Thank you. And16 please consider us as a resource in the17 future, going forward.18
Will do.19 Mr. Orens, Mr. Colaizzo and Mr.20 Kassis.21 (Witnesses come forward.)22
Hi. Whoever23 would like to start first, please identify24 yourself for the record and proceed with25 26 77 4/24/09 - LEG. OVERSIGHT - RES. 0901511 your testimony.2
Good afternoon to3 the members of City Council. My name is4 Michael Colaizzo. I'm a developer and5 builder doing business in Philadelphia for6 nearly 25 years. My work experience has7 taken me around the country. 20 NAHB has recently launched, in21 partnership with the International Code22 Council, the National Green Building23 Standard, which is (indiscernible)24 approved. In this challenging25 26 78 4/24/09 - LEG. OVERSIGHT - RES. 0901511 environment, we are striving to provide2 decent housing for all, but we need to3 control costs. 5 By January 1st of 2011, the6 fire-sprinkler mandate will go into effect7 in Philadelphia. And, again, Philadelphia8 will become uncompetitive. 13 Some jurisdictions have required14 sprinkler systems in the past. They wish15 to keep people out of housing. 23 The Philadelphia Water24 Department has argued that if the water is25 26 79 4/24/09 - LEG. OVERSIGHT - RES. 0901511 shut off for nonpayment and, you know, we2 have a sprinkler system, in essence, the3 building will not be protected. 7 Quickly, I also recently8 developed a 900-square-foot in South9 Philadelphia and installed two 18-10 (indiscernible) heat pumps. They worked11 beautifully. I added some radiant floor12 heating. Beautiful job. 14 Shortly after the tenants moved in, it15 failed. 17 And this gets back into what18 we're discussing today. As technology is19 coming around, what we're using today20 won't be around tomorrow. None of the21 major suppliers -- they shipped all of22 their units back 'cause they weren't23 selling. In essence, I had to install a24 standard water heater in while I got the25 26 80 4/24/09 - LEG. OVERSIGHT - RES. 3 And this home was delivered at4 900 square feet for about $100,000. 7 Basically, some things work and8 others don't. On a small scale, this is9 mistake is no big deal. But,10 unfortunately, high-cost products in the11 market, before they're accepted and12 tested, can be costly. 20 Subsidized programs. This is21 just one anecdote. As we adopt new22 technology and best practice in codes23 addressing our concerns, the ICC code is24 constantly changing. In the last round,25 26 81 4/24/09 - LEG. OVERSIGHT - RES. 2 The National Association of Home Builders3 took positions on 900. 6 The building codes are necessary7 for life, fire, and safety. And that's8 where we should go. You know, I believe9 that beyond life fire safety, we have to10 be careful of what additional local11 jurisdictions put in place. And national12 codes address everything. If you build a13 building, it's too close to another14 building, you have to use a different15 material. 23 And I know it's a thorny issue,24 and we've had other hearings here, but as25 26 82 4/24/09 - LEG. OVERSIGHT - RES. 4 And we're going to be a little -- just a5 one little notch. 10
Scott Orens, Orens13 Brothers Real Estate. Thank you very14 much. I've been asked to talk about the15 high cost of construction in Philadelphia.16 I have about a half a page here.17 It's Friday afternoon; I realize that. I18 can sum it up -- really, when you talk19 about construction, you talk about20 materials, you talk about labor.21 Materials are pretty much the22 same here as they are almost everywhere23 else in the United States. Our labor24 costs are too high; that's the simple25 26 83 4/24/09 - LEG. OVERSIGHT - RES. 0901511 explanation. Our costs for union labor2 are too high relative to what we can sell3 it for. I'm not going to build something4 and sell it for one third of what it cost5 me to build; it's just not going to6 happen.7 Just so you know, in addition to8 being a licensed broker in the9 Commonwealth of Pennsylvania, I'm a10 licensed electrician in the City of11 Philadelphia, I'm a licensed plumber in12 the City of Philadelphia, but what I do13 for a living is develop.14 I'll keep my comments simple. I15 mean, you have a couple of things that you16 might be able to control. I don't know17 whether you guys can control the labor18 costs. I think that it's something you19 can certainly work on, but it might be20 outside of your control.21 Zoning. Quite simply, from a22 development standpoint, time is money. We23 need things to happen quickly in the24 development world. Zoning simply takes25 26 84 4/24/09 - LEG. OVERSIGHT - RES. 0901511 too long and is too complicated. It's2 something that you guys might be