Yeah. I would sort of emphasize that this is a state project, that the Philadelphia Regional Port Authority is the developer and the landlord. They own the site. The funding is coming from the site. KOIZ is, of course, a state program.
So we're not really directly involved. I was ask to give testimony because we have a lot of background.
Okay, then. So you, therefore, are not held by the standard as discussed with One Pennsylvania 221 Whole (Hearing) - 040640, 040642 - 6/9/04 Plaza.
We should not be concerned about the impact on the Philadelphia Public School System as we are with Comcast. Is that what I hear you saying, that because of the state project we should not be concerned about the ultimate impact on the Philadelphia Public School System?
I think the one area of concern is with the use and occupancy tax. But because they're moving from one place to another, and there's an opportunity for expansion of other businesses into the area that they're vacating, I think we have much the same kind of situation where there would be some replacement of what is lost. But again, I have not looked at it in detail. Perhaps there's some information that's just been shared that will help. 222 Whole (Hearing) - 040640, 040642 - 6/9/04
Yeah. The produce terminal and the Seafood Market are currently paying $140,000 of real estate and U and O taxes.
And the real estate would be divided between City and School District, although, as you know, the majority of that is School District.
Thank you. Any other questions of Mr. Longstreth? (No response.)
Thank you very much. I would suggest that Mr. Hankowsky 223 Whole (Hearing) - 040640, 040642 - 6/9/04 and Mr. David Cohen come up to the witness table together. Good evening, gentlemen.
Madam President, Council President Verna, Bill Hankowsky, C.E.O. of Liberty Property Trust. I've been advised that it might be in the best interests of our cause if we put our testimony on the record and paraphrased it.
So if that's acceptable, that's what we will do, both David and I. So, I'd like to make a few basic points, I think David would like to make a few, and then obviously entertain questions. 224 Whole (Hearing) - 040640, 040642 - 6/9/04 First, I have several letters here from property owners in Center City in support of the project that I'd simply enter into the record. First let me start by thanking Council for taking the time today, this afternoon, now into the evening, to consider this issue. And obviously, you've heard a lot. And it's a complicated and somewhat controversial issue, so let me talk a little bit about just a couple key elements. One, let me just briefly make a couple points about Liberty Property Trust. We're a publicly-traded real estate investment trust worth about $5 billion. We're headquartered in Pennsylvania. We've had a long history in Philadelphia. Councilman Cohen recognized a piece of it a moment ago when he spoke about Liberty Place which was developed by our founder Bill Rouse, who founded this company some 32 years ago. 225 Whole (Hearing) - 040640, 040642 - 6/9/04 Our biggest concentration activity, though, is the Delaware Valley, Philadelphia. We're active in other parts of Pennsylvania. We recently won an award up in Allentown for a new environmentally-safe building. That's partially while the building is tall. I can talk about that later, if Mr. Cohen would like. But we are looking today and trying to develop in Center City Philadelphia a new state-of-the-art, 21st century, high-rise office building, a product that doesn't totally exist anywhere today in Center City Philadelphia. So it is a unique product. It is somewhat new. As I said... Actually, we've built the last office building in downtown Philadelphia, Three Franklin Plaza, that this deliberative body was helpful, in terms of public assistance. That was a tax increment financing, a TIF; to allow another big corporation, GlaxoSmithKline, to expand; to allow another big corporation 226 Whole (Hearing) - 040640, 040642 - 6/9/04 like Comcast to bring new jobs to Philadelphia. In that case it was 600. I only point that out because at that time the vacancy rate was about 6 percent, what it is today in the 7 marketplace. 8 And instead of solving their problem 9 in existing buildings, they elected to get 10 new product and have a new building brought 11 into the market. And we were pleased to be 12 part of that. 13 We also have a long history with KOIZs and KOZs. I think we're all familiar with the TJ Maxx transaction up in Northeast Philadelphia. Employs 1500 people. They speak languages. It's one 18 of the largest employment KOZ projects ever 19 executed in the Commonwealth. 20 We just opened a building up in 21 Allentown, in downtown Allentown, a office 22 building for PP&L. That was a KOZ project. And we've just recently completed one at the Navy Base, Council President, in your District, for Abtech. 227 Whole (Hearing) - 040640, 040642 - 6/9/04 All of these were job creation or bringing jobs in. So between us and our tenants we've added about 2,000 jobs in KOZs. So we're believers in it, used well, to help economic growth. And that's what we're here today to talk about. We've looked at designing a state-of-the-art building, using Bob Stern as our architect. This is a building that would cost over $400 million. And when you include costs for tenant improvements and costs that they would all put in, you're talking about a half-a-billion-dollar project, as far as we can recall, the largest pure private investment made in the City of Philadelphia ever. And we are asking for consideration for a KOIZ. We're not asking for any public dollars. So we would execute this from this point forward, should you be so receptive to this request, as a private transaction between us and Comcast.
