COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, February 26, 1998 2:15 p.m. - - - BILL 970820 - Ordinance authorizing real estate transactions necessary to Permit the City of Philadelphia to acquire property needed for use by the Philadelphia International Airport. BILL 970829 - An Ordinance authorizing the Director of Commerce to enter into an amendment to the agreement between the City and PAID authorized by Bill No. 546. - - - PRESENT: COUNCILWOMAN ANNA CIBOTTI VERNA, Chair COUNCILWOMAN MARIAN B. TASCO COUNCILWOMAN HAPPY FERNANDEZ COUNCILMAN JAMES F. KENNEY COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK DiCICCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center Plaza, Suite 600 Philadelphia, PA 19103 (215) 561-2220 I N D E X BILL 970820 PAGE Charles Isdell, Deputy Director, Aviation------ Abby Pozefsky, Chief Deputy City Solicitor, Law Department------------------------------ 12 BILL 970829 Noel Eisenstat, Executive Director, Redevelopment Authority--------------------- 18 - - - Public Meeting--------------------------------- 59 - - - 3 BILL 970820 CHAIRWOMAN VERNA: Thank you. Good afternoon, everyone. This is the Committee on Finance Public Hearing. I would ask the clerk to please read Bill No. 970820.
Bill No. 970820, Authorizing real estate transactions necessary to permit the City of Philadelphia to acquire property needed for use by the Philadelphia International Airport, in particular authorizing the Director of Commerce and the Commissioner of Public Property to acquire by amicable negotiation, swap, or by condemnation a certain parcel of property owned by 4721 Island Avenue Associates, Limited, located at 4721 Island Avenue, Philadelphia, Pennsylvania. CHAIRWOMAN VERNA: I believe we have someone here from the airport to testify? Good afternoon. Please identify yourself for the record and proceed with your testimony.
I am Charles Isdell, Deputy Director of Aviation. And on my right -- CHAIRWOMAN VERNA: I don't think the 4 BILL 970820 microphone is working properly.
Once again, good afternoon. CHAIRWOMAN VERNA: Good afternoon.
I am Charles Isdell, Deputy Director of Aviation for the City of Philadelphia. And on my right is Chief Deputy City Solicitor, Abby Pozefsky. I am pleased to appear before you to to testify in support of Bill No. 970820. This bill will authorize the City of Philadelphia, through the Department of Commerce, Division of Aviation, to acquire real property located at 4721 Island Avenue, Philadelphia, Pennsylvania, or "The Property," for use by Philadelphia International Airport. The Property will be acquired by negotiated purchase or by condemnation. The purchase price or condemnation award, when determined, will be paid with monies from the Aviation Fund, with no General Fund impact. The property is surrounded on three sides by the airport and on the fourth by Island Avenue. 5 BILL 970820 Currently, the airport is severely strained in its aircraft gate capacity. For example, John F. Kennedy and Newark Airports currently operate with 150 and 130 gates, respectively, while Philadelphia International Airport has only 64 gates. For this reason, the airport is planning to build a new 12-gate international terminal and a new 38-gate commuter facility. Unfortunately, the new international terminal will be located where one of our last remaining airplane hardstand parking areas is presently located. If I may explain what I mean. Hardstand parking is utilized when all gates are in use. The hardstand parking provides additional space for parking aircraft without the benefit of an actual gate. At the hardstand parking area, passengers are unloaded onto passenger transfer vehicles for transport to a terminal. For outbound passengers, this process is reversed. Secondly, hardstand parking is also needed to park aircraft overnight, because the 6 BILL 970820 airport will lose overnight parking spaces during the construction of the new international terminal. For the reasons specified, the airport has an urgent and immediate need for additional space for aircraft loading and parking. The location of the property allows the airport to use the property for these purposes almost immediately upon acquisition. The property is currently owned by 4721 Island Avenue Associates, Limited. The Division of Aviation has had preliminary discussions with the President of the corporate owner regarding the proposed purchase of the property. Irrespective of the outcome of these discussions, we need Council approval to acquire the property. I greatly appreciate the opportunity to speak to you to in support of Bill No. 970820. I will be happy to answer any questions you may have. And I also have with me today representatives from the Law Department, who can also respond to your questions. Thank you. CHAIRWOMAN VERNA: Thank you. 7 BILL 970820 Can you tell us when the corporate owner purchased this property, and from whom did he purchase it?
It was purchased from the Commonwealth of Pennsylvania. And I have the exact date here, if you can give me a moment. January of 1995. CHAIRWOMAN VERNA: And was somebody sleeping at the wheel? I don't understand why the airport would not have purchased this ground, knowing that there was going to be expansion.
Well, I don't know if it is a question of sleeping at the wheel. But the airport had made an effort to purchase the property back in the period of 1992 and '93. It was made available by the Commonwealth when the Pennsylvania International Guard vacated the premises. The Council actually passed an Ordinance to enable a purchase. I believe that was in 1992. And the City and the Commonwealth were unable to agree on a final Agreement of Sale, 8 BILL 970820 primarily because of environmental remediation issues and the city's requirement for a broad form of indemnification, which the city and state were not able to work out the particulars of. CHAIRWOMAN VERNA: Was the remediation work done by the developer, the prospective developer?
It is our understanding that the remediation work has been done by the current owner. CHAIRWOMAN VERNA: So when we talk about condemnation or purchase price, I would assume it had to cost a great deal of money for the remediation. Will that also be considered, so that this developer will be made whole?
