COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 27, 1998 9:50 a.m. - - - BILL 980238 - Approving the plan, estimated costs, and proposed method of charges of the Old City Special Services District of Philadelphia. BILL 980301 - Ordinance creating the Cecil B. Moore Avenue Tax Increment Financing District. BILL 980304 - Ordinance amending an ordinance approved 7/5/97, which created the City Hall Annex Tax Increment Financing District BILL 980305 - Ordinance amending an ordinance 11 approved 7/5/97, which created the PSFS Tax Increment Financing District. BILL 980306 - An ordinance creating the Penn's Landing Tax Increment Financing District. BILL 980307 - Ordinance amending an ordinance approved 7/5/97, which created Reading Terminal Head House Tax Increment Financing District. PRESENT: PRESIDENT JOHN F. STREET, Chairman COUNCILWOMAN AUGUSTA A. CLARK COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILWOMAN ANNA CIBOTTA VERNA COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN HAPPY FERNANDEZ COUNCILWOMAN MARIAN B. TASCO COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 COMMITTEE OF THE WHOLE I N D E X TIF Bills William Hankowsky, President. . . . . . . . . Philadelphia Industrial Development Corporation 6 Dominic Sabattini . . . . . . . . . . . . . . 62 7 Penn's Landing Corporation 8 Melvin Simon, Cochairman. . . . . . . . . . . 78 Simon DeBartolo Group 9 Kathy Shields, Vice President . . . . . . . . 110 10 Simon DeBartolo Group 11 George Cahill, Resident of Pier III . . . . . 138 and Democratic Committeeman for the 5th Ward 12 Peter Saligman, Resident of Pier III. . . . . 139 Richard Orth, Principal. . . . . . . . . . . 156 Orth Rogers & Associates Doris Casper, Society Hill Towers Resident. . 158 Richard Zwick, Architect. . . . . . . . . . . 166 Z Texture, P.C. Robert Fina, PIDC . . . . . . . . . . . . . . 174 Jonathon Rubin. . . . . . . . . . . . . . . . 175 R.J. Cousins Contracting Vice President of the Contractors and Small Business Association David Rodgers, President. . . . . . . . . . . 176 Contractors and Small Businesses Association - - - COMMITTEE OF THE WHOLE (Index, cont'd.) Living Wage Bill 5 Bertha Barksdale, ACORN . . . . . . . . . . . 162 - - - Bill No. 980238 Joshua Grimes, Executive Director . . . . . . 122 Old City Special Services District John Taxin, Pres. - Old Original Bookbinders 122 Chairman, Special Services District. Rick Snyderman. . . . . . . . . . . . . . . . 122 Executive Committee, Old City Special Services District, business person in Old City Chris Sayer, Executive Community Member . . . 122 Old City District 4 COMMITTEE OF THE WHOLE - TIF BILLS P R O C E E D I N G S
Good morning, ladies and gentlemen. This is a hearing of the Council Committee of the Whole listed for Wednesday, May 27, 1998, at or about o'clock a.m. in room 400 7 of City Hall. 8 Today we have several things before 9 us. We have Bill No. 980238, which is an ordinance approving the plan, estimated costs, and proposed method of charges of the Old City Special Services District of Philadelphia. Also have Bill No. 980301, which is an ordinance creating the Cecil B. Moore Avenue Tax Increment Financing District. We have Bill No. 980304, an ordinance 17 amending an ordinance approved 7/5/97, which created the City Hall Annex Tax Increment Financing District. We have Bill No. 980305, an ordinance 21 amending an ordinance approved 7/5/97, which created the PSFS Tax Increment Financing District. We also have Bill No. 980306, which is an ordinance creating the Penn's Landing Tax Increment Financing District. 5 COMMITTEE OF THE WHOLE - TIF BILLS And we have Bill No. 980307, which is an ordinance amending an ordinance approved 7/5/97, which created the Reading Terminal Head House Tax Increment Financing District. All of these matters are before the Council Committee of the Whole. It is our intention today, time permitting, to have a public hearing on each and every one of these ordinances, at the end of which we hope to have a public meeting, at which time the committee will take action on these ordinances. We have a number of people who are scheduled to testify here today. I'd like to ask people who want to testify and whose names may not be on the list to see Miss Diaz over at the bar of the chamber, to my left. You can check to see if your name is on the list. If it's not, we will be very happy to add you to the list. Our first witness today will be Mr. William Hankowsky. And what we would like to do as a matter of process, with the committee's permission, is to hear Mr. Hankowsky's testimony on all of the proposed Tax Increment Districts. And if we can, then what I'd like to do is open 6 COMMITTEE OF THE WHOLE - TIF BILLS the floor for questioning on any of the districts that are proposed. Is this anyone who has any objection to see that procedure? (No response.)
And then I think we can have a nice discussion on all of them. If not, Councilman DiCicco, would like to make a brief opening statement regarding at least one of the bills so that Councilmembers will be in a position, prior to Mr. Hankowsky's testimony, to understand what actions were taken as it relates to one of proposed districts. The Chair recognizes Councilman DiCicco.