When we started this four years ago 228 Whole (Hearing) - 040640, 040642 - 6/9/04 and bought this piece of ground, what we did was, we started talking to a lot of the big companies in town who had future needs for office space. And we began to have a fairly intense dialogue with Comcast. And what came to bear was that between us we had a physical real estate solution that married up with a company that was trying to deal with its long-term growth problem which was that they were going to grow organically over time, so they would initially take about 508,000 square feet in this building, but would have the right and want the rights to grow into more of the space over time; in fact, would want the right any time space became available, if they needed it at the time, to have a first look at it. So to some degree they could ultimately take it all. There's also a capacity on the site to do a second building, a small second building. They would actually control the right to build that building. 229 Whole (Hearing) - 040640, 040642 - 6/9/04 We would not be able to put it in the market. We wouldn't be able to build it as spec space, you know, empty space, and take tenants from anywhere. The only thing we could do with it is if Comcast ordered it up, so to speak, they could expand. The result is they really can grow here from about half a million square feet to a million square feet over the life of this arrangement between the two of us. It gives them great flexibility should they, for example, make a big move and need to expand quickly or just grow organically over time. I point that out also because part of the big controversy is how much space are we putting in the market to affect the market? If you take the half a million square feet they lease, the 200,000 square feet that they will have a right to expand into that basically we can only lease for like the two or three years or five years 230 Whole (Hearing) - 040640, 040642 - 6/9/04 between then and when they have the right to take it, that's about 56 percent of the building. So the remaining 44 percent of the building, about 500,000 square feet, yeah, we're going in be in the marketplace and we're going to go after tenants. The KOZ that we would be interested in having here -- And there has been lots of dialogue about laws and when dates happen. We are perfectly comfortable living with the KOZ that does not have the benefit of the net profits tax. So, we have no 16 interest in professional service firms enjoying that benefit moving into this building. We're also perfectly comfortable having a KOZ that does not use what's called the lease test, as you've heard, you know, where you can sign a lease and move from one site to another. Some people call it the musical chair problem. We have no 25 interest in participating in that. 231 Whole (Hearing) - 040640, 040642 - 6/9/04 We're interested in using the test that sort of we're there initially, what I would call the economic growth test. Comcast obviously passes that because they're thinking of going from where they are today, about 1100 jobs, to about 1900 jobs just in that first 500,000 square feet they go into. That's what we're interested in doing here. We also have thought about this from the standpoint of the City. And I just want to spend one minute about the civic nature of this project. This is a site we're talking about that has been vacant for about years. I 17 think some of us remember the old hotel 18 that used to sit on that site, the old 19 Center City Hotel, right? Probably went to 20 affairs there. 21 It's been knocked down. That site's 22 been vacant there for years. We have looked at that site and said, what could you do with this? And what we think you can do with it 232 Whole (Hearing) - 040640, 040642 - 6/9/04 is build a new high rise, have a pad for a smaller building, and create a new plaza and a new connection into Suburban Station.
About $30 million of this cost will open up and expand Suburban Station, and we worked with SEPTA to coordinate how that all would occur. And again, this will be done sort of with our dollars, as part of a coordinated effort. And we all know that Suburban Station's been... you know, the rejuvenation of that has been under way. The reason the building is as tall as it is, to the question that was raised earlier, is because each of these floors are about percent taller than floors in 18 existing buildings today. 19 It's actually the same rough number 20 of stories, it's actually the same rough 21 number of square feet in some of the 22 biggest buildings in town, but it will be 23 state of the art. 24 It will be higher ceiling heights, 25 more window, more natural light, lower 233 Whole (Hearing) - 040640, 040642 - 6/9/04 energy use, all of which will make it what's called a leadership and environmental design type building, a 21st century type building. That's what we're trying to do here. And we did try to take a look at what this would cost the City and what this would benefit the City. We commissioned a study, a consult. It's been circulated. And we tried to look at both the pluses and minuses, in terms of the losses and the gains. And from the perspective of taking this scenario, Comcast in this building and then leasing the rest of it to others, we anticipate that this project would yield to the City a net benefit of between $20 to $27 million net present value over the 15-year period as a result of this transaction. And we believe that's conservative. We didn't even increase the wage rates over the 15 years. There's no inflation on the wage rates. This is a pretty conservative 234 Whole (Hearing) - 040640, 040642 - 6/9/04 estimate because at least for myself, speaking for myself -- And I'm sort of used to coming here and making sure that we didn't overestimate what we were trying to achieve. And hopefully, therefore, we can exceed the expectations that we're trying to create here. Bottom line is, we're prepared to proceed with this. And there's been lots of talk about the timing aspects of where we are. We had hoped that we would be in this chamber one day with legislation done in Harrisburg, we'd all understand what was happening, and it would be in a nice sort of logical step. Unfortunately, that's not exactly what happened. And we have asked for Council's consideration to pass legislation that would parallel what hopefully will come from Harrisburg shortly, in the next several weeks, to put us in a position where we could start this building this summer. 235 Whole (Hearing) - 040640, 040642 - 6/9/04 And we have a need to do that, to meet Comcast's needs, in order to hold the project together because of rising costs and inflation and interest rates. So, I know we are asking a lot. We're asking a lot for you to be here this evening; we've asked a lot for you to introduce this, to schedule this hearing; and obviously, we're asking a lot if you would consider moving on the bill in short order. That's the request, that's the reason, that's the rationale. And we deeply appreciate the consideration you've given us through the course of this entire process. Let me turn it over to David.
Thank you. Thank you, Mr. Hankowsky. I just have one question of you, if I may. You referred to the second building. Is that in the footprint of the KOIZ?
Council President Verna, I am David L. Cohen, Executive Vice President of Comcast Corporation, and actually do enjoy being back at this witness table in the wonderfully re-renovated Council Chambers which are spectacular.
And we're very happy to see you and to have you with us. Thank you.