able to3 work on.4 The accelerated permit review is5 a great thing. In fact, in many cases, as6 a developer, I'm willing to pay more for7 something if it takes less time. Because8 the difference to me is significant. If9 it takes longer and I have a loan that I'm10 paying on, I'd rather pay someone to be11 there.12 While I'm on that subject, I've13 mentioned to several people in City14 Council -- and I won't mention their15 name -- and to some people in L&I that16 when construction was booming, I've had a17 hard time getting inspections, okay? What18 I'm encountering -- let's just assume --19 and this is a low number -- that I'm20 carrying a $5 million loan, let's assume21 that it costs me at -- well, at 1022 percent, it would cost me, you know,23 $500,000 a year, that's $10,000 a week24 that it would cost me. It's not costing25 26 85 4/24/09 - LEG. OVERSIGHT - RES. 0901511 me 10 percent, it's costing me half. So2 $5,000 a week it costs me to carry a3 $5 million loan. And I have to wait two4 weeks for an inspection from the building5 inspector.6 What's that worth to me if I can7 get it done the next day? I'm willing to8 pay an inspector to show up overtime --9 I'll pay his overtime costs to give me a10 private inspection. I've offered that as11 a solution. No one thinks in L&I that12 it's a real problem. I'm here to tell you13 that when construction was booming, the14 inspectors were overloaded and couldn't15 get to the job on time.16 As was mentioned before by17 Michael, unadopted construction codes cost18 us more money. We had a chance here a19 couple of weeks ago to approve PVC in20 commercial buildings; it wasn't done.21 There were 600 union plumbers in the22 stands here. And there's a reason why it23 wasn't done, and we all know the reason.24 But it's unfair that 250 union plumbers25 26 86 4/24/09 - LEG. OVERSIGHT - RES. 0901511 showing up controls a city of 1.5 million.2 You know, the cost of copper is3 high. That costs my -- it keeps my4 construction costs up.5 Gross-profits tax. Every time I6 sell a building, I pay on what I sold the7 property for, not on what my profit was.8 It's not a good time to change tax9 structures; I understand that. But that's10 one that, when times get better, should be11 looked at.12 And that's about it. That's all13 I'm going to say.14 Thank you very much.15
Thank you16 very much your testimony.17 Please identify yourself for the18 record and proceed.19
21 I want to tell you my story and22 I'm going to make it pretty quick. I'll23 try. I have experienced -- and I'm going24 to try to cover everything that we have25 26 87 4/24/09 - LEG. OVERSIGHT - RES. 2 I started in this business five3 years ago. It was pure luck. You know, I4 was in a different business. 7 I was looking for a house for8 myself. 9 I'm Lebanese, I'm an American with10 Lebanese descent. 14 So I lived in a condo in Old15 City. It was a small condo, a bridge-view16 condominium, two bedrooms. Bought it for,17 like, 160. 19 We needed a big house. Couldn't20 find anything I like. So a friend of mine21 in Northern Liberties was, like, why don't22 you get a lot and build it. So I found a23 nice lot. 25 26 88 4/24/09 - LEG. OVERSIGHT - RES. 5 So I say all right. I build two6 houses with the help of my cousin. 11 I learned the business. Sold12 the one house and kept the other. And I13 loved it. 16 And I love the neighborhood, I17 love Northern Liberties, because I got a18 retired police officer across the street19 that lives from me. I got a teacher and20 her husband that I bought the lot from, my21 neighbor. 22 But I saw University of23 Pennsylvania and I saw what was going on24 as well. I saw how the interaction of the25 26 89 4/24/09 - LEG. OVERSIGHT - RES. 0901511 people -- people were afraid that we were2 going to come and -- like developers3 coming in there and kicking people out of4 there. 7 In my case, that's not what I8 wanted. I wanted to actually bring people9 that have money, that bring a good income10 and bring it to the neighborhood. So what11 I did was, my plan was to build three more12 homes. 13 Now, this is houses nothing going for more14 than $600 [sic]. 16 And these people that bought17 there, they are -- they work for --18 they're bankers from e-counts, another is19 an executive from Comcast. And they end20 up helping the neighborhood, helping the21 kids on the street, on the block right22 there. That was great. 23 So I did another development of24 16 homes around the corner. And I25 26 90 4/24/09 - LEG. OVERSIGHT - RES. 0901511 succeeded. I brought doctors. 4 I realized that Northern5 Liberties is a little village that people6 love to live there. So is Fishtown. Lot7 of artists, a lot of good people. And8 it's a mixture. 11 Now, I learned during that time12 that these people went beyond their need13 to buy a $800,000 home. And my philosophy14 is, I'll give you a five-star service for15 a three-star price. You going to go to Le16 Bec, you going to get the service at Le17 Bec. 19 That's always my -- I've been in the20 restaurant business. 22 Now, these homes, I used union23 carpenters, union excavators. I didn't24 use union finishers, I didn't use union --25 26 91 4/24/09 - LEG. OVERSIGHT - RES. 0901511 I used union electricians because they2 matched my number. 4