It will be considered as part of either a negotiated purchase price or a condemnation proceeding, yes. CHAIRWOMAN VERNA: Do we know what the purchase price is?
At this time, no. 24 We know what the purchase price was in the last transaction, from the Commonwealth to 9 BILL 970820 the present owner. But we, at the moment, have been meeting with the current owner and have not yet reached an agreed-upon purchase price, so I don't have that number for you. I can give you the last purchase price, which I believe was $890,000 in 1995, when it was acquired from the state. CHAIRWOMAN VERNA: And what do you think it cost for the remediation?
The remediation, as we understood it, was estimated prior to our attempted purchase at $200,000, approximately. I do not have specifics as to what the costs of the remediation work done by the current owner actually amounted to. CHAIRWOMAN VERNA: Okay. I guess this developer is a very understanding man. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. In the same area, Mr. Isdell, you are saying that the Commonwealth of Pennsylvania sold 10 BILL 970820 this land to 4721 Island Avenue Associates, Limited, January of '95, and that the city attempted either at that time or prior to that time to buy the same piece of ground, but we couldn't come to an agreement; is that true?
Do you know what the city offered at that time to pay?
The ordinance authorized $890,000 as the purchase price. That was the minimum price that the state authorized. Apparently, they have to pass -- the state legislature has to authorize the sale of such property. And in their legislation, the minimum purchase price was specified at $890,000. The Council ordinance, on our end, authorized that same amount of money.
So why did 4721 Island Avenue Associates get it, and we didn't?
Why did the 11 BILL 970820 current owner get it at that price, if that was the same price we were willing to pay for it?
Prior to the execution of an Agreement of Sale between the city and the Commonwealth, when the environmental remediation and indemnification issues were raised, the state made, I guess it would be characterized as, the final offer, wherein they agreed to do the remediation as a credit against the purchase price, but I don't think they ever agreed to our indemnification requirements. They authorized the time limit wherein the city had to respond. And the city was not able to respond within their time limit, at which point they put it up for public sale. And the sale resulted that we are now familiar with.
Do you anticipate that this owner will be able to meet our indemnification requirements?
Yes, I do. I mean, we -- CHAIRWOMAN VERNA: Please identify yourself for the record before you make your comments. 12 BILL 970820
Abby Pozefsky, Chief Deputy City Solicitor. Actually, just to put a slightly finer point on Mr. Isdell's testimony, City Council -- is the microphone on?
I don't think so. Why don't you try using the other one.
Okay. To put a slightly finer point on Mr. Isdell's testimony, what occurred was that City Council authorized the purchase, but asked that the state do the environmental remediation and provide a broad indemnification. And that was the enabling terms of the ordinance. The state declined to do that and said that in order to take the property, we would need to take it as is, and without the remediation, without the indemnification.
Did anyone come back to the Council at that time and basically say, we have a problem, we may need an amendment, we may need a change, we would like to get this piece of property, we think we are close, but we have a problem? 13 BILL 970820
What is this piece of property? What's its current use?
Currently it is not being used. It had been two buildings; one was a hangar and one was an administrative-type building, both of which were demolished subsequent to the sale to the present owner. So it is a now a vacant property, which is not in use.
Has the property ever been used since the person bought it in 1995?
Okay. CHAIRWOMAN VERNA: Are there any other questions from members of the committee? The Chair recognizes Councilman Kenney.
Without having entered into negotiations yet, either on condemnation or on swap, is there a number in your head for what it is going to cost us now?
I mean, if it is 14 BILL 970820 appropriate for you to tell us.
With the condemnation, what would ordinarily occur is that we would make an estimated just compensation offer based on a couple of different appraisals. And those appraisals would take into account the value of the property, and it would also reflect whether there was an environmentally impaired property or an environmentally appropriate property. So that would be a product of a number of different appraisal numbers, which we don't have. So that would be how we would get a condemnation number. Then the condemnee can decide whether to take our proffered estimated just compensation or contest that in a Board Review hearing with his own expert. So it is very difficult to get a number in advance.
And you don't know whether or not it has been fully remediated, or it has been?
We hear -- and we 15 BILL 970820 would need to do more work to make sure that this is in fact true -- that the remediation has occurred.
Have you had any negotiations relative to an outright sale of the property?
There apparently have been some negotiations. It is our understanding at this point in time that we would probably not be able to reach a negotiated price, and that probably there would be an amicable condemnation; which is to say, because we are unable to reach a price, we would do the condemnation, and we would establish in a Board Review proceeding what the value of the property is through the appraisal process, contested process.
But we don't know today whether it has been remediated at all or fully remediated?
We don't know for a fact. We believe -- they have said that the property has been remediated.
Well, they are at 16 BILL 970820 least holding out the fact that they believe it is fully remediated? I think Councilwoman Verna or Councilman Nutter asked you what that cost was. You don't have any idea what that cost was? CHAIRWOMAN VERNA: Yes, they did say. 200,000.
The original estimates on it were in the 200,000-plus range.
So taking them at their word, it has been fully remediated at approximately that price, that cost?
If in fact it has been fully remediated. They could have done it for more or for less. It really would have depended on how the remediation unfolded.