I even liked that. I want to start, really, where Mr. Hankowsky led off, and thank the Council President and her office, and all of the members of Council for again tolerating a last-minute request by Bill Hankowsky and David Cohen. We were joking in the hall that we always seem to be here in the last two weeks of a Council session with some emergency. And I say it with a smile on my face, but I understand that it puts this 237 Whole (Hearing) - 040640, 040642 - 6/9/04 body under incredible pressure. And we really appreciate the grace with which you have treated us, and in which you have attempted to accommodate this year's emergency. And we are very, very appreciative for the consideration. I also will only summarize my testimony which has been submitted for the record. I also want to start with a little bit of the story of Comcast. Everyone knows about Comcast, but it's a story about which we're incredibly proud. This is a company that was formed over 40 years ago in Pennsylvania, actually in Bala Cynwyd at the time. It started with 1200 community antenna television subscribers in Tupelo, Mississippi which until we came along was known only as the birthplace of Elvis Presley. We, by the way, still own the cable television system in Tupelo today. 40 years after our founding, we are now the largest cable company in America. 238 Whole (Hearing) - 040640, 040642 - 6/9/04 We have 68,000 employees, and a half million cable customers. We are the largest cable company, the largest broadband provider in the United States of America. Throughout our history, throughout all 40 years of our history, we have remained firmly anchored in Philadelphia and Pennsylvania. We serve nearly 2 million cable customers across the Commonwealth and more than 250,000 in the City of Philadelphia alone. In 2003 -- And I have to tell you this: Until we prepared for this hearing, I did not know this number. But in 2003 Comcast and its employees paid more than $33 million in taxes and franchise fees in Philadelphia, the vast majority of which were paid by our operating subsidiaries, and will not be affected by the KOIZ designation that we are discussing today. The only Comcast entity that is moving into the KOIZ is Comcast Corporation 239 Whole (Hearing) - 040640, 040642 - 6/9/04 which is the parent entity, and the vast majority of those taxes were paid by entities and employees who are employees of our operating subsidiaries. And those tax revenues, therefore, will continue to be enjoyed by the City. We are enormously proud of our Philadelphia roots and have resisted numerous attempts to have us move our headquarters outside of the City of Philadelphia, first in the AT&T broadband transaction where the AT&T board initially insisted that our corporate headquarters be moved to New York. And Ralph and Brian Roberts said, no 17 way, that was a deal breaker. And we ultimately were able to prevail. And most recently through this corporate headquarters search where, although we have entertained numerous options, the one option we have never considered is moving our corporate headquarters from Philadelphia. Today Comcast is the largest 240 Whole (Hearing) - 040640, 040642 - 6/9/04 company, measured by market capitalization, headquartered in the Commonwealth of Pennsylvania. We are the only Fortune 100 company headquartered in the City of Philadelphia. We are proud of how we have grown, but we are not done. We think we have a terrific growth potential moving forward into the future. Now, what's interesting is, for all the jobs and all the economic impact, Comcast has never sought or received any economic development assistance from the City of Philadelphia or the Commonwealth of Pennsylvania. We have never asked for special treatment as a company, and we're not doing that today either.
Our only request is that we not be punished for our longstanding commitment to this City, and that we not be discriminated against because we had the integrity to stand up at the beginning of the process and say that we were not going to leave this City, and that we remained committed to the City. 241 Whole (Hearing) - 040640, 040642 - 6/9/04 All we would like is to be treated comparably to any company with our employee head count, with our tax contributions, charitable and civic contributions to the community, with our commitment to and prospects for growth, and with the job profile of the types of employees we're talking about adding to our headquarters presence. We are now in the market negotiating for sufficient expansion space to accommodate as many as 3,000 to 4,000 people in our headquarters over the next decade or so. That is from a baseline of about 800 only a year-and-a-half ago and about 1100 employees today. So that's the type of potential growth profile that we see for our company. You've heard today fears about the costs to the City for the KOIZ designation. I think that the E-Consult study and Bill's comments and our prepared testimony addresses the fact that in a very real sense, with very conservative assumptions, 242 Whole (Hearing) - 040640, 040642 - 6/9/04 this zone presents a net plus to the City of Philadelphia. I want to have one specific comment, though, about the School District, in isolation from the City as a whole. I think the credible analyses have demonstrated that at worst there will only be a relatively small loss to the School District as a result of the KOIZ designation; and that, in fact, it's more likely that the School District will gain over the entire life of the zone as a result of the increased economic activity that will result from this particular designation. Most important, though, is Comcast's commitment to the School District and the school children of Philadelphia. We are a long-time partner of the School District, since before anyone even heard of Keystone Opportunity Zones. It's a perfect demonstration of why this City needs significant headquarter companies because those of us who live 243 Whole (Hearing) - 040640, 040642 - 6/9/04 here, who raise our children here, will be committed to the City and to the School District of the City. And we have been in discussions with the School District to ensure that the kids in our school system are not hurt as a result of this designation in any way whatsoever. And I think it's those discussions that stimulated the very strong letter that this Council has received from Jim Nevels and Paul Vallas, I think designed to put your minds at rest that there is any jeopardy to the School District or the kids who attend our School District as a result of this KOIZ designation. In view of our many decades of commitment to Philadelphia, in view of the continuing commitments that we have made and are prepared to make, in view of our desire to grow and to thrive in the City of Philadelphia, we would ask for this Council's favorable consideration of this legislation. 244 Whole (Hearing) - 040640, 040642 - 6/9/04 And I will... I can't control myself, having been here before. I don't think I've heard anyone else say this. So I'm going to say, at the end of the day, we would ask that the committee report out Bill Number 040642 with a favorable recommendation, and a recommendation that the Rules of Council be suspended to allow for first reading at tomorrow -- and it's still tomorrow's -- session of Council. Thank you very much.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam Chair. Let me first thank you for acknowledging that, in addition to the impact on the City of Philadelphia, there is potentially an impact on the School District. And though I am extremely encouraged by the letter from Mr. Nevels and Mr. Vallas, and recognizing it would be 245 Whole (Hearing) - 040640, 040642 - 6/9/04 premature for you to speak in specifics, can you speak generally to currently what you're doing, what Comcast has done in a magnificent way for the School District, and what you anticipate over the life of the KOIZ?