Well, of course.7 And I said, "You're not going to scare a8 guy that grew up in Beirut."9 (Laughter.)10
Hey, you know, I15 mean, I grew up there, all right? So I've16 seen a lot of things -- no disrespect. I17 understand that, I understand. 19 And it's funny. Actually, I got20 a phone call one time on one of my21 projects. " I said --23 you know, he was giving me an attitude on24 the phone. I said, "I got one where I buy25 26 92 4/24/09 - LEG. OVERSIGHT - RES. " And I'm like, is he going to2 try to sell me something and give me an3 attitude on the phone? " So I said all right. "8 About four weeks later, I'm9 coming back from New York. I'm looking at10 some projects there. I like to look at11 New York, I like to see what's going on12 there and bring it back over here. " I said, "Listen, my17 man. "18 This is what I do. " And I'm not realizing21 what this guy's trying to. 25 26 93 4/24/09 - LEG. OVERSIGHT - RES. " I said, "I'll2 be right there," okay? And him and I went3 at it. I mean, I don't want to go in4 details. "5 I got there; the guy's not6 there. 7 I called him. " I8 mean, I threatened him literally. 10 I didn't realize that there's11 actually hardwood floor guys that are12 union to do your hardwood floors; I didn't13 know that. I didn't realize that there's14 a union for everything. 15 Could I have had been able to16 build these homes for -- and sell them for17 the price that I sold them. 23 Would I have been able to sell24 'em for that? Absolutely not. I'm going25 26 94 4/24/09 - LEG. OVERSIGHT - RES. I built them for $110 a square4 foot. I took three -- I'll give you number so6 you know what I'm talking about. I'm7 selling them as $710,000 homes. 10 If it was John Westrum or Toll11 Brothers building these homes, it would12 cost them $600,000 to build. 15 I was able to work union, but at16 the same time, me and my cousins do other17 work at the same time. So I was able to18 mix them up together. Now, I'm a small19 shop and I'm able to fight. 22 Now, would I have been able to23 sell these houses if I was John Westrum or24 Toll Brothers? No. I would be owing25 26 95 4/24/09 - LEG. OVERSIGHT - RES. 0901511 money to the banks right now. I'd be2 bankrupt 'cause I wouldn't be able to sell3 'em. So I was able to move these houses4 to good people that moved in there. Now,5 if these people could only afford so much,6 I couldn't even -- I was asking 780, 750;7 I couldn't even get that number. 9 Now, what I learned also -- I10 tried to help one of my guys out -- is, if11 it wasn't for the tax abatements, these12 people would not have moved to the City of13 Philadelphia. 18 They won't come here. They'll be19 somewhere else. 24 Why are these rich -- well, they think25 26 96 4/24/09 - LEG. OVERSIGHT - RES. 3 It's not true. You know, we need these4 people here as we need the middle class5 and the, you know, and the bums and6 everybody's. 8 So the bottom line is this: If9 we really want to solve the problem here,10 let's cut the crap and chase. The cost of11 construction the way it is, union, it is12 very, very hard for the regular13 firefighter and the police officer to buy14 around the City. 16 I mean, I'm all for -- I'm pro17 for the right wage; don't get me wrong. 20 You know the way I look at it,21 what's going on -- General Motors is a22 perfect example, man. 23 Why? Because -- I just joined the BIA a24 year ago, and it's been like -- I just got25 26 97 4/24/09 - LEG. OVERSIGHT - RES. 0901511 my MBA literally. I've lost money in real2 estate, I'm walking away from3 (indiscernible). 9 which I just learned that the past three10 months, $56 to pay a carpenter union. 14 Well, that's coming back on me15 as a person who's buying a house or a16 regular teacher or police officer who's17 buying these houses. That's who's paying18 the price for this. That's where it comes19 down to. 24 She wanted to build a, you know, she could25 26 98 4/24/09 - LEG. OVERSIGHT - RES. 0901511 have gotten 150 beds for the homeless;2 instead, she only got 75 beds for the3 homeless, all right? Well, this is4 something good she's doing.