One point of clarification with respect to the indemnification question that was raised earlier. 17 BILL 970829 Certainly in a condemnation, there is no indemnification that's obtained through a condemnation procedure, from the condemnee. CHAIRWOMAN VERNA: Are there any other questions from members of the committee? Do we have anyone else to testify on this bill? Mr. Isdell, is there a need for a suspension of the Rules on this bill?
At Council's discretion, we would appreciate that. I'm sorry I didn't ask for that in my testimony. CHAIRWOMAN VERNA: Very well. Thank you.
Thank you very much. CHAIRWOMAN VERNA: The clerk will please read the title of Bill No. 970829.
Bill No. 970929, An Ordinance authorizing the Director of Commerce to enter into an amendment to the agreement between the City and the Philadelphia Authority for Industrial Development, (PAID), authorized by Bill No. 546, approved June 15, 1993, under which financial assistance is provided to the parking garage project 18 BILL 970829 constructed as part of the overall Market Street East Gallery II Redevelopment Project, which amendment provides for the deferral until August 15, 2013, of the City's right to receive reimbursement for payments made by the City in support of the project. CHAIRWOMAN VERNA: Mr. Eisenstat. Good afternoon.
Good afternoon. My name is Noel Eisenstat. I am the Executive Director of the City's Redevelopment Authority. If you could provide me a moment or two, I would like to set up a few visuals to help explain the project this afternoon. (Short recess.)
Good afternoon again. I am Noel Eisenstat. I am the Executive Director of the City's Redevelopment Authority. I am here to give comments on Bill 21 No. 970829. I am here today with Duane Bumb, Deputy Commerce Director of the City of Philadelphia. This bill concerns the development of certain air rights to provide for the Switzenbaum/Pace partnership to construct an 19 BILL 970829 approximately 282-room, limited-service hotel on top of the Gallery II garage. This project has previously received a series of other resolutions and ordinances passed by the City Council. What you have before you is actually a brief description of the generalized area, the description of the air rights, as well as the Public Property conveyances that have been previously approved by City Council. Today's bill before you for consideration of the Finance Committee is a rather different transaction. It relates to a transaction that was entered into between the City of Philadelphia, PAID -- an agency of PIDC -- and the developers of the Parametric Garage in 1982. What you have before you today is a request by the city and the Redevelopment Authority to extend this agreement from Year 2002 to the Year 2013. The reason for this, as my testimony explains, if I could summarize it quickly, is that in order to build the garage, the parking deck above 20 BILL 970829 the garage, the partnership of the parking deck -- excuse me, of the hotel needs certain things from the parking deck partnership. They are articulated relatively clearly. They need the elimination of certain retail space from the parking facility. They need the authority and the ability for the placement of construction support and access easements throughout the existing parking deck structure, the release of certain air rights on top of the existing parking structure, and a loss of fewer than parking 13 spaces to accommodate part of the structural 14 requirements. 15 This parking facility was financed in 16 1982 through PAID bonds, by which there was an 17 agreement between the city, PAID, and the 18 partnership. 19 And to the extent that debt service 20 was not paid by the partnership from parking revenues, the city would, through a Deficit Operating Agreement, make funds available to the trustee of the $15 million of tax-exempt bonds that were issued. Since 1997, the partnership and the 21 BILL 970829 garage have been able to come forward with all of their existing debt service payments. The agreement as currently structured calls for, in the Year 2002, that the partnership at that point would be responsible for paying with interest the payments that were previously made by the city from Years 1982 until 1996. It would be fair to say that if the position of the partnership being a sole source, a single-standing partnership with no other assets, that absent some totally unanticipated event in the Year 2002, the city and its related agencies in this partnership would find itself in a dispute by which the investors of the limited partnership would attempt to avoid any negative tax consequences and foreclosure. At the end of the day, it was the general consensus that the city at some point in the future, after spending considerable efforts, would control the partnership in the garage, but would not effectively receive any of the cash payments that it would have previously made. In consideration for the parking deck partnership's desire to avoid such an event, the 22 BILL 970829 Redevelopment Authority has proposed, as part of this transaction, that immediately upon closing of the real estate of the hotel, effectively all cash flow of the transaction would -- of the parking deck would accrue to the city. In addition to that, the city would retain effective managerial rights over the selection of manager, and annual budget rights. As well as in the Year 2000, they could thereby extend the term of this agreement to 2013, at which time the city bonds would be paid off.
And in 2013, by operation of an escrow agreement, the city would have full, complete ownership of the garage, avoiding any future litigation or other actions in Bankruptcy Court. That is the nuts and bolts of this, in terms of the resolution before you. I am happy to discuss the benefits of the hotel or what our other options are. I know this is a somewhat convoluted or complex array of things. And, as you can see, for a second, the visuals we have brought, you can see we start with a visual as we start, as is, its 23 BILL 970829 current condition. On the easel here is an after the construction drawing, which shows the placement of the various panels that would reposition the exterior of this facility to look not like a parking deck any longer, as well as other visuals of the improvements that will be made. Chairwoman Verna, whatever questions you would like, I am happy to start. CHAIRWOMAN VERNA: I believe the sponsor of the bill would like to be recognized. COUNCILMAN DiCICCO: Thank you, Madam Chair. Good afternoon, Mr. Eisenstat. You and I have had some conversations, and along with the developer, concerning the parking arrangements, to continue to provide parking spaces for the Reading Terminal merchants off of Filbert Street. Are we still on track with that?
