the current pension plans are closed and new employees are enrolled in individual accounts, those left in the pension plans will age and retire as a group. Investment managers will have to shift to more conservative and lower-return investments to be able to pay out benefits as they come due. When investment returns pay for less of existing pension commitments, taxpayers will have to pay more. The office of Pennsylvania Treasurer Rob McCord estimates that the governor’s plan will increase the state’s pension debt by $25 billion by 2046. STEPHEN HERZENBERG ON INQUIRER.COM, 20 MAY 2013
Obama Administration Undermines Public Trust President Obama has a lot of explaining to do. Americans learned this week that his administration took extraordinarily invasive and unjustified measures against organizations exercising their First Amendment rights.... During his four-plus years in office, President Obama has talked of restoring citizens’ faith in their government as a force for good. This week’s revelations reinforce those who contend the federal government is an intrusive, expensive, out-of-control behemoth that must be scaled back. It will take all of the president’s persuasive powers to convince American citizens that this week’s disturbing developments are aberrations and that their federal government, which he runs, deserves their trust. PATRIOT-NEWS EDITORIAL, 15 MAY 2013
Democrats Looking To Unseat Rep. Fitzpatrick Looking far ahead doesn’t just happen in presidential politics. With exactly one year to the date before the May 20, 2014, Pennsylvania Primary, two candidates have emerged with the singular purpose of taking on and defeating Fitzpatrick and returning the 8th District seat to the Democratic column
for the first time since 2010. The 8th District also looms large in the national Democratic Party’s plans to regain a majority in the House of Representatives and give President Obama a full Congress he can work with (assuming the Democrats hold the majority in the Senate). It will be an uphill battle, just as it was last year when Democrat Kathy Boockvar went head to head with Fitzpatrick. The well-publicized campaign was hotly contested. The election itself was not, with Fitzpatrick scoring a comfortable victory. It won’t be any easier for the Democrats next year, since redistricting has made the 8th District “safer” for Republicans. Ready to do battle against Fitzpatrick nevertheless are at least two candidates: Kevin Strouse, a former CIA official and combat veteran who served in Iraq and Afghanistan, and Shaughnessy Naughton, a scientist and small-business owner.
One of the largest school walkouts in Philadelphia history is happening right now.
@TechnicallyPHL “We intend to be a permanent part of the Navy Yard” - @PhilaEnergyGal on the EEB Hub & its new HQ
PHILLYBURBS.COM EDITORIAL, 20 MAY 2013
17 MAY 2013
Pension Crisis Requires Action Right Now Corbett wants to get all future employees out of the costly current defined benefit plans and into defined contribution plans such as 401ks that so many of the private sector use. No one is arguing that. But the governor also is looking to reduce the state contributions over the next several years. That seems to ignore the fact that it was the governor’s office — albeit not his — and the Legislature and their decision to increase benefits that caused this problem in the first place. We would suggest rolling back the pension multiplier to where it was, something not likely to happen since it’s the Legislature that would have to vote on cutting their own pensions. Besides the state Legislature, also standing in the way are public employee and teacher unions, and courts who, respectively, are reluctant to take action, prepared to fight and expected to declare illegal some of the pension reform Corbett is proposing.
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DELCOTIMES.COM EDITORIAL,
@OCCUPYPHILLY
@GtownWOLane Your next debaucherous night of drinking and smoking might help the School District close its budget gap
@mheadd Pumped to be at @musichackday in #Philly at @excitecenter - lots of awesome stuff happening. 18 MAY 2013
@andersonatlarge S/o to @mheadd, lead developer for @ PhillyJazzApp. We’re telling the story of #Phily’s jazz legacy. #musichhackday
15 MAY 2013
@VP VP delivers the 2013 commencement address today at the University of Pennsylvania. @Penn #PennCommence2013 (WH Photo) 13 MAY 2013
18 MAY 2013
@JohnLMicek Joe Sestak will challenge Pat Toomey in 2016. Longest Senate campaign ever. 14 MAY 2013
@SmartPolitics Sestak vs Toomey in 2016 would be 1st US Senate rematch among major party candidates in PA history
20 MAY 2013
EDITORIAL BOARD CEO and President James D. McDonald Editorial Director Karl Smith Associate Editor Terrence Casey
15 MAY 2013
HOW TO CONTRIBUTE To contribute, send comments, letters and essays to feedback@regionsbusiness.com. Opinions expressed by guest writers do not necessarily reflect those of Region’s Business. We reserve the right to edit all submissions for content, style and length.
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BY THE NUMBERS
40%
Airline passengers who would rather have a stranger sleep on his or her shoulder than pay for a carry-on bag, according to a Harris poll
63%
Airline passengers who would rather sit next to a crying baby than a smelly seatmate
12,238
Sales of private residential units in Philadelphia in 2012
29,146
Sales of private residential units in Philadelphia in 2005, the highest in 10 years
2,175
Building permits issued for new construction in Philadelphia in 2012
947
Permits issued in 2009
$1.18M
Median price of home sales in Center City — West in 2012, the highest price in Philadelphia PEWTRUSTS.ORG
70%
Increase in median price in Center City — West from 2010 to 2012
400,000
Residents from Philadelphia and the surrounding suburbs who plan on visiting the Jersey Shore this summer
5.7M Viewers who watched the series finale of The Office last Thursday evening
14.78M
Viewers who watched the season finale of The Big Bang Theory last Thursday evening
29%
Drivers who will travel between 100 and 200 miles for Memorial Day, according to TripAdvisor
56%
Americans traveling for Memorial Day weekend via car
86%
Americans planning a summer trip in 2013
11%
Vacationers who will travel by train to their summer vacation this year
600,000
Jobs “created or supported” by Apple, according to company estimates
800
Apps downloaded from the App Store every second
$7B
Apple’s estimated tax bill in the 2013 fiscal year
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