Thank you, Mr. President and good morning. And thank you for this opportunity to speak on the Penn's Landing TIF. I would like to explain to my colleagues in Council exactly what has been taking place for the last approximately one year. I think it was in June of '97 when the Mayor, along with Mel Simon from the Simon DeBartolo Group, 7 COMMITTEE OF THE WHOLE - TIF BILLS made the announcement that the Penn's Landing site would be the site for the new Philadelphia Entertainment Center. The night prior to that announcement, I had the pleasure of meeting with Mr. Simon and several members of his organization along with a number of Councilpersons, including Councilman Kenney and Councilman Nutter. And I'm not certain who else was there from Council, but there were several Councilmembers present at that dinner meeting, along with a number of representatives from the various City agencies -- the Parking Authority, Penn's Landing Corporation, just to name a few. During the course of the dinner, I sat next to Mr. Simon, and we discussed what Mr. Simon's vision for the Penn's Landing site was in relationship to the Entertainment Center. And since I represent the district where the Entertainment Center will be built, it was important for me to get at least a sense of what his vision was and how he was going to go about developing this site. A couple of the issues that I had at 8 COMMITTEE OF THE WHOLE - TIF BILLS that time were community involvement, where would we go with the project, and how could I play a role in moving this project forward. And I explained to Mr. Simon that before I would even begin to entertain supporting the project, that I wanted to be made certain that I would have -- be in a position to conduct meetings with the various civic associations that would be immediately impacted by the development along Columbus Boulevard; and that during the course of the development stages, that the community would be directly involved in the process. Mr. Simon said that he was supportive of that and would really rather not have it any other way. Subsequent to that dinner meeting, I convened a meeting made up of ten civic associations who are immediately impacted by the proposed development. And, just for the record, I'd like to state the associations that were a part of this working committee: Pier III Homeowners Association, Pier V Homeowners Association, Historic East Market Street, Old City Civic, Society Hill Towers Owners Association, Society Hill Civic Association, Queen 9 COMMITTEE OF THE WHOLE - TIF BILLS Village Neighbors Association, South Street Neighbors Association, South Street Head House District, and the waterfront Business Association. It was at my suggestion that a minimum of two people from each of these associations attend the meeting that I convened sometime in late June of '97. At that meeting were representatives of the Penn's Landing Corporation and representatives of the Simon DeBartolo Group. And we discussed preliminary designs and preliminary issues as to what the project would be, what it would represent in terms of size and scope and number of jobs that this project, when completed, would create for the City of Philadelphia. We had, I believe, five subsequent meetings to that initial meeting. In addition to those meetings with the "Working Committee," as I refer to it, presentations were made at the request of several of the associations I mentioned in their communities with the general membership of that neighborhood. Approximately 6 to 700 people from the various civil groups were given a 10 COMMITTEE OF THE WHOLE - TIF BILLS presentation by the Mel Simon Group, Penn's Landing Corporation, and PIDC. One of the other issues that I discussed with Mr.
Simon at the time of our initial meeting was that we would do what we could to preserve the public space down at Penn's Landing because public space is a very significant issue, and some of you may know there has been an ongoing debate to the future development of a Hyatt Hotel along Columbus Boulevard. And one of the major issues of major concern for the community was the elimination of the some of the public space. It was agreed at that meeting that the public space that was down at Penn's Landing would be preserved. And, in fact, when you see the presentation later on this morning, you will see that there has actually been an increase of public space. In addition, there were several other meetings that had taken place with myself and Penn's Landing Corporation and SEPTA, which has been brought into the group to deal with issues concerning traffic and movement of people in and 11 COMMITTEE OF THE WHOLE - TIF BILLS around the historical district down to the proposed Penn's Landing site. The Philadelphia Department of Streets traffic engineers have been a part of this whole process. What I'm suggesting here is that whether you hear today people who are supportive of this proposed entertainment or people who are opposed to it, no one can say, in my opinion, that they have not been a part of the process. And I, as the elected Councilperson who represents of 1st District, made certain of that. I have been up front with this project from day one, I have told the community groups that I supported this project, and I will continue to support it with the one caveat that there was community involvement. Going forward, we have now created a Traffic Study Committee along with the traffic consultant Orth Rogers to deal with the issues of traffic and parking as the project proceeds, and after its completion, to deal with any issues that may come about as a result of the increase of traffic that will be obviously felt when this project is complete. 12 COMMITTEE OF THE WHOLE - TIF BILLS The bottom line for me was development of the waterfront and the creation of 1350 jobs at a minimum. And I thought that was important to the economic development of this city, and I know that there's some people who think that maybe, because I represent the district, that I should not be supporting this, but I think -- I look at the bigger picture. I think in order for this city to move forward, this will be a great economic boon for this city, it will create the jobs, and it will continue to make Philadelphia the great tourist destination that it could be and will be sometime in the future. Thank you, Mr. President, for this opportunity.
Thank you very much. Is there any other member of Council who would like to give any opening remarks at this time? (No response.)