Yes. By the nature of the tax-exempt financing and the structure of the partnership, the Hilton operator, the operator of this proposed Hilton hotel, will have no specific claim or rights 24 BILL 970829 to any of the parking spaces within the facility. Generally, this is a 750-space garage that is open to the general public. At one point, both the Terminal Market and this partnership were controlled by the Reading Company, and, therefore, there was a boring of ownership and rights and responsibilities which was left to the fact that, effectively, the Reading Terminal Market's dumpster for its trash compaction, as well as the ingress and egress that provides most of the fruits, vegetables, and other services, come through this area. The developer has undertaken a number of redesigns that will permit both the ingress and egress on a daily basis, within specific hours, of goods and services, goods into the market from their wholesalers, as well as there is a reconfigured design, since I think we met in December, which will not require the moving or the relocation of the dumpster facility where it is now located adjacent to the market on Filbert Street. COUNCILMAN DiCICCO: Thank you. Two other questions. One is, what is the number of construction jobs we anticipate for 25 BILL 970829 the construction of this hotel? And what are the number of permanent jobs that will be created as a result of the hotel?
We are working on a model with PIDC on construction jobs. We anticipated construction payroll of about $15 million, that would generate about $700,000 in city Wage Tax on revenue. But I don't have an actual number of employee, full time -- I could get you a full-time equivalent number. I do believe that the facility will employ, as a limited service hotel, about 60 to 80 employees. COUNCILMAN DiCICCO: If you can get that information to the Chair, for the rest of the committee. Or if you can get that off to all members of City Council, I would appreciate that.
We would be happy to. COUNCILMAN DiCICCO: In your opinion, Mr. Eisenstat, if we were for some reason not to approve this, where are we today and where would we be tomorrow, if this bill is approved and the BILL 970829 construction moves forward?
The partnership of the hotel needs these considerations from the partnership of the parking deck. And it is limited investors who bought units in this investment in 1982 that have these things I have articulated, the ingress, the egress, the retail space lobby, the easements, the air rights, and the parking space. Without this, you physically can't build a parking deck -- the garage, excuse me. Assuming that this is approved, what the city gets in this situation, which is -- I am doing a great job of confusing myself here. As proposed, and as my testimony articulates, assuming that Council approves this, what occurs are two substantive things. First, we receive a hotel with all the benefits of a hotel, the various wage taxes, hotel, use, occupancy, real estate taxes. This hotel is unique to the extent that City Council has seen a number of hotel proposals requesting finance, granted financial assistance from the city, and are in different 27 BILL 970829 phases of development. This hotel is a limited-service hotel. Its construction costs and its operating costs are different from some of the Convention Center hotels that you have seen. But, effectively, what you have noticed today here is, this does not anticipate the use of CDBG funds, 108 funds, a tax increment financing direct or economic stimulus funds. And, in fact, the proposal, the plan is to see a well-leveraged financed proposal, with a lender providing close to 90 percent of the financing of this development. In addition, in consideration for the fact that the limited partners would like to avoid what might be perceived by them as a painful occurrence some time after Year 2002, that, effectively, the partnership of that parking facility are willing to give effectively the city control today of two very important things: All cash flow -- and I would also note that this facility, the new hotel, would generate an additional $250,000 a year in revenue to the parking deck that would flow directly to the city. 28 BILL 970829 In addition to the control of the cash flow, the partnership would also provide the city a reasonable discretion as it relates to management of the facility, as well as approval of annual budgets. COUNCILMAN DiCICCO: Thank you. I have no further questions. CHAIRWOMAN VERNA: Mr. Eisenstat, according to your testimony, until the opening of the Convention Center, the Gallery II parking garage generally operated in a deficit and required city assistance for meeting debt service. Since the opening of the Convention Center, has the city been required to pay any of that debt service?
The debt service payments that occurred -- if you could excuse me just for a second. The level of debt service payments that were obligated by the city before the Convention Center were relatively large. And I have them with me. Just a second. They started in Calendar year 1983 in an amount of about $2 million a year, and reduced 29 BILL 970829 all the way to the amount of about $1.7 million a year in 1992. Those numbers then substantively decreased in part primarily due to the fact that that was the first time that the city had the authority under the call provisions of these bonds, that I believe had interest rates in double digits, to actually refinance this debt. From that point, the debt service on the city's obligations were substantially less in a few hundred thousand dollars, five or six, I believe five or six hundred thousand dollars a year, and then declined to almost a relatively small number in 1995 and '96. And by 1997, no debt service payments by the city were required. CHAIRWOMAN VERNA: I know that you said -- and I want it to be made eminently clear for the record -- that the hotel will not be asking for any TIFs or HUD 108 loans or any kind of assistance for the development of this hotel?
For the development of the hotel itself, that is correct. CHAIRWOMAN VERNA: Well, are there any capital funds that we would have to be 30 BILL 970829 considering at this time?
The city will consider as part of its Capital Budget some improvements to be made around the actual facility, particularly in the public right-of-way around the ingress and egress, and the lighting and the pavement of certain activities. We have made no guarantee to the developer. But as you are all aware, over the last number of years, a series of systematic improvements have been made around the Convention Center. And in this case, in fact, the developer, at the city's request, will be spending or million dollars of really facade improvements, beyond the building of the parking deck. The cost of the panelization here is about $2 million. In addition, six, seven hundred thousand dollars of additional improvements, at minimum, will be made in the underbelly, or the 11th Street access, which is today less than attractive, although it may not be as fully finished as the 12th Street underbuild of the Convention Center roadway. The developer does plan on relighting and really redesigning that with a more appropriate 31 BILL 970829 user-friendly type of finish, which really accrues to the benefit of the public, while somewhat to the hotel, as well. CHAIRWOMAN VERNA: And is the hotel three or four stories high?