Comcast's partnership with the School District has involved a number of items. We are a significant cash contributor, as I believe the Councilwoman knows, to the School District and to programs that are not funded within the ordinary School District budget. In addition, we provide wiring for video services to 220 public schools in the City of Philadelphia, and are in discussions regarding high-speed internet services with the School District as well. And the third area is that we are involved in a number of special initiatives in the after-school area in the mentoring area, and I believe we are one of the most active members of the corporate community in partnering with this particular 246 Whole (Hearing) - 040640, 040642 - 6/9/04 administration on public/private partnerships in the School District. What our discussions... I appreciate the Councilwoman's flexibility because I really think it would be inappropriate to be specific because, frankly, the discussions are ongoing. And there is much about what the School District wants and needs...
...as to Comcast's ability to deliver. But I will represent to the Councilwoman and to this body -- And by the way, these discussions are occurring at the suggestion of the Mayor and members of this body, including Councilwoman Reynolds Brown. And I will tell you that at the end of the day the partnership that is announced and that is a part of this process with the School District will be a partnership that involves additional cash to the School District, as well as 247 Whole (Hearing) - 040640, 040642 - 6/9/04 additional in-kind support in a variety of ways that are designed to meet the School District's needs over the next decade plus.
That speaks well to Comcast's commitment, but we know that in the legislation as presented, that covers, I believe 960... X number percent. 800,000 square feet, is that correct, for Comcast?
Councilwoman, not to be anticipatory of your question. Whatever arrangement is finally negotiated between the School District would be, I think it's fair to say, tripartite.
It would be Liberty and Comcast in the District, and it would cover the entire building.
You did anticipate my question. And I thank you for your response.
And If I could say that Councilwoman Reynolds Brown and Councilman Clarke, because we have also talked with 248 Whole (Hearing) - 040640, 040642 - 6/9/04 him about this, and really to all members of Council, Liberty Property Trust and Comcast are not going to do anything to hurt the School District of Philadelphia, period. So this issue is going to be addressed. And I think the comfort level of the School District speaks for itself, that these discussions have -- I mean, we came to them. Nobody came to us. Nobody said, you should do this because you have to do this. We are committed to this community, and we are not going to be a party to anything to damage the School District of Philadelphia, period.
Thank you for your testimony. Thank you, Madam Chair.
Thank you. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam President, and good evening. 249 Whole (Hearing) - 040640, 040642 - 6/9/04 Earlier in your testimony, Mr. Hankowsky... And I think Mr. Cohen may have touched on it, and the Council President raised the question about the site, the pad. There has been a number -- There have been a number of people have approached me during this whole process about the concern for the possible expansion or to build another building on that site, the second site of that -- pad on that site. Am I clear in your testimony, Mr. Hankowsky, that should Comcast decide to build another building, whether it be a smaller building or a similar building, on that site, that it would be exclusive to the Comcast facility and not for the purpose of constructing a building that would be used to... if you use the argument from the other side, to further create more office space that would create a greater drain on... in their opinion, on the office market in Philadelphia? Is that... 250 Whole (Hearing) - 040640, 040642 - 6/9/04
That's accurate. And just also to say, it actually is required that it be expansion space. In other words, so it's also not like empty -- Just so you -- No one can play sort of a... COUNCILMAN DiCICCO: I heard you say that, but I wanted to -- (Mr. Hankowsky and Councilman DiCicco began speaking simultaneously, not reportable.)
We have to stay in the tower? And then they could say, by the way, we know we have a right to a hundred thousand square feet next year, but we just bought a company; and could we order up 260,000 square feet and get it delivered to us so we can make a massive expansion. That's the way it works. COUNCILMAN DiCICCO: I thought it was. I just wanted to make certain that it 251 Whole (Hearing) - 040640, 040642 - 6/9/04 was a little bit more clear for me, and that it was basically more or less like an exclusive...
Right; that's right. COUNCILMAN DiCICCO: ...right for Comcast to use it --
Exactly right. COUNCILMAN DiCICCO: -- for that purpose. Off the market. I don't think I have anything else.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair, Mr. Cohen, Mr. Hankowsky. There was some earlier testimony that seemed to indicate that the building had 1.5... I think testified by the Commerce Director Naidoff, 1.5 million square feet of space. Your testimony indicates that it's 1.2. Which is correct?
Well, Councilman, let me tell you the two correct numbers. 252 Whole (Hearing) - 040640, 040642 - 6/9/04 The building... There's two numbers used in real estate: The gross square footage of a building.
The gross square footage of the building which is every square foot: the lobby, the elevators, everything, 1.7 million. The leasable square feet that I will charge you rent for: 1.266 million is the leasable office space. There's also about 28,000 square feet of retail space that's on the first floor, and there's... I mentioned earlier the extension of Suburban Station as a food court area.
And Councilman, if I can... Actually, I think to be fair here, the 1.5 million square feet that the administration uses is the sum of the 1.26 million in the first tower --
-- and the 250,000 253 Whole (Hearing) - 040640, 040642 - 6/9/04 square feet that is available on the second building site, were it to be built. That's where I believe the 1.5 million --
At the moment you plan to build the 1.7, resulting in one two six six.
Okay. And at what point in time would you anticipate possibly building the second building?
There is no 17 contemplated anticipation. The way it is set up is, basically put -- put under agreement to Comcast, and they have a right to call it up. They could elect not to call it up at all, and it just sit there.
Order a second building be constructed. 254 Whole (Hearing) - 040640, 040642 - 6/9/04
The first building, the main building under discussion, you're saying that from the start Comcast would lease 500,000 square feet, with an option to go up to a million?
No. Just to be precise, they would lease 508,000 square feet, day one.
508. They would have an option over the course of the lease for another 200,000 square feet in that building.
The lease is 15 years. And then, to get to the million, that would be if they asked for the second building? So if you took all their rights to all the space on the site, they could 255 Whole (Hearing) - 040640, 040642 - 6/9/04 get to a million. They also have --
Correct. They also have a right, actually, to every square foot in the building, but it doesn't come up on a... Most options are, you know, in the fifth year we have to say to them, here's a hundred thousand square feet for you; would you like it? But they also have a right, every time a square foot -- a lease expires, to look at it and say, actually, we're ready for space now; we'll take it now. So in that sense they could, in fact, take the whole building over time. They not obligated -- Obviously, they're not obligated.