Good morning, President Street and members of City Council. My name is 13 COMMITTEE OF THE WHOLE - TIF BILLS William Hankowsky, and I'm the President of the Philadelphia Industrial Development Corporation and appearing today on behalf of the Philadelphia Authority for Industrial Development, or PAID. With me this morning are Bob Fina from PIDC, Dominic Sabattini and Jim Courato from Penn's Landing Corporation. I'm here today to testify in support of five bills -- 980301 for the Cecil B. Moore TIF, 980304 amending the City Hall Annex TIF, 980305 amending the PSFS TIF, 980306 creating Penn's Landing TIF, and 980307 amending the Reading Terminal Head House TIF. Today's hearing is required by the Pennsylvania Tax Increment Financing Act to create or amend a TIF District. Should the committee approve these five bills, the TIF Act would then require the Council wait three weeks until its meeting of June 18th for second reading and final approval of these ordinances. Since introduction of the five bills on April 23rd of this year, PIDC has met with City Council, Council staff, as well as Penn's Landing has met with City Council and Council staff, and 14 COMMITTEE OF THE WHOLE - TIF BILLS we have met with representatives of the School District to review the project plans. On Monday, May 11th, the School District approved by resolution to participate in all five of the districts and the amended districts that are before you today. For the remainder of my testimony, I'd like to describe each project briefly, review its benefit to the City and the School District, and summarize any changes that have occurred since the April 23rd submission. Let me start with Penn's Landing. Approval of the Penn's Landing TIF will enable the demolition of the existing improvements at Penn's Landing between Walnut and Market Street, including the Great Plaza, the scissor ramps, surface parking, and the viaduct, and the new construction of a Family Entertainment Center by the Simon DeBartolo Group. This organization is the largest retail real estate investment trust in the country and has extensive experience in these types of projects. The Family Entertainment Center is on a 13-acre site, between Market and Walnut, 15 COMMITTEE OF THE WHOLE - TIF BILLS Christopher Columbus Boulevard and Delaware Avenue. And it is anticipated to include up to 700,000 square feet of leasable entertainment and retail attractions, a 2200- to 2600-car parking garage, an outdoor theater to replace the Great Plaza. And I should note here that this theater will be better than the current Great Plaza. It will have permanent seating of 1500 temporary of 2500 and will really be geared to hold the festivals that Penn's Landing has had and tradition of public activity that Penn's Landing has had. There will be ice rinks, public spaces, and a possible aerial tram linking to Camden. This tram would be funded by DRPA. I should note we have a model of the project, which is in the front of the Council chambers today. 29 million will be repaid by incremental tax revenues authorized under this bill. The $62 million TIF note will be used to pay for these public improvements, principally the demolition and the reconstruction 16 COMMITTEE OF THE WHOLE - TIF BILLS of the ramps and viaduct, the construction of the outdoor theater, public spaces, and the parking garage. Let me note that this is unique in the TIFs that we have brought to City Council. We are doing all of these improvements without the use of the General Fund or the City Capital Budget. So, in effect, this project is paying for itself, and we will own a new ramp, a new viaduct, a new public space, a new plaza. PIDC expects that this project will create over 1350 permanent new jobs, 1,000 construction jobs, and should generate $80 million in tax revenues to the City, and 33 million to the School District over the 20-year life of the district.
Presently, this portion of Penn's Landing provides $114,000 per year to the City and not tax revenue to the School District. In addition to the TIF action you're taking, the Simon DeBartolo Group will enter into a development agreement and sublease with the Penn's Landing Corporation, which will provide an annual rental which will be the greater of 400,000 per year, or 4 percent of the process revenues of 17 COMMITTEE OF THE WHOLE - TIF BILLS the project, plus 10 percent of the gross parking revenues. Also to be included in this development and sublease agreement will be an MBE/WBE plan, which will be an attachment, and which we have been working through both with the Penn's Landing Corporation Simon DeBartolo and Council staff. As Councilman DiCicco just indicated, there have been a series of nine community-represented meetings with representatives of the community Penn's Landing Corporation, and PIDC to discuss this project and its impact on the neighborhood. With us this morning are representatives of the Simon DeBartolo Group, including Mel Simon, who are here to assist in answering any questions you might have. Let me close by pointing out that this is in fact a great project. We will have a $174 million investment in Philadelphia, 1350 new jobs, new taxes for the City and the School District, significant and better new public improvements, an economic rent that will accrue every year to the Penn's Landing Corporation. And all of this only 18 COMMITTEE OF THE WHOLE - TIF BILLS by the use of a TIF. Let me move now to the Cecil B. Moore Avenue TIF. This TIF will enable the demolition of certain existing improvements on the north and south sides of Cecil B. Moore Avenue between 16th and Sydenham Streets and the construction of new buildings on both sides, to accommodate a mixed-use retail office center. The center's anticipated to include a 20,000-square-foot outdoor plaza, a 15-car parking lot, 48,000 square feet of mixed retail and office space. Tenants are expected to include WHAT-Radio's corporate offices, a post office, various restaurants, and other offices. 2 million would be repaid by the incremental tax revenues authorized by this bill. I should note that this project will also include other public financing, a PIDC 108 loan, and an Empowerment Zone loan also. PIDC expects the project to create 64 new permanent jobs and 67 construction jobs. Since the project plan was filed, we've refined 19 COMMITTEE OF THE WHOLE - TIF BILLS the tax analysis to show additional taxes through the liquor tax to be generated by the project, which will benefit the School District. 1 million to 8 benefit the City, and 530,000 to the School 9 District. 10 The project plan has been amended and 11 restated to reflect these changes and has been on 12 file with the City Clerk. 13 Mr. Alfred Muronda of the Cecil B. 14 Moore CDC is also here this morning, again, should 15 you have any questions you would like to address 16 to him. 17 City Hall Annex. This TIF and next 18 three, if you might recall last year when we 19 approved these TIF Districts, Council amended the 20 ordinance to require that if certain changes occurred over certain percentage thresholds, that we needed to come back and seek Council's consent to those changes. And what's happening is the next three all result because some of those thresholds, in fact, have been exceeded. 20 COMMITTEE OF THE WHOLE - TIF BILLS The City Hall Annex TIF was originally approved on June 19th of last calendar year. Since that time, the demolition and abatement have been completed, and construction financing has been settled. As construction has progressed, several changes to the original project plan have arisen, which require Council approval. The room count has increased from 450 to 499 rooms. The formerly-stated number of employees has dropped from 162 to 155, the restaurant, which was originally to be leased out, will now be operated directly by the hotel, through Marriott International.
