Real Estate




Property Managers Struggle to Maximize the Bottom Line Without Sacrificing Service

National Real Estate Investor, 03/01/1991, 2014 words.


The Hill Group's Vision of Excellence

Focus, 05/17/1989, 2103 words.


Will Labor and Infrastructure Problems Affect Future Suburban Development?

Focus, 11/18/1987 (ghostwritten)


Main Line Estates Go on the Block

Focus, 05/13/1987, 2504 words.


Executive Homes: Snapped Up

Focus, 04/08/1987


Wilmington Market Shows Continued Vitality

Focus, 03/25/1987, 2120 words.


Selling the Store in Order to Rent It

Focus, 03/25/1987, 1804 words.


Brisk Activity in the Industrial Real Estate Market

Focus, 03/25/1987


Building Managers: The Job Involves More than Collecting Rent

Focus, 03/25/1987, 2002 words.


Reading Company's Money-Making Routes: Energy & Real Estate

Focus, 03/18/1987, 2678 words.


New Bell AtlanticTower is Not A Harbinger of Glut, Say Experts

Focus, 01/28/1987


Residential: Will Mid-Sized Brokers Be Left in the Cold by the Big Boys?

Focus, 11/26/1986


Roadbuilding: Welcome Relief for Contractors, But Finding Subs is a Problem

Focus, 11/26/1986


Smaller Firms Find Office Redesign Usually Follows Office Automation

Focus, 10/22/1986


Todayís Design Stresses Flexibility, Efficiency of Space

Focus, 10/22/1986


A Hotel Comes to Chinatown

Focus, 10/15/1986, 1901 words.


Hansen Considers Acquisitions Prudent

Focus, 09/17/1986, 2216 words.


The Inscrutable Phil Banks

Focus, 09/17/1986


Development Authorities Go High-Tech

Focus, 09/17/1986


Design Nostalgia: Something Old, Something New

Focus, 09/17/1986


Brighter Horizons: Kelly Wolfington glows with confidence for both herself and the City

Focus, 09/17/1986


Sheraton Society Hill: City's Birthplace Spawns New Arrival

Focus, 09/10/1986, 2347 words.


Boom Over Central New Jersey

Focus, 06/25/1986


Bank Influx Spurs Wilmington Real Estate Boom

Focus, 06/25/1986


A Company Called H2L2

Corporate Monthly, 03/1985 (ghostwritten for client)


The Small Business Personís Guide to Selecting Office Space

Focus, 03/27/1985 (ghostwritten for client)


Jack Merriam: Planner on a Grand Scale

Focus, 11/07/1984 (ghostwritten for client)



Property Managers Struggle to Maximize the Bottom Line Without Sacrificing Service

By Thomas Derr



National Real Estate Investor



An adage in American football holds that "the best offense is a strong defense."Nowhere does that adage seem more true today than in the U.S. real estate industry.


Across the country, real estate values are dropping - thanks to a myriad of problems including overbuilding, over leveraged loan financing, falling rents and a softening economy. As a result, more pressure than ever before is being placed on property managers to watch the bottom line - to make their properties more profitable, or at least less unprofitable.


According to Alan Hayman, secretary/ treasurer of The Hayman Co., a property management company based in Southfield, Mich., this new emphasis should come as no surprise, especially to property managers.


"Property management has always been the key to the success of real estate," says Hayman. "The problem is, while everyone seemed to know that during the late '60s and '70s, they forgot about it in the '80s. Now, all of a sudden they rediscovered that fact in 1989 and 1990."


One result of this discovery combined with the instability of other areas of the real estate market is that real estate firms who have no prior experience in fee management have suddenly decided it's time to plunge in. This has made bidding for fee management contracts much more competitive within the last year.


Richard Ross, vice president with Los Angeles-based R&B Realty Group, explains this phenomenon. "Large companies are collapsing their development arms, laying off people and trying to hang on." Property management is one area these companies feel they can move into, he explains, transferring their employees from one area of the company to another. "You want to keep as many of your people in place as possible, so you will be strategically located when the market turns," he says.


Lan Bentsen, chairman and founder of Sovereign National Management, Houston, addresses the problem of real estate firms who go into management, although their interests are "diverted into other areas, such as syndicator/manager, broker/manager or lender/ manager." Bentsen continues, "Witness the firms that offer to manage for free in return for an exclusive listing to sell. How can a good company really manage for free? After six months the property has deteriorated and you get it back unsold. You've lost time and money."


According to Bruce Lieberman, president and chief executive officer of Lieberman Cos., Great Neck, N.Y., the real estate industry is the victim of a "triple whammy." Income is down because of lower occupancy rates; occupancy itself is down; and expenses are going up. Property managers operating in this economy "really have to watch every nickel, or every penny, as the case may be," he says.


Watching every penny also includes minimizing losses through delinquent rent collections, which can be particularly unpleasant during an economic downturn. Fred Tuomi, president of Pilot Property Co., Atlanta, says his managers try to work with residents to help them increase their own discipline in making rental payments on time. In one case, he says, his firm even hired a professional from the credit collection industry to work at a particularly troublesome property.


