Gerald H. Sweeney is president, chief executive officer and trustee at Brandywine Realty Trust, a publicly traded, Radnor-based company that owns more than 200 office buildings.
Sweeney spoke recently about the potential and problems of Philadelphia as a business center.
Question: Philadelphia is cheap, compared with New York or D.C. Why don't companies move here?
Answer: We don't have Florida's or California's great climate. We need to attract people with what we have. Affordability. Transportation. The cost of housing.
We're reliant here on the colleges and medical schools and hospitals - eds and meds. They're great economic engines. But they need to be balanced with private industry that grows. We're in an economic war here. We're winning a few battles. But we're losing more than we're winning.
Q: So Brandywine is spreading its bets?
A: We've gone into Austin, parts of Southern and Northern California, Northern Virginia. Where the big defense contractors, the national-security companies, the homeland-securities companies are.
In the Philadelphia region, we've been refining our portfolio to markets that have high growth. That's southern Chester County, Radnor, Wilmington. We sold $250 million in real estate in Horsham, Allentown and other solid markets that are not growing the same way.
Q: What about Center City?
A: Center City office vacancy is below 10 percent, and rents are rising. But they're still in the range where they've been, really, for some years now.
Q: Does Philadelphia do a good job selling itself?
A: We have a high level of redundancy in the organizations that promote Philadelphia, that promote business in this region. . . . Companies want useful information.
They're looking for efficiency, performance, economics, and something to take home to their base. In Delaware, you can go into the Wilmington Economic Development Authority and they can show you all the sites available. But up here, you can't go to the agencies and get that information.
Q: Beyond basic numbers, how do you get a tenant's attention?
A: When companies are doing site selection, it's a long day. Everything begins to blur for the people on the tour. You need to create memory points. Like when you sit down with the governor of the state and the mayor. Not a second-level policy person who might be droning on in another presentation. Pennsylvania and, to a certain extent, New Jersey need to learn that.
Q: You said Philadelphia can be a hard place to get things done. But lots of tough sites are in high demand, no?
A: For example, it's very hard to develop in Austin. We actually like that. If it takes a long time to get approvals, we like that. When our development team gets slapped around, I remind them it's good for us. It forces us to be high-quality. It forces us to be hungrier. And it'll be harder for everyone else. So we can create value.
We left Dallas because anyone can build there.
Q: There are proposals to build some really high-rise buildings in Center City. You've said any new construction depends on new tenants, at higher rents, from out of town, because current rents don't support new construction. But you've also said companies are unlikely to move?
A: I never want to doubt the ability of someone else to pursue their dream. We should applaud them for having the vision to try to create something new.
But look at the realities they face. The cost to build in Philadelphia is high. We're in a marketplace that has very little incremental growth. It's all about re-slicing the pie, not getting a bigger pie.
How do you get rents to a level that will support new construction?
Q: What would you change?
A: You need to tax in ways that promote success, not protecting a downward-moving slice of the economy. You can't base your future on transfer payments.
Real-estate taxes are the path of least resistance for taxing authorities. They're not going to increase the millage of the residents. So we have high local taxes, high utilities, the janitors in the suburbs are unionizing. It makes the cost go up.
Q: Who should be paying more, and who should be paying less?
A: That's not for me to say. But we need to keep our eye on the big picture: What's Philadelphia going to be like in 50 years?
We have to fight the irrelevance of being between New York and D.C. We have to fight our climate, which is not great. We need to work on our political leadership. Growth means there will be some pain.
I believe in Philadelphia. I think it's a great place for business. I think it has a lot of untapped opportunity.