8 million, with all of the increase to be funded out of private debt or equity. We're not increasing any public funding of this project. 2 million during the term. The amendment allows for the use of the TIF revenues to repay a substitute loan if the initial TIF funding is refinanced, as long as that 21 COMMITTEE OF THE WHOLE - TIF BILLS substitute loan is equal or better for the City and provides that PAID not bring this project back to Council unless the project costs exceed 5 percent part of financing and so long as those 6 increases are funded out of, again, either debt or 7 equity -- no more public dollars. 8 We would move the effective date of the 9 TIF District from January 1, 1998 to July 1, 1998 10 to facilitate the TIF note. The amendatory 11 Exhibit B has been restated and is with the City 12 Clerk's office. And I should note, by the way, 13 that the City Hall Annex is a Marriott Courtyard 14 Hotel. 15 The PSFS project, again, was approved on June 19th. Since that time, ownership, project costs, and the financial structure have been revised. The original project anticipated that it be developed cooperatively between Loews Hotel and the Rubin organization. It will now be owned soley by Loews Hotel and developed by them through their designee. The project costs have increased by $10 million to $115 million. 25 million loan from the Economic Stimulus Fund -- that's a $1 million increase from what was shown to Council last year; and $30 million in Loews equity, which is a $4 million from last year. 6 million. The amendment allows, again, the TIF revenues for a substitute loan -- this would be if there was a refinancing during the 20-year term. And, again, we would bring back the project, if the project costs exceed 15% prior to financing and so long as the increases are funded out of private debt or equity. Again, we want to move the effective date from January 1, '98 to January 1, '99 to facilitate the changes and the delays that have been caused in the project. Again, the amendatory exhibit is on file with Council. The Reading Terminal Head House also 23 COMMITTEE OF THE WHOLE - TIF BILLS was approved on June 19th of last year. Since that time, the public space has been completed and opened, the Hard Rock Cafe has opened, construction financing on the hotel portion has settled. Construction has progressed, and several changes, again, has arisen, which require Council action. First, the complex has been separated into three condominium and units -- a retail portion, a public space portion, and a hotel portion. Initially, the plan anticipated that the complex would be owned and operated as a single unit by an affiliate of Host Marriott. Now the public area and the retail condominiums will be owned by an affiliate of the Redevelopment Authority and managed by its designee. The hotel condominium will be owned by an affiliate of Host Marriott Corporation and operated as an expansion of our existing Convention Center hotel, Marriott International. The hotel has been redesigned and will now have 210 versus 213 rooms. million in the public area and retail spaces. million TIF note and a loan of 986,000 from the Stimulus Program. Twenty-eight million of the private debt may be placed in first position, ahead of the TIF note since the bill was introduced on April 23rd. Host Marriott has decided to fund the TIF note out of its own resources rather than use the proposed HUD 108 loan. This decision will free up that HUD 108 loan resources for other projects that we may want to undertake in the City. The new TIF note will be funded by Host Marriott based on market conditions. This privately-funded TIF note will require an additional 4 million in repayments over the district term. 9 million in public grants for the public space. The TIF note will be funded from a HUD 108 loan, as originally 25 COMMITTEE OF THE WHOLE - TIF BILLS anticipated. And, again, we propose technical changes to facilitate the funding of the notes.
We now split the TIF between the two owners, the Redevelopment Authority and Marriott. The TIF note made by the hotel owner/operator will allow that if there's a shortfall in TIF revenues, they will fund it and then could be reimbursed from future TIF revenues to the extent available. Again, we allow for a refinancing substitute loan. Again, we would come back to Council should we hit the percent point. And, again, the 14 amendatory exhibit is on file. 15 In conclusion, I would like to note for the record that the analysis of the TIF Districts that PAID has proposed indicates that both the School District and the City will receive more money during the TIF term for these various projects than if they are not approved. In essence, the City and the School District are generating more than enough tax revenues needed for the TIF notes and stimulating development of underutilized land that would not occur but for these TIF approvals. COMMITTEE OF THE WHOLE - TIF BILLS I would ask for your approval of the two new and the three amendatory TIF bills. And, again, I remind Council that we would wait three weeks for final passage and second reading on June 18th. I might close by noting just that though these are not before Council today, that on two other prior TIFs that we've worked on, both the PNC Bank Operation Center, they have in fact, if you recall that project, ordered their second expansion and will be adding 500 more jobs to that project. And the SmithKline TIF which we did, they have now ordered two additional floors to that office building and will be adding 200 additional jobs. So I think the concept that these stimulate future development is in fact in reality playing out, and I would anticipate the same with these projects. Thank you.
Thank you very much. Mr. Hankowsky, I would like to refer you to a statement in your testimony on under the "Reading Terminal Head House," and ask 27 COMMITTEE OF THE WHOLE - TIF BILLS you to go into a little more detail in explaining to us what you mean by "three condominium units comprised of a retail public area and hotel portions." And you say, "Now that the public area and retail condominiums are owned by the affiliate of the RDA, and will be managed by its designee. . ." What does that mean?
What we've done, as I indicated in my testimony, originally we thought that we would, quote, sell the entire building to Marriott. They decided that they didn't want to be in the retail business or the public space business and wanted to stay in the hotel business. So they are taking the top of the building, floors 2 and up. The Redevelopment Authority has created a partnership which they now control for the retail and public space. This building, I think, as we all know, is a national historic landmark. And as a result, this project creates the potential to use federal historic tax credits. The Redevelopment Authority has entered into an agreement to sell those tax credits via First Union. What that would require then is 28 COMMITTEE OF THE WHOLE - TIF BILLS First Union will have a limited partner ownership interest within the partnership to get the tax credit benefit, tax credits by buying them. That becomes part of that equity that I noted later in my testimony that is financing the project. We've divided it between the retail and the public space. The retail space, obviously, could be managed -- the Redevelopment Authority might hire a retail manager to manage that space. The public space, obviously, we the public want to control between the Redevelopment Authority and the Convention Center Authority as the front door to the new Convention Center. So the designee is this partnership that has been created to --
At the moment, it's just the Redevelopment Authority and then First Union will become the limited partner when they close on the tax credit equity.