Randy Stokely, president of Barrett & Stokely Inc., Indianapolis, another developer and manager of apartment properties, also sees real value in maintaining a property's outward appearance. "We think by having the money to invest in upgrading the property, this will put us miles ahead in terms of increasing rents."


Stokely says his firm has begun selling this concept to institutional clients as well. "We try to encourage them that it is important to do this in order to keep any property competitive in the marketplace," he explains. "There is a substantial number of properties in central Indiana already experiencing financial difficulties, mostly because they are over leveraged. In the future, someone will have to put money into these properties, and it will probably be the lenders when they get them back."


Service brings long-term rewards


This spate of ownership changes only adds to the confusion permeating the entire real estate industry, says Don Landry, president of MHM Inc., Dallas, a hotel management firm. Landry offers the following "nightmare scenario." The developer owns the property; the bank forecloses on the developer and takes back the property. Finally, the FDIC forecloses on the bank. Many properties have gone through a major trauma as a result of these ownership changes, he adds.


The challenge to properties is to keep up the level of service to their various publics throughout these processes, says Landry. While the temptation is to attempt to maximize cash in a very short-term strategy, in the long term, this can prove to be fatal to the asset, particularly for hotel properties.


Because of that fact, McKinley says his firm has become much more sales-driven - focusing directly on specific customers, trying to develop personal relationships with corporate decision-makers and ultimately hoping to increase group business.


"The biggest difference between hotels and office buildings is that the hotel product is much more perishable," explains Bob McKinley, vice president of sales and marketing for Interstate Hotels Corp., based in Pittsburgh. "Business checks in today and out tomorrow. A room you don't sell today is lost business."


John P. Rijos, president and chief operating officer of Lane Hotels Inc., Chicago, says his company is looking primarily at ways of cutting back on operating expenses without compromising service. Cost-saving techniques include closing off portions of hotels during slow periods and negotiating with contractors and vendors for lower repairs and maintenance costs.


Nonessential capital expenses also are being eliminated or postponed wherever possible, Rijos says. Examples might involve not automatically repaving a parking lot that has reached its normal three-year replacement cycle or allowing a boiler that is scheduled for replacement to go another year. This leaves more money to be spent in areas that appeal more directly to hotel guests, such as lobbies, rooms and furnishings.


Employee, tenant relations are key


Management style also can determine how efficiently a property is run, Rijos says. Lane Hotels has a decentralized style of management that leaves many decisions to local managers who can react faster and better, Rijos explains, "than people in corporate offices 1,000 miles away who don't always have their fingers on the pulse."


R&B Realty's Ross agrees and says his firm also maintains a decentralized management style.

"Real estate is not a national product," he says. Ross describes a common scenario where indecision and absentee ownership become a problem. "You might manage a property in the Midwest, have an asset manager in Boston and an investor in London." When a lease deal is proposed, he explains, you often have to wait on all parties to make a decision. Meanwhile, the

potential tenant "has taken his business down the street, where the manager on-site can make a decision."


For MHM's Landry, keeping the lines of communication open within a firm represents one of the most important ingredients in a successful management program. "The challenge for properties in tough markets - where there often can be very volatile ownership situations - is to communicate effectively to the staff," Landry says. "There is often a temptation among management to overprotect employees, to not tell them the bad news, whether it concerns market conditions or cash situations. That's a mistake."


Focusing on people is just as important to managers of office buildings. According to Lynn Jones, a senior asset manager in the real estate investments department of Metropolitan Life Insurance Co., the major challenge for property managers, especially those in overbuilt markets, is to keep those tenants you do have in your building.


"The main goal is to be helpful and cooperative - in that sense it is similar to the type of service a hotel would provide to its guests," Jones explains. "Real estate is a service business. When you go to a hotel, you expect certain things, such as a clean room, good food and a number to call when you experience problems. With an office building, it's the same basic situation, only you have a guest who is there 365 days a year and who is more familiar with the surrounding environment."


"The No. 1 key to surviving in a difficult market is tenant relations," agrees Charles McBride, chief operating officer for Coldwell Banker Commercial Real Estate Management Services, Los Angeles. "The best tenant you can get is the one you already have. That's why we feel it's important to have comprehensive tenant relations programs in our buildings."


Steve Cordes, national director of properties for The RREEF Funds, a national property management company based in Chicago, says one outgrowth of the nation's soft economy is a lower increase in white collar employment. That translates into fewer tenants to pursue, which, in turn, makes tenant service and retention a key focus.


"We think of tenant relations and tenant services as a process, not a program," Cordes explains. "It's a way of doing business, a fact of life. There is no beginning or end to the line. Instead, it's an ongoing process."


If the past Christmas season is any indication, the nation's retail sector may be especially at risk in the current soft economy. According to Gene Daniel, president of Branch Realty Management, Atlanta, many retailers are just trying to survive.