What you see there is a four-story hotel. CHAIRWOMAN VERNA: Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Eisenstat, let's go back to an area that I think we discussed in the Public Property Committee. Can you go back through the nature of some of the relationships of the various entities to this transaction? We have got this what you call Parametric Partnership?
The Redevelopment 32 BILL 970829 Authority owns the land. There is an installment sale agreement for the garage through PAID to Parametric, which effectively has control of the garage itself. In addition to the garage, it has control of approximately feet of air rights above 8 the garage, an additional 10 feet above the height. 9 That's the second -- that's the first partnership. 10
Effective control is within Parametric Associates. It is through an Installment Sale Agreement. But for the purposes of what you would define legal, financial, and overall control, its control is within Parametric Associates.
Correct. It had an arrangement with the city that obligated the city until 1997 to be required to make any deficit payments on behalf of the bond to the trustee to the benefit of bondholders. The agreement then calls for, as 33 BILL 970829 currently constructed, in the Year 2002, that those payments, as well as interest, would be due to the PAID and the city from the partnership.
The hotel partnership is seeking those things in my testimony which I had reiterated relative to those physical improvements, easements, cross-easements, and other considerations that would allow for the physical construction of the hotel.
Is it fair to say that the construction of this hotel, in essence, accomplishes two purposes: One, it gets us another hotel and hotel rooms in the city, that's one; and, two, that in a potentially perverse way, the construction of the hotel supports the parking garage and makes it more profitable? Is that fair to say?
Clearly without the parking facility, or without the overbuild potential, the hotel would not be there. Because you would have to buy land for a hotel, assemble a site this size in Center City. And finding this 34 BILL 970829 type of site in Center City could be relatively expensive.
But in reality, the hotel really helps. I mean, you can put the hotel anywhere. You don't have to have a hotel at this location.
But one of the true benefits to the garage people is, they have a hotel on top of it, so that more people park in the garage, because the garage is running a deficit?
In this situation, because of the awkwardness or the considerations of the partnership, the city would only consider entering into this agreement in a way that all the benefits of that additional parking would accrue to 35 BILL 970829 the city immediately, and not beginning in the Year 2002.
Okay. Now, at the last hearing on this that I participated in, I think there was some discussion about the redevelopment agreement between the Redevelopment Authority and the hotel developer.
And I think part of the discussion revolved around what's in the agreement. I think we may or may not have asked, had the Law Department reviewed the agreement. If we didn't, then I am asking the question today. What's in the redevelopment agreement? What does it say? What does it do? What is its purpose?
The agreement is not unusual or different than any other redeveloper agreement that you would generally see. It has a series of -- it is an agreement to convey --
Actually, unfortunately, Mr. Eisenstat, we never see them.
I would be happy to 36 BILL 970829 briefly discuss this in a way that would highlight the elements of the redeveloper's agreement, which, I'm sorry, I assumed that when you actually adopt them by resolution, they are made available to Councilpeople beyond the District Councilperson who introduces them. But, generally, this agreement is substantively no different than any other agreement, other than in this case we are dealing with an air right, rather than a fee simple piece of property. And it is an agreement between the public sector, and in this case the hotel partnership, to construct the building in a certain period of time, to a set of standards. And those standards in this case, because it is a hotel, will go beyond the construction, but also to the operation of the facility, as well. There are other requirements that are standard in our redeveloper's agreement, which deal with noncollusion, MBE minority participation, prevailing wage requirements, other --
Has the Law Department signed off on the agreement? Have they 37 BILL 970829 seen it or approved it?
Generally, redeveloper's agreements are forwarded directly -- well, the ordinances were approved specifically by the Law Department, as is the case of ordinances. And I know that at least the redeveloper's agreement was forwarded to the Law Department. Because some of the leases and subleases -- I know the Law Department has reviewed the agreement because of some of the more technical attachments that are attached to it.
Thank you. How many deals has the Redevelopment Authority done on hotels in the last five years?
The Redevelopment Authority has been involved in a number of hotels. The Marriott Convention Center, which opened in 1996; the conveyance of properties in the Eastwick area to Eastwick, and then to other developers surrounding the PNC building. 38 BILL 970829
You don't necessarily have to run me through each deal; just the number. 5, 10, 15?
How many are active right now? How many hotel deals are kind of floating around out there right now?
Pretty much the construction of those you might see in Eastwick or have been completed in the last few years. The Marriott Convention Center hotel and the expansion at the Headhouse.
But there are others either on the drawing board or under discussion or potentially being financed? I mean, we are in a hotel mindset here in the city. There are hotels coming on line, are being discussed all over the place; right?
True. But your question was as to the Redevelopment Authority's 39 BILL 970829 involvement. And the Authority generally does not have any involvement in the Penn's Landing hotel, the PSFS facility, the Great Bay facility, or a number of the other ones that we all hear in the public. The Authority has not been involved in those directly or indirectly.