So when you say, "Now the public area and retail condominiums are owned by an affiliate of the RDA" -- 29 COMMITTEE OF THE WHOLE - TIF BILLS
No. It has been formed so that as the work is being done, you don't lose -- as soon as you start the work, if you haven't created the partnership, you would lose the tax credits. The partnership has been formed, the Redevelopment Authority is the general partner --
-- in the development of this new this space which Host Marriott is no longer interested in developing. 30 COMMITTEE OF THE WHOLE - TIF BILLS
And that becomes the designee entity of the Redevelopment Authority. The Redevelopment Authority is the general partner and has control of the partnership. First Union is the limited partner.
So what are we doing by way of -- can you just take me back and tell me now, what we are doing by way of amending the Reading Terminal Head House TIF?
In the -- originally, we had indicated that the owner and developer would be Marriott. In the ordinance that Council amended last year, we were to come back if there was a change in ownership. The change in ownership is that Marriott will only own the hotel portion and that the Redevelopment Authority's partnership will own the retail public space portion. That's the first change. The second change is the room count 31 COMMITTEE OF THE WHOLE - TIF BILLS from 210 to 213. The third change is the increase in the project costs -- I'm sorry, I'm sorry -- is the project costs. And then we are also -- originally, when we had a single ownership, we had a single TIF note because there was only one financing structure. The TIF note is now broken apart. A portion is applied to the hotel and a portion is applied to the retail. We're not increasing the amount of the TIF note.
The Redevelopment Authority will own it via this partnership to get the tax credits for that space. And then the Convention Center Authority will operate it; will clean it and light it and maintain it as their front door.
That's a little strange to me. Can you be more specific about what the retail component is? I mean, how much space are we talking about, and what's the plan for leasing it up and fitting it out and doing all 32 COMMITTEE OF THE WHOLE - TIF BILLS of that?
All right. The retail space is the first floor of the Reading Head House. And it consists of, if you can visualize looking at it from Market Street, you go through the front door, that's the public space, the escalators take you up. On the left we have Hard Rock Cafe. There will be retail space on the right, another place on the right. As you go through the Head House, there's a space to the rear so it's across the street, across Filbert Street from the Reading Terminal Market and behind the escalators that you take up to the Convention Center. This area now is all a part of the staging area during construction that will be available as retail space. And, in fact, therefore, you have a U-shaped retail area with the public space in the center of the U going up. It's a total of 48,000 square feet of retail space. The Redevelopment Authority would be the party that would lease it out. They have the lease in place with Hard Rock Cafe and are pursuing other tenants for the other space. 33 COMMITTEE OF THE WHOLE - TIF BILLS The space really isn't available in a leasing sense until the hotel construction is done above, because it's the staging area for construction. So the sequence of events will be that the hotel will get finished, the construction workers will go away from that, and then the fit-out will be done for the retail space, and those tenants will move into that space.
Can you explain just briefly how the Redevelopment Authority gets the syndicate tax credits in this? I don't understand that.
As I indicated, the building is a national historic land mark and, therefore, if you do work on it, that work is eligible under the federal tax code for tax credits. In order to do that, the Redevelopment Authority set up a partnership, made themselves the general partner in order to bring in a limited partner in order to sell the tax credits. The limited partner is buying the tax credits, which, obviously, have an advantage when they pay taxes 34 COMMITTEE OF THE WHOLE - TIF BILLS and are paying cash for that. That cash is going into the cost of construction as equity into the project. I don't know if the Council President remembers a long time ago when we tried to -- we were trying to see if we could do a tax credit project even in using the train shed --
Yeah. That didn't work at the time. But when we looked at the Head House as a project by itself, we were able to come up with this structure in order to get the advantage. If we didn't use the tax credits, we'd just have to borrow the money, you'd have more debt on the project. So this is a way to get equity into --
I always thought that private parties syndicated these tax credits. I didn't know that public agencies like the Redevelopment Authority could do that.
They can do it by setting up the partnership. And then First Union, in fact, will sell the credits. You're exactly right. 35 COMMITTEE OF THE WHOLE - TIF BILLS
All right. Thank you very much. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Mr. Hankowsky, I'd like to stay in the same area. You've referred on two or three occasions to this partnership by which the Redevelopment Authority will control this public area and retail space; is that correct?
The Redevelopment Authority is the 1-percent general partner; and then the 99-percent limited partner is a designee of First Union, First Union Bank -- I guess it's probably the parent First Union and financial group -- who will then sell the tax credits.
I'm sorry. Take me back through that again. A designee of First Union?
I'm sorry if I -- you'll have a limited partnership. 36 COMMITTEE OF THE WHOLE - TIF BILLS
This is the absolute standard structure when you set up a transaction like this. So if you looked at how the City Hall Annex has been done --
-- or all these projects that we've done where tax credits were used --
What you do is you set up the partnership. You have a general partner, the general partner has a 1-percent ownership interest of the partnership, that's the Redevelopment Authority. 37 COMMITTEE OF THE WHOLE - TIF BILLS
But as general partner, they make the management decisions on behalf of the partnership.
They will provide -- they will buy -- write a check and buy the tax credits.
It's, um -- I just want to make sure I get the right number. It's 4.4 million in the retail space. There's also tax credits, obviously, in the hotel that Marriott's using to get their equity.
There are also tax 38 COMMITTEE OF THE WHOLE - TIF BILLS credits at the top --
Okay. So it's $4.4 million in tax credits. They're going to buy --
They write a check to the Redevelopment Authority, take that cash, and pay for that portion of the construction.