8 See, guys, we need to change9 this. We need the Council, we need the10 Mayor, we need the -- and we need the11 people to understand that, because, you12 know, what? I saw on the news when people13 are going against the tax abatement, and I14 felt them. They felt like, you know,15 they're being cheated. 18 And they're right. But, you know, I don't19 think they understand the whole concept of20 it. 22 So we need to educate the public23 and we need to sit down with all of these24 labor -- with these union heads and figure25 26 99 4/24/09 - LEG. OVERSIGHT - RES. 0901511 out how we're going to do it. I know it's2 going to be tough, but it's got to get3 done. 8 The zoning I agree with all this stuff and9 all these things, but it costs a lot of10 money to build in Philadelphia. 12 And you know what, what Kevin13 said earlier? You're right. We got14 lucky. You're absolutely right. We got15 lucky that we have not flooded the market16 because, you know, we would be like Miami,17 'cause every developer in (indiscernible)18 or different towns would have came here19 and they would have built over here20 because the profit margin would have been21 a lot higher. 22 So let's learn from that. I'm23 not saying -- and I like the zoning, I24 like you to come -- I want to go -- by the25 26 100 4/24/09 - LEG. OVERSIGHT - RES. 0901511 way, I'm partners with Onion Flats on2 other projects. And Johnny came over here3 and said something that was wrong. 6 It's just a fact of life. 8 Your low-e windows cost more money. All9 of this stuff costs more money, and it's10 labor-intensive as well. 12 I wish there was more people13 here. This is just the beginning, but we14 really need to sit down and figure this15 out, because to move our city forward --16 and this is the chance to do it now in17 this economy, the time it is. Let's do it18 right now sit down19
Thank you20 very much for your testimony. Thank you21 very much.22 Mr. Sauer.23 Is there anyone else that wants24 to testify after Mr. Sauer?25 26 101 4/24/09 - LEG. OVERSIGHT - RES. 0901511 (No response.)2 (Witness comes forward.)3
9 Thanks for the opportunity to10 testify. 12 I think we've already heard13 quite clearly that we have high14 development costs here in the City. 20 It also is a result of reducing21 the availability and sort of moderate-22 priced housing to more moderate-priced-23 income households. It increases the24 amount of public subsidy that is needed to25 26 102 4/24/09 - LEG. OVERSIGHT - RES. 3 So if you have the development4 cost up to $200 a square foot and you're5 building a home and it's only going to6 sell for 150 or a very affordable rent to7 special-needs household, you have to put a8 lot more of those limited public subsidies9 into each unit to make them financially10 work. 14 There's been quite a bit talked15 about the contributing factors to the high16 cost of development here, and clearly, the17 labor-cost issues come up. 23 And there's also inefficiencies24 in the City's development process we've25 26 103 4/24/09 - LEG. OVERSIGHT - RES. 0901511 heard about, whether it's the zoning, the2 outdated zoning code. 8 We're certainly supportive of9 paying workers a fair wage to do work. 13 There's more of a residential rate in14 place versus a commercial rate. 25 26 104 4/24/09 - LEG. OVERSIGHT - RES. 5 And we're encouraged by the6 beginning stages that the City is7 undertaking to make improvements to the8 City's property acquisition/disposition9 system. 12 And it's something that we need to take13 advantage of the opportunity we have now,14 especially given the financial crisis the15 City has. 18 I think if we can reform these19 systems, we can reduce the cost and time20 and cost of development, enable more21 efficient use of the limited resources we22 have and expand the range of housing23 options, create some more moderate-income24 housing here in the City, and also help25 26 105 4/24/09 - LEG. OVERSIGHT - RES. 2 One final comment. There was a3 lot of discussion around the tax4 abatement. 9 We do have a citywide policy,10 though, and I question if that's the best11 policy to have. 17 And the other side of that, what18 a lot of folks are complaining about, sort19 of the equity issue, that it's the newer20 homeowners coming in and benefiting, there21 are ways to tap into the revenue stream22 coming out of tax-abatement properties,23 especially as those abatements expire, to24 use a portion of that revenue stream, to25 26 106 4/24/09 - LEG. OVERSIGHT - RES. 8