Well, whether it is the Authority or Commerce, I mean somewhere within the economic development community you are generally aware of these various hotel projects; right?
And we will continue to actively pursue hotel deals; is that my understanding?
I believe that's correct. However, it is also fair to say that the city had undertaken some analysis and wanted to assure, through some level of public support, a certain number of hotel rooms to be built. I don't believe it is the intention of the Administration, and maybe Mr. Bumb could 40 BILL 970829 comment on this, that the level of support that had gone to a number of hotels may or may not continue because certain goals should be achieved by the amount of support that's been granted so far. But that will be probably evaluated by the Administration on a case-by-case basis.
Well, lastly -- and I know some of my other colleagues have questions they want to ask -- have any of the deals that have been done, whether by directly the Redevelopment Authority or other elements of our larger economic development world, have any of them involved either minority owners or investors?
Probably the one that I can speak to most notably is the one the Authority had most involvement with, which was the Marriott Convention Center Hotel facility. That, while it was approved in 1988 by City Council, it started construction in 1992. And when City Council approved the partnership, approved the redeveloper's agreement, there was language within the redeveloper's 41 BILL 970829 agreement to provide that the Marriott Corporation, which then split into two entities -- and I don't want to get into that.
What's the level of ownership of the minority partners?
Basically, in that case, the Marriott was directed to or encouraged, and in that specific case identified, a minority partner, who has to date made a purchase of an element of the Marriott Convention Center Hotel, and I believe has certain rights to buy additional interests in that hotel over the next year or so at certain rates and terms and conditions.
So that's buying a piece of the ownership, as opposed to actually owning the facility or the property?
It is the same thing. I mean, you generally have a partnership that owns the hotel.
Today, I believe the interest that this person owns began at percent, and at this rate can grow to 6 or 7 percent, and 42 BILL 970829 then have rights to buy up to 15 percent. The Authority, because of the timing of this, needed to approve the entrance of that partner because the Certificate of Completion hadn't been done. And this was because of the level of support of the hotel, whereby in the Marriott facility, the city paid for all of the acquisition and all of the relocation surrounding that facility.
Have you ever done a deal with any group of individuals who could potentially have more than 50 percent ownership in a hotel, who happen to be minorities?
I am sorry? I couldn't hear. Could you repeat the question.
Have you ever had occasion to contemplate a deal with an individual or group of individuals who may happen to be minority who have more than 50 percent ownership of a hotel?
I have had some 43 BILL 970829 discussions with Dr. Emma Chapelle concerning additional air rights under the control of the Redevelopment Authority, specifically those associated with the Gallery I garage -- I'm sorry, the Gallery I Mall, not the garage; basically, the air rights most closely adjacent to what is now Strawbridge's, and where the Hard Shell Cafe is.
Thank you. CHAIRWOMAN VERNA: The Chair recognizes Councilwoman Tasco.
Could you tell me -- I asked you this yesterday -- who the limited partners or investors in this project were in 1992, and if there are any of those investors involved in this deal.
I believe I forwarded to you by hand delivery yesterday afternoon a list of all the limited partners of the partnership as of 1992. The names of those individuals, I think, are 40 or 50, at least. And I could call my office to get another copy. 44 BILL 970829 I could tell you that the limited partners in this situation -- none of the limited partners in that deal have been identified as investors in this transaction. The one individual who I had mentioned previously before Council, and to you when I met with you earlier this week, is that there is an identity of interest between one of the general partners of the hotel and one of the individuals who was a member of a partnership of the general partnership who formed the limited partnership of Parametric, and that is Samuel Switzenbaum.
I don't believe so, in this situation, in dealing with the partnerships, because -- excuse me. In my dealing with the partnerships, Mr. Switzenbaum has, in my dealings, has left the partnership of Parametric, its control and its legal advice and its direction, to the limited partners who have the liability in the Year 2002. So in my negotiations as it relates to this hotel and the parking garage, the Authority 45 BILL 970829 has been dealing with a lawyer whose interests are to represent the overall partnership, and specifically not Mr. Switzenbaum as it relates to the parking deck. And I have separately negotiated, or -- that separates out very much from the contact or the negotiations or the proposals submitted from the hotel. Effectively, it would be fair to say that Mr. Switzenbaum is not involved in the business decisions on behalf of the limited partners in any way as it relates to the garage.