First Union, through their financing corporation, will then find people who need tax credits.
They're not going to keep them in their own portfolio.
They may keep them, they may sell; that would be their election. 39 COMMITTEE OF THE WHOLE - TIF BILLS
Okay. And what they got out of this is the difference between what they bought the tax credit for and what they sell them for.
And then, I think in answer to the previous question, the entity that's actually going to manage the space is the Convention Center Authority?
Well, there's two types of space. The Convention Center Authority will be managing the public space, the front door, the walkway corridor, the escalators, because it's their environment. Obviously it's the front door to the Convention Center.
The retail space will be managed by the Redevelopment Authority, or they may hire, you know, firm to manage it on their behalf, but they will be responsible.
Does the 40 COMMITTEE OF THE WHOLE - TIF BILLS Redevelopment Authority have previous experience in managing retail spaces?
Well, the Redevelopment Authority has previous experience in structure -- not in exact structure, but we all might recall that, in fact, the Gallery -- I think I have this right. The shell of the Gallery is owned by the Redevelopment Authority and then leased to, in that case, the Rouse Corporation out of Maryland who operate the space. So you have -- the Redevelopment Authority's active in the retail activity on Market Street.
Right, but they'll hire somebody to manage this retail space.
Okay. Now, maybe I missed this earlier, and I apologize, but the amendment on this Exhibit B for the Reading Terminal Head House has the project costs going up by 14 and a half million dollars, and the total number of hotel rooms decreases from 213 to 210.
Why did the cost go 41 COMMITTEE OF THE WHOLE - TIF BILLS up by and a half million dollars? 3
The costs have 4 fundamentally gone up because in all three of 5 these, you'll note that -- 6
Oh, okay. In all three 14 of the projects -- the Annex, PSFS, and the Head House, the costs went up. When we were here in June of last calendar year, we were coming in on the basis of, at that point, architects' drawings and cost estimates. People said, We think it's going to cost this much based on what we think we're going to do.
In every instance, people have now progressed in the project. They've progressed in either going from what's generally called schematic design to construction 42 COMMITTEE OF THE WHOLE - TIF BILLS documents. In both the Annex and the Head House, they have started construction, so they have actually bid out work, awarded it, and now know what it costs. And in the Head House, they've awarded massive amounts of contracts and know what it costs. So now what are reflecting are the real costs that the contractor marketplace is telling us it's costing to do it. This is a -- the Head House is a complicated project because we have -- we have done it in phases so as the construction work is transpiring -- for example, today, they are working -- they are literally building the hotel, but they're maintaining access to the public space, to Hard Rock Cafe, there's been extensive scaffolding gone up. And part of is you're doing historic renovation to earn the tax credits. And that's a fairly precise kind of construction work type to take.
Okay. And just for the record, since all these project costs have gone up, I mean, is it fairly common in these 43 COMMITTEE OF THE WHOLE - TIF BILLS kinds of projects that there are these kinds of 15, $10 million kind of off-the-mark differences between the estimate and reality?
Let me first -- the historic renovation projects I would put in a category. So if this were new construction, I would say to you it would be atypical.
When you're in historic renovation and you start, it is not unusual to have costs increase.
And in some cases, for example -- I'll take a simple example, asbestos removal. You think you know where the asbestos is and then you start opening up the walls and you find out there's twice as many pipes as you thought.
So whereas when you're building new, you do test boorings.
That's the only thing you don't know. And after that, you know.
All right. My last question on this is on the Reading Terminal project. You now indicate that the TIF note for the hotel condominium will not be funded from proceeds HUD Section 108 loan, but apparently Host Marriott is going to go out into the private market and get their money.
What caused them to make the decision to go from the HUD 108 loan?
When we entered into the formal negotiations on the actual 108 loan, as they looked at both the cost of that money, the commitments we were asking them to provide -- for example, we wanted Marriott to guarantee the loan 45 COMMITTEE OF THE WHOLE - TIF BILLS because it's a resource we believe we deserve to have the responsibility to, you know, get back here on behalf of the City. They came to the conclusion that they could do almost as well on their own in the marketplace and not have to enter into, for example, what would be known as "an intercreditor agreement" with us. You know, we would sort of want to be -- we would want certain rights if they were refinancing.
All right, so they didn't want to deal with us; they wanted to go to the private marketplace and do their own thing.
Okay. PSFS, did I read in the newspaper some time ago that the Rubin organization is out of this project?
This will be a one hundred percent Loews-Hotel-chain-developed, -owned, and -managed project. 46 COMMITTEE OF THE WHOLE - TIF BILLS
Okay. But the Exhibit B says, "The developer shall be designated by Loews Hotels, Inc. or its affiliate." Who is that?
They will have a single purpose as they do -- as everybody does in real estate. You create a single-purpose corporation to hold the building so you'll have Loews -- probably it will be exactly what I described earlier; it will probably be a general partnership. Loews will have a 1 percent interest, they'll sell the tax credits. That's what I mean by "an affiliate."
Right, okay. I'll take advantage of the president reading his papers. In the Penn's Landing project, in the project plan, in the materials that we received filed April 21, 1998, Part 1, Proposed Improvements, , just a couple items. You've got the Penn's Landing Corporation is going to sublease approximately 13 acres within the district to an affiliate of the Simon DeBartolo Group (SDG). 47 COMMITTEE OF THE WHOLE - TIF BILLS
To develop the Family Entertainment Center, also known as "The Project." Again, this term "affiliate," what exactly does at a mean?