"Adding to the problem is the consumer's timid attitude toward buying," Daniel says. "Given those factors, we've had to readjust, especially on the income side. This may involve downsizing a tenant's space, reduced rental programs, etc. In some cases we have established such programs just to help tenants survive."


Branch Realty, for example, has undertaken a number of promotions, including full-day entertainment activities at some centers, complete with clowns, singers, etc. The goal is to draw increased traffic into the shopping center for the retail tenants.


"If I could send one message to our property managers it would be this: Don't worry about the last two cents of rubbish control. Maintaining tenants is the main issue today," Griffin says.


Property taxes represent another major challenge for property managers, adds Griffin. The fact that the federal government has decreased its revenue distributions has caused state and local governments to search for other means of funding.


"Every jurisdiction we're in across the country is looking for ways to replace those federal revenues," he explains. "As a result, nearly every jurisdiction is increasing the millage rates on its commercial properties."


The main thing is to do whatever it takes to keep the project occupied, says Ralph D. Griffin, president of the Citadel Group Inc., Atlanta.


"Too often, property managers get caught up in the nickel and dime work of a building's operating costs," Griffin says. "My view is that you have to preserve your tenants. And to do that, you have to work on understanding their unique needs and the business pressures they are facing."


According to James Mathes, vice president and regional manager for Insignia Management Group, Greenville, S.C., such efforts indicate a metamorphosis within the ranks of property managers.


"Property managers can't be concerned with just the bricks and mortar anymore," he says. "Now they have to deal with issues relating to marketing the product, financial operations and overall asset management. Increasingly, they have to look at a piece of real estate from an asset standpoint; they have to learn to position real estate not only for its present value, but also for the future."


Steven W. Ford, director of the National Management Services Group for Cushman & Wakefield Inc., New York, says that kind of financial forecasting is increasingly critical - being able to effectively manage cash flow and make effective leasing assumptions based on a variety of factors: whether or not there is vacant space, when it can be rented, what concessions are necessary and

what the buildups might be in a concession.


Determining those "what ifs" is crucial during a slow economic period, Ford




PHOTO : Oakwood in Chicago is one of several multifamily corporate communities

managed by Los Angeles-based R&B Realty. ILLUSTRATION: photograph



The Hill Group's Vision of Excellence

By Brice Donovan (a.k.a., Thomas Derr)




Pg. 98



Willingboro, NJ, US -- "All men dream, but not equally. They who dream by night, in the dusty recesses of their minds, wake in the day to find that it is vanity. But the dreamers of the day are dangerous men, for they act their dream with open eyes, to make it possible." -T.E. Lawrence


IRVIN Richter is a "dangerous man" in that sense. After all, it was largely the strength of his dream that turned his company from a $75,000 consulting firm in 1976 into what today is one of the largest construction management and engineering firms in the country, with offices in Europe and the Far East. And to imagine that he started working out of their home and going to law school at night. Starting out as a construction claims expert on borrowed $60,000, the company has grown to about 2,000 employees with revenues of $200 million. It is based in Willingboro, N.J.


Unlike most dreams, however, Richter's vision of success has been one with very clear and tangible components. In the past, his consultants have helped draft OSHA and EPA regulations, designed rail systems in Los Angeles and Turkey, remove toxic waste in some states, and provided input to resolve construction problems on the Tropicana Hotel and Casino in Atlantic City.


"A vision is to see the future-to create something and understand what it is that you're creating so that when it is done you can see it," Richter explains.


"I can see clearly where Hill is going."


LIFE CYCLE: Richter likens the growth of his organization to the growth of a person -- with a birth, childhood, and an adolescent period.


"It might even have its period of senility," Richter says. "And if we don't continue to nurture it-continue to have new challenges- it will die like a person will die. So there's a life cycle to a corporation."


Whether or not an organization is able to make it through adolescence often depends on the quality of its management, he says. According to Richter, firms reach a danger point when their rate of growth surpasses management's ability to manage the growth. A company that is too entrepreneurial, and which falls to incorporate professional management standards, will not survive because it will grow too big. Richter says he has seen many companies literally grow themselvesof business because they could not manage themselves.


"I've also seen businesses that were over-managed," Richter says. "They had no vision, no entrepreneurial spark, and became bureaucracies. They may be cash cows for a while, but eventually even that disappears and the companies become stagnant. Eventually they go out of business. Or somebody else takes them over and revitalizes them."


PLANNING FOR PROBLEMS: One of the most important things a manager must do is reduce and control the amount of risk his company faces, Richter says. And even though the entrepreneur may have become something of the stereotypical risk taker, Richter sees himself more as a creator.


"I happen to be very risk averse," Richter claims. "I view growth and the acquisition of firms as a way to provide balance so that we can work our way through the economic changes-the ups and downs."


In order to be able to work through those peaks and valleys, a firm has to be large enough to get the large projects that last longer than normal economic up and down cycles. Because of this, Richter says he views growth primarily as a way to get large projects that will enable his organization to remain relatively well balanced. That balance extends geographically, as well.