You know, I was reading the notes of testimony from 1982, when the initial deal was done. And interestingly enough, Councilwoman Bea Chernock alluded to the precariousness of the whole deal to begin with. And in the notes of testimony it was stated that the city may lose money initially, but there would be more than enough to cover debt service down the line. And I have a real problem with the city losing $25 million, and might not ever get that 46 BILL 970829 money back. I can think of a lot of things that could have happened in the community. I can't get $150,000 for streetlights, but we just throw away $25 million. Because if you guarantee the garage, there is no motivation or interest to make the garage work, if you don't have to worry about the debt service, if the city is going to guarantee it. That's not your problem, but I have a problem with that. And I am also concerned about what's going to happen in the Year 2013, when we don't have the money, we don't get our money back. I have a concern with those investors who invested, having taken advantage of that investment, tax advantage, and we don't get our money back. What happens? What happens to the million plus 19 that we are going to lose? Well, we have already 20 lost. 21
I'm not so sure the 22 answer changes whether or not -- I think the answer 23 first is, whether or not a hotel gets built here or 24 not, I'm not -- the reality is, as it relates to the 25 whole $25 million, I don't think the position of the 47 BILL 970829 city changes in any way. The distinction, and what happens in 2013, is effectively by an agreement agreed to by the partnership now, the complete control of the garage will turn over to the city, while, as I said earlier, the financial controls will occur immediately upon real estate closing, if approved. While the city has spent, as you have noted, $25 million in paying the deficits on the garage, as well as an accrued interest rate that was calculated back in 1982, the reality stands that the garage is worth substantially less than that today, and only maintains its worth by its tax-exempt financing. So if the city was to acquire it at some point in the future and attempt to sell it, it would further diminish its value because it couldn't be sold and still use tax-exempt financing. I don't have an answer that would suffice to what could the city have done with that $25 million. I would note to you, as I have noted to others, that the Gallery I garage, which is owned by the City of Philadelphia, through the Parking 48 BILL 970829 Authority, has also lost as a garage substantial amounts of money over the years. And whether or not -- and it would be fair for me to suggest, at least, that whether or not this garage in its number of spaces was owned by the public or by the private, it is fair to say that the overall amount that the city would have had to pay in debt service probably would be the same.
So we hope that the construction of the hotel will generate additional revenue for the garage, and we might make some money?
Correct. And, as well, we will have more control and oversight through this agreement, as well, if approved.
Right now 10 feet of the air rights are controlled by the partnership. The remaining air rights were controlled by either the Redevelopment Authority and the city, the city controlling the air rights of that sliver of air, I think, that may or may not be seen in one of these drawings, of the cube of space, as someone 49 BILL 970829 described, of the street common area. Another ordinance consolidated that within the Redevelopment Authority. So the Authority holds the bulk of the air rights, up into the heavens, as one would say, but for a sliver of feet right above the 8 garage. 9
Why couldn't 10 they buy the air rights from the garage, and they still operate the garage, they still be held liable for the garage?
Because the considerations of the air rights are really not as substantial as the other considerations here, which are the easement, cross-easements, indemnifications of the nuts and bolts of making the facility work. And that's really what the garage -- I mean, the garage needs to give to the partnership, the hotel partnership. They could enter into those -- and the city needs to consent to those, as well, under the bond covenants. So what I'm saying is that the parking partnership could not do this on its own, 50 BILL 970829 without the city's consent to the hotel, with the hotel.
Thank you. CHAIRWOMAN VERNA: Councilwoman, are you finished?
Yes. CHAIRWOMAN VERNA: Are there any other questions from members of the committee? Is there anyone else to testify on this bill?
Thank you. Mr. Eisenstat, I just wanted to bring one further point to your attention. We just received as a part of the Board of Revision of Taxes their budget message from 1998. In their testimony is a section 21 called Planned Construction. It is on hotels. It is on , and it goes on to . There is a list of 15 potential hotel deals with sites and number of rooms listed. I would now be glad to give you a copy of this. 51 BILL 970829 Again, on the point that I was raising earlier, I would like you to examine this particular list and let me know whether, to the best of your knowledge, any of these particular deals have any level of minority ownership or participation. I'm not talking about on jobs. I'm not talking about on construction. I am not talking goods and services. I am talking about the people who are going to decide what color the wall paper is going to be, what the furniture is, and who is running the place. Given the earlier discussion about the Dr. Emma Chapelle situation, I have to tell you, in all honesty, that I am quite reluctant to support this particular project, given both its complexity and the fact that we can't seem to get some movement on another deal that you have at least had some discussion about. At the same time, I do respect my colleague's interests in trying to get his project moved along. And what I would like to ask, if the sponsoring member will agree, is that should this 52 BILL 970829 bill come out of this particular committee, that there be no action taken on this bill until there has been an opportunity for Councilman DiCicco and yourself and others to get some better resolution to the efforts of Dr. Chapelle to move along on a particular project where there is serious interest. That's really not a question for you to respond to.
But you have made some statements there. COUNCILMAN DiCICCO: Mr. Eisenstat, let me respond to that, if I may. Councilman Nutter and I had a little sidebar, and I a little bit earlier had a sidebar with Councilwoman Tasco. I understand where we are with this project because I have been involved in it for a number of months. And my colleagues have both agreed that they would, with a commitment from me not to move on the -- we were a little bit confused on first or second reading. But I would make a commitment publicly not to move forward with a second and final 53 BILL 970829 reading until we have had some time, myself and yourself and PIDC, and possibly the Administration, to talk about the proposal that I had just been made aware of yesterday by Dr. Emma Chapelle. I think it is in fairness to all of the people here that we vote this bill out of committee with a favorable recommendation, but I would make that commitment not to move forward on final and second reading until such time as we have had some real substantive meetings and discussions as to the proposal that, again, I can't articulate on, because all I found out yesterday, that someone else was interested in doing a hotel that would require similar air rights at 8th and Market.