Again, as in all real estate practice, the Simon DeBartolo Group creates a separate partnership entity that owns each of their projects. The parent, the real estate investment trust, is the general partner in those, and they may or may not, for example, have limited partners that might invest in the project, but they will be in control as the general partner.
Okay. On that same page, there are headings called "Entertainment and Retail Attractions," "Parking," "Replacement of Public Space for the Great Plaza," "Outdoor Ampitheater," "Aerial Tram" -- and I don't think we need to -- I don't need to talk about turn lanes. Who will own what components of this project? What is the term of their ownership, what relationship does it have to the City or any of our entities or Penn's Landing Corporation? 48 COMMITTEE OF THE WHOLE - TIF BILLS Can you walk through these different pieces.
And tell me who owns what and who's in control of what?
Sure. Let me start with where we are today 'cause that that's a piece of how you go from there.
Yeah. Penn's Landing is -- there are portions -- there's a real estate interest held by the City of Philadelphia, an interest held by the Commonwealth of Pennsylvania, 'cause there's repairing rights. If you think back, Penn's Landing was a set of piers. They were then demolished, we built the pad, we filled it in, and we create the space. Those real estate interests have all been collected together and are invested in the Redevelopment Authority who entered into a redevelopment agreement with Penn's Landing Corporation. Penn's Landing Corporation is the designated developer and leases it from the Redevelopment Authority. 49 COMMITTEE OF THE WHOLE - TIF BILLS So in each instance, as I now move forward, when I say "lease," it technically is a sublease.
The Simon DeBartolo Group will be leasing the area from Walnut Street, North Walnut Street being just in front of the Maritime Museum and the Seaport Museum.
North to Market Street, Market Street being where you take the ramp over from Market and you come to Penn's Landing.
Penn's Landing will be leasing that volume of space to the Simon DeBartolo Group allowing them via the sublease to develop the retail space, the parking garage up to a certain number of spaces and a certain square foot of retail. They can't come back in five years and build an apartment building -- I'm just -- you know, and add to it so. They're getting volume of space and development rights to that development space. 50 COMMITTEE OF THE WHOLE - TIF BILLS They will be doing all of the work here and are responsible to execute the project, so they'll do the demolition work, they will build the new viaduct, build the new ramp, build the new Great Plaza. The ramp, which will be new ramp that will run from Christopher Columbus Boulevard up to the new viaduct, and the new viaduct will be owned by the public, by PennDOT. It's part of Christopher Columbus and it connects between Christopher Columbus, Market and Chestnut. So these, though they will be built by Simon, per specs to be approved, and there's been meetings with the Streets Department and PennDOT, these will be owned by the public, PennDOT. The great -- the new Great Plaza -- and I don't know if in the end we'll give it a new name, but we'll use that for today -- the new ampitheater, will be owned by Penn's Landing Corporation. It will not be leased to Simon. So Penn's Landing Corporation will be, you know, can have the festivals there. They're directly responsible to use it --
Is it my understanding your initial your initial 51 COMMITTEE OF THE WHOLE - TIF BILLS explanation is that they will build it?
The public also retains -- I just want to be clear -- ownership, again, Penn's Landing of what we generally call the esplanade, the walkway along the edge of the waterfront from Market Street along the front. So that, again, the public will have a right to, you know, still get to the water. 52 COMMITTEE OF THE WHOLE - TIF BILLS
Simon can't put up a barricade, put up a gate or anything. That's the ownership structure.
I was asked a -- I will repeat what I just said. The new ampitheater or the new Great Plaza will continue to be owned, operated by Penn's Landing Corporation. So the festivals and who are the vendors there and all of that will be controlled by Penn's Landing Corporation as it is today. The walkway or what we call "the esplanade" that runs along the waterfront on the northern end and on the eastern end of the project, again, stays with Penn's Landing concentration. So if you want to jog or walk your dog or just sit at the waterfront and enjoy it, that's controlled by Penn's Landing Corporation, that remains public space. Now, there is some additional public space that will be control by Penn's Landing next to the new Great Plaza. You know, you could -- 53 COMMITTEE OF THE WHOLE - TIF BILLS you'll be on top of the parking garage, you'll be at roughly the level of the viaduct, a little bit higher, so you could sit up there and take in the skyline or take in the waterfront. And these will be available just like they are under current operating circumstances at Penn's Landing Corporation. I believe, Councilman, that was responsive to your question. I hope I --
-- where the unobstructed public spaces are. And I thought I heard you say that there would be additional public space.
Would you kindly show us that? Did you also say that there will be no 25 barriers that prevent the public from free access 54 COMMITTEE OF THE WHOLE - TIF BILLS to the public space?
That's right. That is correct, that is correct. Mr. Courato will be pulling out the drawings, Councilwoman. And as soon as he does that, I'd be happy to do it. (Drawings are displayed for Council.)
These are from the Simon DeBartolo Group, this is the rendering of the project, that is correct.
Why don't you just put the model on this table and point it out to us on the picture as well as on the model. And tell us what's on the model.