That may well11 be a entrée and a means by which to12 accomplish what the Chairman was talking13 about by way of incentivizing that14 middle-class construction and stimulate15 that. And then, as these properties come16 off of line from the ten-year tax17 abatement, which increasingly more of them18 are, that a portion of that money be19 dedicated to kind of kick-start, prime the20 pump, if you would, for middle-class and21 affordable housing.22 Just a couple of points that I23 want to put on the record.24 The most expensive thing in25 26 107 4/24/09 - LEG. OVERSIGHT - RES. 0901511 Philadelphia is being poor.2
The most4 expensive thing in Philadelphia is being5 poor, because as we start to build these6 homes that don't have the proper7 insulation, you have the Water Department8 that wants to increase its rates over the9 next year, you have deregulation of10 electricity, which will occur in 2010, you11 have -- I am on the Philadelphia Gas12 Commission and I know they are screaming13 for a increase because of some of the cost14 of doing business.15 So all of these three things are16 converging on the 24 percent of people who17 live in the City of Philadelphia under the18 poverty guidelines in a way that19 energy-efficient housing isn't a20 tree-hugger's idea; it will become a21 necessity in order for them to maintain22 their own homes.23 So my pushing of these programs24 for green is not an attack on the poor but25 26 108 4/24/09 - LEG. OVERSIGHT - RES. 0901511 a lifeline to the poor going forward. My2 attempt to do green for development is not3 an attack on development. It is what the4 market is mothering towards anyway. More5 people every day are talking about energy6 efficiency of their lifestyle. And as we7 start to throw on top of that transit-8 oriented development, we need to come9 together, change our way of thinking, and10 try to move forward in a mutually11 beneficial area.12 And I'm going to take Councilman13 Kenney and Councilman DiCicco up on14 bringing us all together so that we can15 find a common way out of it. And I got16 it, fellows. I don't want to17 disincentivize development; I want to18 incentivize green. Got it. You don't19 have to tell me again. I got it.20 All right. Thank you.21
Energy costs are22 clearly a critical issue. And I think we23 do have some opportunities with the new24 Weatherization Funds and the Energy25 26 109 4/24/09 - LEG. OVERSIGHT - RES. 0901511 Efficiency Block Grant to help provide2 some of those incentives or offset that3 upfront cost of addressing those issues.4 So we certainly welcome the5 opportunity to work with you around that.6
Thank you7 very much.8 Thank you for your testimony and9 thank you for your attendance here. The10 hearing is now in recess.11 (Proceedings end at 4:10 p.m.)12 * * *13 14 15 16 17 18 19 20 21 22 23 24 25 26 110 C E R T I F I C A T E2 I HEREBY CERTIFY that the4 proceedings of the City of Philadelphia5 Council Committee on LEGISLATIVE OVERSIGHT are6 contained fully and accurately in the7 stenographic notes taken by me on Friday,8 April 24, 2009, and that this is a true and9 correct statement of same.10 11 12 13 __________________________________ 14 JOSEPHINE CARDILLO Registered Professional Reporter15 16 17 18 19 (The foregoing certification of20 this transcript does not apply to any21 reproduction of the same by any means, unless22 under the direct control and/or supervision of23 the certifying reporter.)24 25