"When the southwest is booming and the northeast isn't, you'd better have offices in more places than Boston," Richter explains. "And when the public sector is booming because the private sector is suffering, you'd better be in both the private and public sector so you can balance yourself."


EXPANDING SERVICES: Richter's own organization, the Hill Group, has been on INC. magazine's list of the 500 fastest growing firms seven out of the last eight years. Part of that growth has come through Richter's desire to diversify into various related fields.


In 1988, Hill acquired Gibbs & Hill, a New York City-based power, transportation, and environmental engineering firm that was nearly four times of Richter's firm. Earlier this year, Hill acquired Kaselaan & D'Angelo, an asbestos consulting firm which specializes in the removal of damaging materials from the indoor environment. The third part of the triumvirate is Hill International, a construction management consulting firm which does construction claims management, claims avoidance, claims resolution, and project management oversight.


"There are two ways you grow-one is you grow externally through acquisition. The

other is internally," Richter says.


For example, for the Hill Group to be able to do the kinds of projects it wants to do, it needs to have additional technical skills, he explains. Gibson Hill specializes in mechanical and electrical engineering, but not civil engineering.


"If we want to be able to do an entire airport as the project manager design and then project manager, we need to joint venture with a civil firm," Richter says.


"That means we're vulnerable to somebody else joint venturing with the best firm. We would rather have that within our control."


That's why Richter currently is looking for a civil engineering firm-one that has had the experience that will enable Hill to compete for larger projects.


"Clients don't want to pay a firm to educate themselves on your project," he says. "That's why history and tradition and experience are so important."


In addition, Richter says he's looking at starting an insurance company. It would be a state chartered firm that would do business initially in surety bonds. It's a natural marriage with the organization's existing services, because the Hill Group is in the business of looking at risk in construction.


According to Richter, that's what his organization knows best-from the beginning of the project all the way through to the end of it.


The purpose of this move would be to insure Hill's own contractors and engineers. Eventually, these services would expand into the environmental side, where Richter says "there are very few people who are able to deal with the issue of large insurance companies."


"An insurance company can fit into this firm we're building because it's consistent with our mission-and people understand that, " he says. "Any business that goes to expand has to be able to provide the people that work for that business with a good understanding of why they are doing what they are doing."


According to Richter, management owes it to the people that work for the company because they have, in effect, committed something both to that company and to their professional careers.


"I think you have to communicate where you're going and why you're going there," Richter says.


PEOPLE INTERESTS: That people orientation is another key facet of Richter's philosophy of growth.


"I feel we have a tremendous responsibility to personnel," he says. "When you take someone on-as long as they are committed to the company, and as long as they are providing that effort-you find a way to keep them in the company."


Historically, engineering and construction firms tend to be tied to projects.


And when the projects ended, the people disappeared- through layoffs and staff reductions, Richter says.


"Sometimes that can't be avoided, because ultimately you are dealing with the well-being of the entire body," he explains. "Sometimes amputation is necessary.


But you avoid it all the way to the point when you just can't do it anymore."


By growing and expanding the Hill Group's variety of services, Richter hopes to mitigate many of the traditional ups and downs to which engineering and construction firms are particularly susceptible.


But the commitment to his people doesn't end there. Because of Hill's rapid expansion in recent years, Richter has been especially concerned about training programs for his managers and other employees.


One of the big things that happens to anyone who grows a business is that not everybody grows at the same rate. As a result, a lot of people may grow past their capacity, he explains.


"You have to understand what the weaknesses are so you can help them," Richter says. "And that gets into the training element."

According to Richter, the Hill Group this year instituted a program to train its employees, not only in professional areas, but in things such as dressing, time management, and communication.


"We have a lot of people who are out there meeting the public and meeting their peers professionally," Richter says. "And when meeting clients, you very seldom have a second chance to make your first impression. And if you spend all your time trying to overcome having made a presentation in a clown suit, it takes a while for people to realize that you're competent and capable because their first reaction is to how you're dressing."


COMMUNICATIONS: In addition, Richter stresses the importance of communication in his company. Within the firm this takes the form of coordination meetings between the various organizations, as well as extensive reporting systems on the project side so that budgets are monitored very closely against actual performance. Also, key executives are encouraged to personally call clients.


"Sometimes if there's not good communications between our personnel and the client, then you can't expect your man to come back and tell you we're having problems," Richter says. "So you have to bridge that by asking the client how we are doing."


It's difficult to get people who are more concerned about technical details to communicate with the client, he explains. The main reason is they are not trained to do so. Richter cites a survey which found that most professionals believed the most important thing to a client was "results." However, the number one answer to the client was "communications," he says.


"I think the biggest problem we have with our clients is communications. As a result, we spend a lot of time talking to each other," he adds. "Not as much as I'd like to. Not at meetings. Mainly it's a lot of walking around, and a lot of talking."