Bob, come here. Jim. Okay, in response to Councilwoman Clark's question, using the model, in fact, I think was a good suggestion. Let me just first 55 COMMITTEE OF THE WHOLE - TIF BILLS orient people. Delaware River, Christopher Columbus Boulevard, I-95, back into Center City, Market Street, Chestnut Street, Walnut Street. Today, the Independent Seaport Museum, Walnut Plaza, the Great Plaza that we use for the festivals is right about here. Here's that big parking lot where we put the skating facility every winter. So the project gets built from Walnut Street to Market Street, Christopher Columbus to Delaware Avenue. This entire area, as I move my finger, these public areas along the edge of the waterfront to the waterfront, from the edge of the buildings to the waterfront remain in control of Penn's Landing Corporation so that there is continued public access to the waterfront, as Penn's Landing currently provides it today. The Great Plaza is replaced, so to speak, by a new ampitheater, which is right here, which is as large -- and, in fact, in seating capacity, will be designed as a festival venue. I think, as all know today, the Great Plaza was really built as a park, and when we have festivals, we sit on steps, which is not 56 COMMITTEE OF THE WHOLE - TIF BILLS particularly comfortable. This will actually be designed as an ampitheater with 1500 permanent seats and 2500 temporary seats -- a just more attractive and pleasant environment for the festivals that we have. When I said "additional public space," that is this area here and here. So that in addition, you could come, and coming from the historic district, and you don't have to buy anything at the project; you can just come up on the roof, sit here, enjoy the waterfront, see the skyline from the City. You can access this area off the Market Street ramp by a set of stairs here. This is also a public space along the edge here. You can access it by coming across the Chestnut Street viaduct. And here's the set of stairs that bring you up so that there are access points. In addition, you can access it from inside the project. This large space here is an open courtyard area. I would analogize it to the interior of Liberty Place, you know, just sort of 57 COMMITTEE OF THE WHOLE - TIF BILLS this wide rotunda, much bigger. It is not climate-controlled so it's an open space, but would it would have a cover. And there's a set -- a grand set of staircases there so you could be in the project, you could come out of the theaters and you could come up and sit there after a movie or wait there before. So it's an integrated public-private project. And Penn's Landing -- back to Councilman Nutter's question -- maintains ownership of these public spaces and public venues. They are not being leased to the developer. The developer is leasing the area to develop the retail, the parking garage. We will have permanent ice-skating rinks also here, which will be operated by the developer, so won't have that seasonal effect of where we put it together and take it down; it will be here year-round.
(Off mike, not completely audible to stenographer.) Could you point out the. . . of where that may happen. . . 58 COMMITTEE OF THE WHOLE - TIF BILLS
Yes. Councilman DiCicco is raising the issue. There have been discussions, extensive discussions, between the Simon Group and the Please Touch Museum. I think -- I know I, as a parent, we all treasure the Please Touch Museum, we've all been there. It is in pretty cramped space. So the Please Touch Museum anyhow was thinking about how could they expand, how could they deal with the increased demands on their space. When this project came along, they considered the opportunity to put the Please Touch Museum on the waterfront and solve both the need for them to have more space and put them in a very attractive family-entertainment-oriented environment. In order to do that, they've had discussions with the Simon DeBartolo Group of the potential of integrating a new Please Touch Museum in the project. If that occurred, it would occur on top of the project. In effect, we'd get a third floor. This -- the project now is two stories high, basically. You'd get a third level, which would be on the same level as the new Great Plaza 59 COMMITTEE OF THE WHOLE - TIF BILLS and the skating rinks and would have dramatic views of the City, provide them with new space and be integrated in the project. That's not a done deal, discussions are going on, but it's a real possibility.
Has there been any consideration given to assuring that there will be mixed economic use. I don't wish to see our waterfront become a place for very wealthy people that poor people can't afford to do anything except watch the rich people. Has there been any thought given to an integrated economic use of the land?
Councilwoman, I want to make it extremely clear -- you can get to the public space, quote/unquote, without going through the private project. So Penn's Landing Corporation is committed to -- I shouldn't speak for them, Tom and Jim are here. But they're committed to their mission to do the large festivals -- we just had one this past weekend -- to do the ethnic festivals, so that there continues to be an exciting public space that we all enjoy in 60 COMMITTEE OF THE WHOLE - TIF BILLS different ways, both programmed and just there for passive use throughout the year. And this is project will not affect that. That remains with Penn's Landing Corporation. They have the capacity to do it, they have control to do it, and they're committed to do it. In terms of the kinds of uses in the retail project, they will range from restaurants, theaters, entertainment venues, retail space that -- and the direction that -- I don't know if the Simon people would like to respond -- is that this, in fact, be oriented as a family entertainment complex. In other words, that there is something for children, for teenagers, for adults that you would feel comfortable bringing your family and there's lots of things to do and see and enjoy.
And to tap into all the entire diverse population of the area.
But, Mr. Hankowsky, stay with my concern. Because Disney World is a family venue 61 COMMITTEE OF THE WHOLE - TIF BILLS but it's very expensive. So I'm talking about a purposeful plan that includes people of all economic strata. For instance, have you looked at how San Antonio handled its river walk? Right beside very, very expensive restaurants, you may stand and buy a taco at a taco stand. I don't wish to see us make this a wealthy person's playground that poor people come and watch wealthy people play. I'm still saying, is there some planned purposeful aim at involving all economic levels in the use of this space?
Councilwoman, let me first -- this -- I think the Disney Land analogy is a good one. There is not a price of admission to go to this project.
This project is free. And when I mean the project is -- obviously, the public space is free and available by Penn's Landing and will be programmed by Penn's Landing. But you can also go into the Simon Project. There's a large campo. We're hopeful there will be some fairly exciting free things that people will be able to enjoy in that large 62 COMMITTEE OF THE WHOLE - TIF BILLS public area that are currently being worked on. And you can go through it, and you don't -- there's not a price of admission, so to speak.
And in that large campo area, for example, we're looking at the potential for something we've, for the moment, called "The American Experience" where we might have large video screens and other high-tech activity that would relate to history so that this project would echo Philadelphia's great tourism roots, which is, in fact, its historic base. And you would be able to enjoy that free. You could buy a coke, sit there, and you don't have to -- and still go to the place and say, This was fun to do something.
That's the kind of plan that I'm asking about, and that's exactly what I want to see happen.