Madam Chair, I would like to piggyback on that. The particulars of Dr. Chapelle's interests, we are not really aware of. What our concern is, is that we find the Administration has a very difficult time meeting with her to even talk about what she might want. Not any particular site, but any site. And we are asked constantly to come in here and approve deals of this nature, hotels, or 54 BILL 970829 something. And then when we ask to have some not even parity, but maybe a few of the crumbs, we don't even get a conversation. And that is not satisfactory to us. With all due respect to you, since it just came to you, I agreed that, and said that, you would hold it on second and final reading. But I want the message to go forth that I intend to talk to other colleagues on Council to make sure that there is serious, serious discussion and some commitment made to her and her collaborative to have a hotel, and entertain her proposal for a hotel. Because there has been none. COUNCILMAN DiCICCO: If I can just respond a little bit further. As it relates to any proposed development in the First Councilmanic District, you have my assurance that we will have some serious discussions. The results of that, obviously, I can't address, because I can't predict the future. But I am certain, as far as I am concerned, I can assure you that I will make certain there are meaningful meetings. And I will do my best to get 55 BILL 970829 the Administration to the table. As you know, I can't force them. But I have had a number of meetings in the two years or so that I have been in Council, because mostly all of the hotels that are being proposed happen to be in the First Councilmanic District. And you have my commitment that I will assure you, and my other colleagues, that we will have some meaningful discussions. Whether Dr. Chapelle has the wherewithal to do what it is she proposed to do, I don't know. I can't comment on that. Again, I had a four- or five-minute conversation with her yesterday on my cellular phone as I was heading up to Port Richmond. And she may have already called my office today to schedule that meeting. If not, when I go back to my office, I will reach out for Dr. Chapelle and schedule a meeting ASAP.
Thank you. COUNCILMAN DiCICCO: Thank you, Madam Chair. CHAIRWOMAN VERNA: You are welcome. Does anyone else have any comments? 56 BILL 970829 Anyone else to testify on this bill?
I would just ask, if it would not be a problem, and still consistent with what the agreement is that has been reached among the Chair and the colleagues of the committee, that a waiver of the Rules occur, to at least move the bill out of committee. CHAIRWOMAN VERNA: We cannot hear you.
While being consistent with the agreement I just understood between you and your colleagues, I would still ask that the waiver of the Rules occur for this ordinance. CHAIRWOMAN VERNA: What is the urgency of this?
The urgency here goes to a relatively sensitive interest rate market and a first lender that would like to schedule a closing and needs to know that the project will move forward. The developer of this would like to -- there are certain lead-type items that relate to the purchasing of steel. 57 BILL 970829 And I am not saying to you that any given day or week here is important. But it is standard when we appear before the Finance Committee, we do ask for a waiver of Rules. And that's really a waiver of the Rule. But that's really at your full discretion. CHAIRWOMAN VERNA: Thank you. COUNCILMAN DiCICCO: Mr. Eisenstat, if we were to move for the suspension of the Rules, are you suggesting that the developer would move to closing as a result of that?
No. I would not anticipate an actual physical closing on this transaction until probably months from now. But we are still dealing with a lender and a capital market who has basically said, I would like to know this is moving forward. COUNCILMAN DiCICCO: Okay.
Are you saying he is able to lock something in at a certain point? COUNCILMAN DiCICCO: Symbol that we are moving forward, and this has a better potential of becoming real now than it did a month or so ago? 58 BILL 970829
The lender would like to give a final -- the developer would like to proceed on spending the partnership's money. It wants to do that once it has a firm take-out construction commitment. In order to do that, the lender has asked for -- COUNCILMAN DiCICCO: Then I would make a recommendation that this bill be approved and the Rules of Council be suspended as to permit first reading at the next session of City Council. CHAIRWOMAN VERNA: Okay. Thank you. This concludes our Public Hearing. We will now go into our Public Meeting. (Public Hearing adjourned.) - - - 59 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING of the COMMITTEE ON FINANCE - - - Thursday, February 26, 1998 - - - Public Meeting conducted by the Committee on Finance, held in Room 400, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILLS 970820, 970829 - - - PRESENT: COUNCILWOMAN ANNA C. VERNA, Chair COUNCILWOMAN MARIAN B. TASCO COUNCILWOMAN HAPPY FERNANDEZ COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK DiCICCO - - - 60 PUBLIC MEETING CHAIRWOMAN VERNA: The Chair recognizes Councilwoman Fernandez regarding Bill No. 4 970820.
Madam Chair, I recommend, or I move, that this committee recommend this bill out with a favorable recommendation, that was Bill No. 970820, with a request for the suspension of the Rules to permit first reading at the next session. (Duly seconded.) CHAIRWOMAN VERNA: Properly moved and seconded that Bill No. 970820 be reported out of committee, with a recommendation that the Rules of Council be suspended so as to permit consideration at our next session of Council, first reading. All in favor will signify by say aye. Those opposed? The ayes have it. The bill will be reported out of committee with a favorable recommendation and a suspension of the Rules. The Chair recognizes Councilman Nutter regarding Bill No. 970829.
Madam Chair, I 61 PUBLIC MEETING move that Bill 970829 be reported out of committee with a favorable recommendation, and a further recommendation that the Rules of Council be suspended so as to permit first reading at our next session of Council. (Duly seconded.) CHAIRWOMAN VERNA: Properly moved and seconded that Bill No. 970829 be reported out of committee with a favorable recommendation, also a recommendation that the Rules of Council be suspended so as to permit first reading at our next session of Council. All in favor will signify by saying aye. The motion is so carried. This concludes the Finance Committee meeting. Thank you. (Public Meeting adjourned at 3:25 p.m.) - - - 62 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Thursday, February 26, 1998, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COMMITTEE ON FINANCE _____________________________________ DEBRA A. WHITEHEAD, RPR