In fact, an attorney in the construction business recently told Richter that his approach at Hill was being watched very carefully by the rest of the industry.


"He said we were using technical skills in a way they hadn't been used in the past," Richter recalls.


"You're not focusing on doing engineering," the lawyer told him. "You're focusing on using engineers to do things. It's a value added. You probably value the engineers more than the engineers themselves value the work they do because they see themselves doing just engineering. You see them doing other things."


"That was clear to him," Richter recalls. "But it wasn't clear to me. But now that he's mentioned it, I see that he's probably right."


KEEPING QUALITY PEOPLE: Attracting and keeping quality professionals who believe in this philosophy is one of the Hill Group's underlying tenets, Richter says.


"That means you have to challenge them, excite them, and get them to believe in where the company is going and why it exists," Richter says. "That's why the conglomerates of the 50's and 60's failed-because they had no meaning to people.


People couldn't buy into what the company stood for because the company stood

for nothing."


"The purpose of our business, and what we view as our mission is to build a highly professional organization that will assist its clients," he adds.


The key to accomplishing that mission is to have the management in place that does it professionally. But while Hill has certainly grown successfully because of its professional expertise, there is a more pressing need now for top quality managers than for top quality professionals, Richter says. A dichotomy? Not really.


"The difference is that it is easier to find someone who knows his business very well, because all you have to do is find someone who has experience in that end of the business," Richter says. But that's no guarantee that person will be able to manage consistently within the Hill Group's goals and objectives.


"You have to be able to get a better reading on a manager, and that comes from your experience with him," Richter says. "He has to understand your business better, and how what he's managing fits into the total organization --because our managers also do a lot of business development.


"So it's much more difficult for us to find managers because there's a longer process that takes place. We cherish management to a great degree."




Main Line Estates Go on the Block

By Thomas Derr




Pg. 30



Radnor, PA, US -- In England, the assorted earls and lords who have had problems paying the costs

and upkeep associated with the running of their estates have turned them into tourist attractions -- charging admission for guided tours and high-priced overnight stays in an authentic English manor house (ghosts are extra).


Our Main Line bluebloods wouldn't stoop to such banality. Here, they simply sell the estates outright, with many mansions going condo, and single or multi-family residential units springing up on the surrounding open land.


ORDINANCE: In fact, the phenomenon has become so prevalent that at least one local Main Line government has even passed an ordinance aimed specifically at developers who are seeking to subdivide and convert the township's estate properties.


According to Mike Fleig, director of Community Development for Radnor Township, a 1983 ordinance stated that in converting existing dwellings to multiple-family uses, developers could not reduce the lot area per dwelling unit. In other words, if the single family home was in an R-1 district (requiring one acre per dwelling unit), two acres were needed before it could be turned into a two-family dwelling.


That ordinance was amended to state that except for dwellings that have a gross square footage of 10,000 square feet or more, the lot area per dwelling unit shall be 75 percent of the required lot and area for the district, Fleig says.


Thus, estate conversions get a 25 percent bonus.


The change makes it a little easier for developers to go through the process of subdividing a number of the large Main Line estates -- a phenomenon that has grown increasingly popular in recent years.


NOT A SIMPLE PROBLEM: "Generally these projects come about when somebody decides the big old mansion house and grounds are just too much for them -- either the estate is too large to maintain, or too expensive, or the specific family needs change, or somebody dies," explains Larry Flick, managing partner for Roach Brothers. Flick has been involved in the conversion of several Main Line estate properties, in particular Inveraray and Ravens Cliff, both near Radnor.


When the question arises as to what to do about selling the estate, one of the greatest considerations is how the large parcel of land involved might best be redeveloped to achieve its highest and most effective use. Naturally, it's not a problem that can be arrived at easily.


"Generally what we try to do is develop a site plan that is sensitive to the site and also the preservation of the existing dwellings if we can, assuming that they are in good condition and marketable," Flick says.


RAVENS CLIFF: For example, the Ravens Cliff estate -- which once belonged to an heir to the Campbell's Soup fortune -- involved approximately 126 acres of land with a mansion house, a gardener's cottage, a caretaker's house, and an old barn. According to Flick, all of these buildings were preserved and sold separately, with nine acres of land being included in the mansion house package.


"One of the unique things we did was to preserve about 30 acres in open space forever, including four major duck ponds," Flick notes. Because the land is located in the heart of one of the most attractive and valuable sections of Radnor Township, it was important to interests of the neighborhood and community at large to preserve the duck ponds and the open vistas which the land offered, he says.


Roach Brothers accomplished this feat by clustering the 98 new houses that were constructed on lots that were slightly less than an acre each, but still within the one house/one acre scale of density that was required by the zoning guidelines.


"By clustering the houses on slightly smaller lots, we were able to preserve a large section of the estate's open space area," Flick explains. In addition, because the land overlaps two separate townships, the developers had to obtain approximately 26 different permits in order to make this plan work.