I understand. Let's walk back through this. Day one they have 508,000 square feet, with an option for the length of the lease, 15 years, for the next 200 in the same 256 Whole (Hearing) - 040640, 040642 - 6/9/04 building.
What happens to the rest of the space in the first building?
The rest of the space in the first building is then leased to other tenants.
Who would also get the same benefits that Comcast would get from being in the KOIZ?
They would, of course, only get those benefits if they're eligible, which is to say that a firm that moves from Building "A" in Philadelphia or, in fact, Building A anywhere in the Commonwealth, because really the test is a Commonwealth test, to this building, if they don't pass... for example, grow their employment by 20 percent... If they just moved a hundred people in from Site A to 257 Whole (Hearing) - 040640, 040642 - 6/9/04 Site B, they would get no benefits. So they must pass the eligibility test. And then secondly, the benefits they would get would be dependent on what -- obviously whatever, quote unquote, taxes they pay. And one of those -- So, for example, if they are a partnership that pays net profits tax, they would not enjoy that benefit.
What would -- Other than -- Because you... At least from your perspective, you'll have the most spectacular building possibly on the East Coast. For what reason would a company that is not eligible for KOIZ benefits... What reason would that company come to this particular building?
I think there could be a variety of reasons. Reason number one might be the reason you listed which is to say that a company might find, from a profile 258 Whole (Hearing) - 040640, 040642 - 6/9/04 perspective, that they'd like to be in the newest building in town, the most interesting building, the most environmentally advanced because they're an environmental firm or they might want to be in the safest building, whatever would drive them from a market perspective. For example, a financial management company that deals with high net worth people might say, I'd like to bring my clients in this very interesting new space. That's one possible tenant prospect. A second possible tenant prospect would be a vendor to Comcast which is to say if you're a service firm that provides some type of service to them: you provide insurance, you provide auditing service, legal service, whatever those might be, you might say to yourself, you know what? I want to be near the mother ship. So even though I have to be in this somewhat newer, quote unquote, and therefore more expensive building, I want to do that because I can just get an 259 Whole (Hearing) - 040640, 040642 - 6/9/04 elevator and go up to the people I deal with with this company. So those are the possibilities. By the way, I should note, though, this is not specific to the category you asked about. The third group that could come to the building who would enjoy tax benefits are people not in the City today who can say to themselves, wait a minute. I thought there was a barrier to entry in Philadelphia, but I could come into this building and enjoy a cost of doing business that makes me want to come to Philadelphia. So we think there's the possibility also offer bringing firms and jobs into the City.
Okay. And what actually do you anticipate the per square foot costs to be at this building?
The per square foot 260 Whole (Hearing) - 040640, 040642 - 6/9/04 costs, and the -- Well, quoting, Councilman -- There are two numbers generally quoted by people. I'll give you what's generally called the net rent; so, sort of what ends up in the landlord's hands versus the operating costs that we -- you know, we pass through to people which is called the gross rent. The net rents would be in the low $30 per square foot.
I would say at... You've had rental transactions in the City today in the low teens, but there's also space that's rented for the twenties. So I would say it's 30 to 50 percent higher, easily.
So the issue in the legislation on , with regard to this equity ownership interest and an 261 Whole (Hearing) - 040640, 040642 - 6/9/04 improvement to real property, how would an entity meet that test at this building?
I believe I heard that question -- I believe you asked that question earlier today. I think there's a couple ways I guess somebody could do it. We... These are not necessarily ways we would do it in this building, but just how that provision could work. You could have a condominimized building, you know, literately the way we do condos for residential. I guess somebody could try to condominimize an office building. We're not prepared to do that, but that's one way you could create an equity interest. And there's also... You could --
Well, as a real estate person, I mean from your perspective at least, since this is new language, what would be the purpose of such a provision?
I think what -- I 262 Whole (Hearing) - 040640, 040642 - 6/9/04 think what was being -- Though I wasn't the author, nor do I understand -- You know, so I'm reading it and interpreting it. I don't -- I don't know the specific intent. But my under -- My sense would be that if you're a tenant, another way which I was -- which I wanted to also get a response -- respond to is, conceivably you could rent space what I would call raw. That's just to say just the concrete; you know, no rugs, no ceiling, no anything. And you, the tenant, take out a loan so it's your -- it's your exposure. And you put in all those improvements, is that -- you know, would that meet a, quote unquote, equity test. Most buildings are not done that way; and, of course, most buildings the landlord provides what's called a tenant allowance and puts in the basic improvements: you know, the ceiling, and the lights, and the walls, et cetera. Tenants then tend to put in their furniture, fixtures. 263 Whole (Hearing) - 040640, 040642 - 6/9/04 But I guess you could structure a transaction where the tenant put in his improvements.
This will not come as a surprise to you. There has naturally been a concern that not only because of the cachet of the particular building, the access to... You know, I never thought I'd hear you, Bill Hankowsky, talking about... using the same language as George Clinton of Parliament Funkedelic, talking about the mother ship. (Laughter.)
But virtually anything is possible in this body. So this is... A new day has dawned. But the concern that having so much new, incredible, fantastic space on the market at a not so bad place to be, at 17th and J.F.K., could have a tremendously negative impact on the rest of the office space in town which may not be as new and does not have the benefits of the KOIZ designation, the issue arises as to whether 264 Whole (Hearing) - 040640, 040642 - 6/9/04 or not these particular benefits, since we want to... the purpose here seems to be to enhance the opportunity for Comcast to grow and expand, that these benefits would be for Comcast and the part of the building that Comcast either will come to immediately or obviously has access to another 700,000 or so square feet. What is your reaction to the prospect of these benefits? Because we're primarily talking about Comcast, and the focus is on Comcast, that these benefits would be restricted to Comcast?