PRICES RISE: Apparently the effort has paid off, though. When the first houses were completed in 1979, price ranges began at $275,000. Today the same houses are selling for about $500,000.


That trend is readily apparent in most estate subdivisions. In 1981, Gray Craig, a 75-acre estate in Devon that was once owned by a principal of the Whiting Patterson paper company, was sold to R. J. Tarlecky Building Corp. for redevelopment. According to Reggy Trainer, a broker/agent with Emlen Wheeler Realtors and former marketing director of the project, approximately 61 homes were eventually constructed on the estate, and sold at prices beginning around $250,000. One of those houses recently resold for $485,000, Trainer says.


Similarly, an estate known as the Clark Property, on Spring Mill Road near Villanova, featured a main house with sweeping staircases, paneling, formal gardens, and "incredible wraparound patios," says Barbara Rose, of Merrill Lynch Realty, Gladwyne. That main house sold for about $800,000. Meanwhile, the least expensive of the homes that were constructed around it would go for about $550,000, she adds.


MOVING INTO MAIN MANSION: One individual who has been involved in the renovation

and subdivision of a number of such properties is Graham Shafer, who, along with his wife Rachel, operates GRSI, Inc., Haverford. Shafer says he has been involved in nine such projects since 1978. But what makes Shafer's approach unique is that he and his wife often literally move into the mansion houses on which they are working, renovate it as they plan the subdivision of the rest of the estate, then move on to a new project once it is completed.


Currently, Shafer is in the process of renovating and subdividing a 25-acre estate called Allgates, located on Coopertown Road in Haverford. The estate includes a pump house, a stable building, a separate tenant house, and a former stable/servants' quarters that has been transformed into a four-unit condominium building. Shafter is planning to build new single family houses (beginning in the $400,000 price range) on 20 of the estates remaining acres. Five acres surrounding the main house are deed restricted.


MAINTAINING TRADITION: One of Shafer's primary concerns is to maintain architectural control over the subdivisions that are created from the estate. This control extends to the types of materials that go on the outside of the new homes, to the pitch of the roof, and to the style of houses that go into a particular subdivision, he says. In fact, Shafer says he gave up "two very good sales" early on in the project because the would-be buyers insisted on a contemporary design for their houses.


"The existing mansion is a Queen Anne style English house that was designed by Wilson Eyre, who was a very noted architect back at the turn of the century," Shafer says. "As a result, we had to say we didn't want any contemporary houses in here -- because everything was English style and very traditional."


SHOWHOUSE: According to Shafer, the mansion is a "tremendous rambling old house," built about 1910, by one of the biggest banking financiers in the early 1900s -- Horatio Gates Lloyd. The house, which includes about 26,000 square feet of space, was a 1985 Vassar College Showhouse, and once served as home for an order of nuns and later as a headquarters for Haverford Township School District's offices and alternative programs.


Shafer notes that for the 1985 Vassar Showhouse exhibition (an annual fundraising effort for the college, wherein designers assume responsibility for "re-doing" individual rooms) nearly 18,000 people paid admission to see the work of 38 different designers and decorators. In preparation for that exhibit,


Shafer says he and his wife "took the bull by the horns" and put in a hundred thousand dollar kitchen, a new Anthony pool with a complete deck area and cabana, repaved the entire driveway, added 175 storm windows, and completed a major overhaul of the plumbing and other building systems.


"It was a very aggressive program, because Vassar does a lot, and we decided simply to get in there and go with it. And the end product is great," Shafer says. In fact, Shafer and his wife are so happy with the result that they have decided to finally settle down and call Allgates their permanent home.

"You're never going to find a neater place to live than this," Shafer declares.


"Of course, it's tough to heat, and our insurance is terrible and so forth," but the features of the house itself make it worth the effort, he says.


Some of the other features include formal gardens and gazebos on the outside, and on the inside -- a wide assortment of wood paneling, a 30 x 40 ft. entrance lobby, a 35 ft. long living room, and two huge libraries off of the living room measuring 60 ft. and 40 ft. in length, respectively.


INHERITANCE TAX: It's a nice position to be in if you can afford it, and as Emlen Wheeler's Reggy Trainer notes, that's probably the major reason why more and more of the old Main Line estates are going through the conversion process.


"It becomes a problem as people reach a certain age, that their heirs cannot afford to pay the inheritance taxes on the properties after they go," says Trainer. "This is a very prime in people's minds -- what do you do in a situation like this?"


She says some of the most conscientious owners, try to maintain some architectural approval as to the type of home that will be designed, and the number that there will be, and so on. And, as in the case of the Allgates estate, there also are some situations that rise where people will retain the main house while selling off some of the surrounding land.


And because there isn't a whole lot of land left in the highly desirable Main Line area for new housing, the effects of supply and demand continue to place upward pressure on the property value of the estate subdivisions. For example, Trainer notes that developers of the Thompson property on South Levitt Road in Berwyn are expected to build 33 homes on the old estate property at prices ranging from $700,000 to a million dollars each.


"It's getting hard to get a good home in a good location on the Main Line that is a four-bedroom, 3,000 square foot home," she explains. "I don't think you can get it new for under $450,000.


YOUNG PEOPLE: Ben Cobrin, president of Benjamin Cobrin and Co., Inc., Narberth, notes that the trend toward subdivision of the old estate properties has been building for a few years, but that it continues to snowball. And the main reason why involves young people.


"The thing I see is that young people who are building families -- so many of them are just not willing to have large pieces of ground, especially when there are two people working in a family as professionals," Cobrin says. "The days of that being a big status symbol are not upon us at the moment. Years ago it was.


Now these young families will go out and spend $300,000 or $400,000 and live on a half an acre, so it's a change in overall viewpoint."


In fact, the demand is becoming so intense that developers are realizing that even the estate properties may not be able to satisfy the growing demand for housing.


Shafer, for example, is planning to build 29 single family dwellings on 84 acres of land adjacent to Valley Forge in Tredyfferin Township. The new homes, which will line either side of Yellow Springs Road, will probably sell for half a million dollars and up, Shafer says. Similarly, Herbert Gross, of Cambridge Development, Bala Cynwyd, notes that his firm currently is developing a complex of $400,000 to $500,000 luxury townhouses in Lower Merion Township near Belmont

and Rider's Ferry Road. The likely buyers will be what Gross calls "empty-nesters" -- mature couples whose children have grown and left home, thereby leaving the parents with more house than they really need.


LIFECARE COMMUNITY: Not all the estate conversions involve the creation of residential tracts, however, as Arthur L. Wheeler, co-chairman of Emlen Wheeler, is quick to point out. One of Wheeler's current projects is a lifecare community, known as Beaumont, which includes a 50-acre estate and a 27,000 square foot mansion that will serve as the central administrative facility,

auditorium, reception and dining center. The development includes 200 lifecare units, 68 of which are townhouses or "villas" and 132 apartments, Wheeler says.


And though technically not a residential conversion, the development of Beaumont give one group of people an opportunity to take advantage of the location and amenities which the Main Line offers, Wheeler says. That's a common thread through all the estate conversion projects.


One final common thread is an aspect which all the estate conversion developers have had to face at one time or another, and which not everyone is anxious to discuss -- community opposition.


COMMUNITY CONCERN: But as Graham Shafer notes, community concerns don't always mean a bloody fight to the end for developers.


"I'd say you almost always have concerned neighbors -- because no one likes the idea of change," Shafer says. "They are used to looking out on somebody else's property, which is lawn, and when they find out there is going to be a house built there, they are contrary to that."


At the same time, "almost universally" when they find out that a developer with a good reputation is planning to build a high quality project, "that opposition disappears," he adds.


"Almost invariably, what goes into the developments we've done has been higher priced than the existing housing around it," Shafer explains. "So the net impact when all is said and done is that their house values have been dragged up by what we've done."


"There is always a degree of resistance to change," agrees Reggy Trainer. "But the opposition usually is not as intense if plans call for the development of single family, rather than multifamily homes.


She notes that the Main Line has been lucky in that most of the builders who have undertaken such projects have been local people who tend to approach the developments with greater consideration for and willingness to accommodate the concerns of neighbors.


"I have attended approximately 75 zoning meetings, and I watch how these accommodations are made -- and it is a much more congenial process than the newspapers would have you believe, because mostly you are dealing with pretty reasonable people on all sides."


NO BIG BACKYARDS: Preserving aesthetically and environmentally sensitive areas should be a developerís major concern, adds Flick -- which is why Roach Brothers utilized the "clustering" design at Ravens' Cliff.


"The point is, you can preserve important areas permanently that way, as opposed to a conventional development -- where all you accomplish is making a lot of big backyards. And that's one thing we absolutely didn't want to do on the Main Line," he says.



Wilmington Market Shows Continued Vitality

By Thomas Derr




Pg. 178



Wilmington, DE, US -- If the City of Wilmington was an office worker, its recent rip-roaring record of activity and productivity would warrant either 1) an on-the-spot promotion, or, 2) a test for cocaine. That's how extreme the changes have been in relation to Delaware's real estate development business since the state first passed legislation aimed at attracting new business in 1981.


"Wilmington has just been a delight," says developer Kevin Donohoe. "The market has shown continued vitality. It is not a single splash type situation. The changes the State of Delaware made in inducing banks, and the changes they are making now to induce insurance companies have had a fabulous impact in attracting banks and insurance companies."


PROGRESSION: At the same time, the development efforts have created something of a geometric progression, in that all the service and professional industries in the Wilmington area are rapidly growing in response to this influx, he adds. Thanks to the new environment, many existing business service companies are expanding, as are accounting and law firms, which are growing at fantastic



"I would say you would be hard pressed to find a major Wilmington law firm that has not doubled in the last five years in size," Donohoe charges. "Insurance brokerage firms -- all the companies that are servicing this influx of business are growing at the same pace, and as a result, we're seeing -- at least in Delaware Corporate Center -- a huge cross-section of industry and professional. We're talking with law firms, advertising firms, insurance companies, banks, computer/high technology firms. It's virtually across the board."