I don't think it can work, for the following reasons: Number one, as I indicated in my -- in response to your questions earlier, in effect Comcast has a right to every square foot in the building. So, in order to ensure that their potential benefit is available no matter how they elect to lease up and grow into the building, you'd really have to make the entire building available. 265 Whole (Hearing) - 040640, 040642 - 6/9/04 Secondly -- and this is an easier one for me to respond to, since I'm not a lawyer, so it's a legal argument -- is I believe there are serious issues with what I would call sort of the uniformity constitutionality issues of taking this concept of a KOZ -- and to some extent the concept is almost condominimizing it on a site. So that I guess what you're saying is, it's sort of the space in the air and the rest of the site isn't. I'm not even sure that it would work or stand up from a kind of a legal structural perspective, in the way these programs are structured. So, I just don't think it works and don't think it makes sense. And I don't think it necessarily is practical from a Comcast perspective, given that they may end up in space anywhere in the building.
Well, I mean, we have some fairly creative people around here, recognizing that Comcast obviously has a right to the space. 266 Whole (Hearing) - 040640, 040642 - 6/9/04 And the benefit would go under this, you know, concept. Obviously the benefit would go with whatever space they were to lease. But in the event they don't, I mean, are you anticipating that Comcast will in fact occupy virtually every square foot --
But I basically don't think, Councilman, that you can create a KOIZ concept that is portable. I think it is geographic specific and only can work that way. I just don't think it works.
Well, a couple weeks ago we probably didn't think that you could take back benefits that had been granted at a previous point in time, but that seems to be a present item of 267 Whole (Hearing) - 040640, 040642 - 6/9/04 discussion. So, you know, all things are possible. Let's talk about what's the value or maybe the cost of the building? What will it cost to build this building, and what would its value be on the open market?
Well, it will cost about $425 to $450 million to build the building, you know, what would sort of be the -- you know, the... the basic building, including what we've spent today: the land costs, you know, all of that kind of -- There's carry in that number, financing costs, et cetera.
And I am hopeful that it's worth that much at the end; otherwise, we have made a bad business decision. I don't think it necessarily is worth that much more at the end. Only if we could create value over time and see, you know, if leases -- if the rental rates go up over time, to achieve the rental 268 Whole (Hearing) - 040640, 040642 - 6/9/04 rates we're projecting which will be difficult in the market where we're 50 percent over, then, you know, it's worth -- that's the value it's worth.
Well, I think between the two people at the table, and the few others who are involved, Mr. Hankowsky, and based on your previous experience, I could not imagine that you'd be going into this venture anticipating that the value wouldn't be there, if not higher, given the due diligence with which you engage. You're a victim, to some extent, of your own reputation. If there were no KOIZ, what would be the market value of this building? What would the Board of Revision of Taxes value it at; and, therefore, if there, again, were no KOIZ, what would be the real estate tax on this building?
Oh, I'm sorry. What would the real estate tax on the building be?
Well, you've got 269 Whole (Hearing) - 040640, 040642 - 6/9/04 a market value, you've got an assessed value, you've got a tax rate.
You know what? Can't we... I'd almost like to get back to you with that, because I think the way the Board is currently doing assessments through office buildings, if I'm correct -- and I'm not an expert on how the Board does it -- I actually think they're looking at the income approach, because I think people have been coming back. Actually, there was a recent story about the fact, whether we build our building or not --
-- there's been a tremendous amount of... A number of people have come back and asked for -- asked for reassessments.
I'm not exactly sure how they would -- what number they would come up with in this instance.
It's one of the most recent versions of tax reform that people are seeking in Philadelphia. It's called, go get your assessment lowered at the BRT.
Councilman, I would also note, though, that for the first ten years of the building's existence, there would be no real estate tax at all --
Right. You'd get a... Right. But the BRT would still have to assess the value --
-- because if 271 Whole (Hearing) - 040640, 040642 - 6/9/04 there were no KOIZ --
Because it's part of how -- It's part of the City's debt limit.
Let's talk a little bit about the building, the building of the building, the people who will help build the building and supply goods and services, contracts, workers, and any plans you have, given the location of the building, whether in Center City or in the City of Philadelphia. Can you tell us a little bit about the economic benefit or the economic opportunity that would be provided to individuals or companies here in 272 Whole (Hearing) - 040640, 040642 - 6/9/04 Philadelphia, and any diversity plan that you may have for workers and contractors.
Right. We have... We have, in fact, been developing such an economic opportunity plan for this project.
I said we have, in fact, been developing an economic opportunity plan for this project. We've also been doing that in consultation actually with Comcast also because there's a portion of their activity that... sort of what we finish they pick up from, in terms of their space. Those are currently under way. We've been in consultation with... There's been some dialogue with certain members of Council. We would like to continue to do that; to finalize those plans, actually, within the next several days, clearly no later than final passage.
And you'll forward that to the -- 273 Whole (Hearing) - 040640, 040642 - 6/9/04
Okay. Mr. Cohen, let me ask you: what is the benefit of the KOIZ designation to Comcast?
Councilman, that's an extremely complicated question, and I will try and give a short answer, even for me a short answer.
Right. The reason why it is a complicated question is because Comcast Corporation as the current parent entity, parent entity of Comcast, which will be the corporate entity that moves into the zone, and that is the ultimate beneficiary of the benefits of the zone, is not a material business taxpayer today in the Commonwealth of Pennsylvania or in the City of Philadelphia.
It is not a material business taxpayer because under the tax 274 Whole (Hearing) - 040640, 040642 - 6/9/04 laws: federal, state, local, Pennsylvania and elsewhere, most of Comcast's taxable -- most of Comcast's activity occurs at the operating subsidiary level, not at the parent corporation level. It is the operating subsidiaries, therefore, that bear the vast majority of the taxability of Comcast revenue stream. So, if you take that $33, $34 million of... If you take that $33, $34 million of taxes that -- taxes and franchise fee that Comcast, its operating subsidiaries, its employees paid in the City of Philadelphia in 2003, the vast, vast majority of that, in excess of 90 percent of that, was borne by our operating subsidiaries and will continue to be paid. Of the portion that was borne by the parent company --
I hate to cut across you. These operating subsidiaries, I then take it, are not located here.
They are -- Some of them are located here. 275 Whole (Hearing) - 040640, 040642 - 6/9/04
The Philadelphia cable franchise, located in Philadelphia, paying taxes in Philadelphia. At the end of the day, the benefits to Comcast are going to be tied to our job growth and to the increased economic -- and to the -- and to the increased... and to the movement of corporate functions that we are able to do into the Keystone Opportunity Zone. And I think that's what creates the win-win here for the City and for Comcast which is to the extent we can -- to the extent we grow, and we bring more jobs here, and we reorganize some of the corporate functions into the Keystone Opportunity Zone, we will generate a tax savings, in the sense of there will be 276 Whole (Hearing) - 040640, 040642 - 6/9/04 taxes that we are -- there will be tax that we will not be paying in Philadelphia and in Pennsylvania. But there will be significant increases in wage taxes that the City is going to enjoy as a result of that happening. If our... If the job growth... We if we do not deliver on all the job growth, the City's not going to get -- is not going to get the same bump in the wage tax revenues, nor will Comcast get the same savings from taxes that would otherwise be due.
Can you provide to us your general analysis of the taxes foregone by, at least from your own calculation, taxes foregone by the City, as well as... And you've mentioned it a couple times in different places in the testimony, the taxes you think will be generated. But there's been no laying out of any kind of calculation, with regard to the larger tax benefit.
I'm happy to talk 277 Whole (Hearing) - 040640, 040642 - 6/9/04 through with the Councilman those issues. I will tell you that at a general level we are fairly comfortable with the E-Consult report, and the detailed assumptions that were made there. Their assumptions with respect to Comcast, job growth and current business taxes were discussed with us, and are therefore reasonably accurate. And we'd be happy to sit down and talk with you or any other member of Council and walk you through those assumptions in whatever detail would be appropriate.
Thank you. Last question. How does the KOIZ work, in such a way for Comcast that it results in this encouragement to go from... Is it presently 1100 or so --
-- employees, possibly up to three or four thousand? What is it about this kind of designation that makes that work for the company? 278 Whole (Hearing) - 040640, 040642 - 6/9/04
I think it enables us to -- It enables to us grow our employment base and to -- and to -- and to move corporate functions into Philadelphia and not be subject to the business privilege tax; and at least equally, if not more importantly, the relatively high corporate net income tax, and corporate stock and franchise tax that is imposed at the state level. It is the combination of those benefits that enable -- that enable us to be able to move functions into the Keystone Opportunity Zone, including people that we would not otherwise bring into Pennsylvania.
I was mistaken. This actually will be my last question. And it's a particularly sensitive one, given where we are and what we've been doing over the past couple weeks, including probably tomorrow morning and tomorrow afternoon. But in a general fashion -- And this 279 Whole (Hearing) - 040640, 040642 - 6/9/04 has nothing to do with the company's reputation, its size in the marketplace, its significance in Philadelphia, the Roberts family and certainly yourself. But I'd at least like you to try to respond on the record to this. You are well aware that we're engaged in a pretty serious budget discussion -- you know a little bit about the budget situation here in Philadelphia -- as well as a tax debate. And you have this incredible company known as Comcast, both here and across the country, with enormous financial resources. And so in a City that is... I don't want to say in fiscal crisis, but certainly experiencing fiscal distress, has no 18 comprehensive tax-reduction strategy, is proposing to close rec centers, libraries, swimming pools, and a whole host of other kind of people-friendly functions. We now find ourselves in a discussion about a significant tax break opportunity for the company. Can you give us a little bit of insight as to how we 280 Whole (Hearing) - 040640, 040642 - 6/9/04 reconcile, I guess, all of those issues?
I don't think there is any inconsistency between working toward tax reform and enacting a budget for the City, and also focusing on a reasonable and well-fashioned economic development incentive package, that would incent the Commonwealth's largest company, and I believe I -- certainly one of Philadelphia's foremost corporate citizens to grow in this City so that over the long run the net tax benefit is positive to the City of Philadelphia, and you are helping to stabilize and ultimately grow the tax base so that City Councils ten years from now may be in less of a dire position in needing to deal with the fiscal crisis and the financial difficulties that you are looking at today. This is, I believe, as in all economic development initiatives, an investment by the City of Philadelphia; but unlike other investments by the City of Philadelphia that Bill Hankowsky and I have 281 Whole (Hearing) - 040640, 040642 - 6/9/04 both appeared in front of you and discussed in various ways, it does not require the City to write a check and have to wait to earn back its money over time. The investment is made in the way of future tax breaks that I believe are, in effect, costless to the City, because in the absence of the designation, you would not get the taxable income anyway. And as a result, I think this is a sound... This is a sound economic development initiative that will have a significantly positive impact on the future tax base of the City; and is, therefore, completely consistent with the actions that this Council is trying to take, both to reform the City's tax system and to pass a fiscally responsible budget for next year and a responsible five-year financial plan.
Thank you, Madam Chair. 282 Whole (Hearing) - 040640, 040642 - 6/9/04
You're welcome. The Chair recognizes Councilwoman Tasco.
Can I just ask you a question? Your corporate headquarters is now in Liberty One?
Oh, 1500 Market Street. What impact do you think it would have, your moving, on that building?
Well, certainly on a temporary basis, it is going to be a blow to the building. We have about 400,000 square feet today in that building. And our moving out of that space is going to create a 400,000 foot vacancy in the building. But, you know, we believe that the 283 Whole (Hearing) - 040640, 040642 - 6/9/04 space will be re-marketed, it will be re-leased. Whether it's re-leased in a month, a year or two years or three years, we believe the space will ultimately be re-leased and... re hyphen leased, not released to the market, and that the building will continue to be successful.
Will any of your employees from the Northeast facility come downtown?
Okay. In one of the pieces of literature I received from some opponents to the move stated that you would lose people from Liberty One in your shops. How do you plan to market all the wonderful things downtown that could help maintain Liberty One, the Shops on Liberty 284 Whole (Hearing) - 040640, 040642 - 6/9/04 One? They were concerned about Liberty One. Aren't you all Liberty One?
We built it and we owned it but we sold it years ago. So we don't own it. But I actually think, Councilwoman, we... I think if I brought which I... You know, in the spirit of trying to get through this, I mean, if you ask the people, for example, at the Four Seasons or at the Shops or other people, there are a group of people who would love to see this building get done because there's sort of this hole in the doughnut which is this site...
...that would bring, you know, further activity and sort of further intensify Market West.
So I think it's actually, you know, very supportive of the Shops. 285 Whole (Hearing) - 040640, 040642 - 6/9/04
Well, we talked earlier today and about the -- and this effort to and the spirit to help promote economic development and growth in the City, Mr. Cohen. Comcast could be very helpful in working not only to promote downtown Philadelphia which I think is a wonderful place, and we have a lot of wonderful shopping opportunities and wonderful restaurants; also working to help some of us in the community work on stimulating economic development and growth in our community as a large corporate sponsor, along with some of the other large ones which we don't have like we had before.
And as I said to Councilwoman Tasco and a general statement to all the members of Council, that is a discussion that I would eagerly await. And it would be something that I think both Liberty and Comcast would be delighted to participate in with you and other interested members of Council in 286 Whole (Hearing) - 040640, 040642 - 6/9/04 their Districts.
Councilman Nutter asked you about the economic opportunity plan, and you said you're in the process of working on that. Would that plan include from design to construction?
I think maybe I'll answer that. A little bit like the stadiums, the building itself is already designed. The basic design work is done. So from the Liberty perspective, the plan would not include design. From a Comcast perspective, although we are a little behind, so in terms of the design work -- And ours admittedly is a much smaller piece of the puzzle. But our design work for our interior design and for our interior work is included in our plan.
You're welcome. The Chair recognizes Councilman Ramos. 287 Whole (Hearing) - 040640, 040642 - 6/9/04
Thank you, Madam President. Thank you, Mr. Cohen and Mr. Hankowsky, for coming out and explaining this to us. I was struck a number of months ago when a Comcast spokesperson said that Comcast would do for Philadelphia what Microsoft did for Seattle. And I found that to be a very, very powerful statement because what I know of Microsoft and Seattle is that Microsoft anchored a new economy for the City of Seattle. And the growth of that City has been attributed to this company called Microsoft that every corners of this earth knows about today. Are you in your statement maybe exaggerating a little bit about the impact you're going to have here in Philadelphia? And if not, I am very eager to hear some more how Comcast has equated itself to Microsoft, and the impact that it would have in Philadelphia. 288 Whole (Hearing) - 040640, 040642 - 6/9/04 I think it's such a powerful statement, I want to hear some more --
No; I hope we're not exaggerating, although I think I worded it pretty carefully. I mean, it is our goal and it is our aspiration to be to Philadelphia what Microsoft has been to Seattle, what Coca-Cola has been to Atlanta. And to be fair... I have to say this. I think the Mayor actually used those lines first, and we've been borrowing them since then. But it is our -- We obviously -- And for those who would doubt our ability to deliver on that, roll the clock back 40 years when we were operating this 1200 subscriber community antenna television system in Tupelo, Mississippi, with three television channels on it, and say to yourself: Could you have ever imagined 289 Whole (Hearing) - 040640, 040642 - 6/9/04 that that company, headquartered right across City Line Avenue, at the time in Bala Cynwyd, was going to buy AT&T? Could you ever imagine that that would happen? And anyone who says, yeah, we had it figured out all along; in the early 1960s we knew Ralph Roberts and this concept of Comcast was going to end up buying AT&T, they're a better predictor than I am. I think we demonstrated in our unsuccessful bid for the Walt Disney Company earlier this year that we have ambitions, that we have ambitions to be absolutely the leading media, entertainment and technology company in the world. And we think we have the capacity to do that. Although we were not successful, for three months the number one business story in America was Philadelphia company seeks to acquire the Walt Disney Company. And I don't know the last time that the business story of the country was a Philadelphia company out there trying to acquire and to grow, as opposed to being 290 Whole (Hearing) - 040640, 040642 - 6/9/04 acquired, disappearing, downsizing or leaving the City. And I think that's -- Although we were not successful, I think it is a demonstration of the clout and the credibility that Comcast and the currency of our stock has on the marketplace, that we could have been out there and treated very credibly and very seriously for that type of an acquisition. So do I know for sure what this company is going to look like five years from now or ten years from now? I absolutely don't. And I couldn't tell you today where all those jobs that I'm talking about are coming from. But I can tell you about our ambition, I can tell you about our dreams, I can tell you about our aspirations, and I can tell you that we want all of that to be in Philadelphia, and we want to continue to be a leading corporate citizen in this community.