GM's COMMITMENT: As Ruth Mankin, vice president with the Delaware Chamber of Commerce notes, the idea of a major company serving as a magnet to other support firms is not limited solely to banking and insurance operations. According to Mankin, General Motors' has made a $300 million commitment to modernize its plant there by retooling it with a robotics assembly line, instituting a Japanese "just-in-time inventory" system, and retraining the GM workers to operate the new equipment for the production of the new Beretta automotive line.


Because of the GM commitment, other support companies such as Pittsburgh Plate Glass and the Delaware Seat Co. have agreed to maintain operations there as well.


A similar opportunity may yet be in the works if negotiations over the Chrysler plant take a positive turn, notes Ted Dwyer, vice president of EDIS, a construction management company based in Wilmington. Currently negotiations between plant management and the unions are at a standstill. Management is looking to retool the plant for a new car model in a manner similar to the GM

action, but refuses to do so unless the existing union contract can be renegotiated.


"We're watching that to see what happens," explains Dwyer. The reason why is that the retooling of the plant would mean a very large undertaking for the construction market -- a major overhaul project that could ultimately amount to upwards of $100 million.


According to Tom White, vice president of AIMS, Inc., the last six months has brought individuals representing a wide diversity of firms --from manufacturers to retailers to retailers -- through his company looking for new office and industrial space. In Newark's Harmony Business Park, for example, a company named Grand Slam USA, which features baseball instructions and batting ranges, is housed within the same building as the Medical Center of Delaware -- a main area ambulance depot.


INSURANCE LEGISLATION: Dan Busch, vice president/partner of the Kevin F. Donohoe Co., Inc., notes that the state shows no signs of stopping its effort to draw more business into Delaware. According to Busch, one of the most important changes now being considered is new insurance legislation that would provide additional incentives to insurance companies that are chartered in Delaware.


At the same time, however, the incentives and requirements are less specific than those which were placed on banks. The bank legislation included a variety of rules that required, among other things, that relocating banks not compete with existing Delaware retail banks, and that it employ 100 additional people within 12 months of its relocation.


"There are already many insurance companies that are chartered in Delaware," notes Busch. "What the state development office seems to be doing on a company by company basis is contacting these insurance companies and saying: 'Look, you're already chartered here, we expect you to locate one of your major divisions here, too'."


Evidently, the program is working, as Busch has noted a good deal of movement into the Wilmington area from a significant number of insurance companies. Other state-sponsored programs are also underway, including legislation to attract international banks to Delaware. Because of the complex nature of that international-oriented legislation, however, it will probably be some time before the full effects of it are felt.


Nevertheless, there is no foreseeable slowdown in the state's continued economic growth, as Tony Ziccardi, a partner with the Linpro Co. is quick to point out.


CHRISTINA GATEWAY: Linpro currently is involved in one of downtown Wilmington's most significant major projects, a $200 million effort which is adjacent to the Wilmington Amtrak station at the southern gateway to the city.


The project, known as the Christina Gateway, has been described as the "largest single development" in Delaware's history, and will be developed in two phases. Phase one will involve a financial district with 1.2 million square feet of Class A office space, including a 14-story glass and granite office building due for completion in April, 1988, and three other office buildings.


The lead tenant for the project is MBank USA, which has signed on for a 170,000 square foot operations facility. Phase two will involve the festival market -- similar in concept to Baltimore's Inner Harbor -- which will lie along the Christina river, and will include 150,000 square feet of retail, restaurant and entertainment space, and a possible hotel. Christina Gateway is being developed by Linpro in association with Delle Donne & Associates.


Another major project is the Christiana Executive Campus, a hotel and office complex being developed south of Wilmington near exit #4 of I-95 by American Trading Real Estate Properties, Inc.


According to American Trading's Janet Sharpless, the project will include three office buildings, the first of which includes 86,000 square feet of space and is now 100 percent leased after only nine months. Occupation of the second 86,000 square foot building is scheduled for June 1, 1987, and a third 42,000 square foot building will likely break ground during the second quarter of 1987.


Complementing this office site is the recently-opened Christiana Hilton Inn, which features 207 rooms and executive suites, two restaurants, and recreation and meeting facilities.


Sharpless notes that an adjacent 20-acre parcel could be developed into up to 320,000 square feet of additional office space at some point in the future. At the northern end of the city, a joint-venture of LaSalle Partners and Manufacturers Hanover Trust Co. broke ground on a 432,000 square foot office building. Manufacturers Hanover will occupy 180,000 square feet of the building, according to Pete Davisson, of Jackson-Cross.


RECORD LEASING: Davisson notes that the Wilmington market proper and the suburban market are both extremely active.


"We had a record year of leasing in Wilmington during 1986, with more than 1.3 million square feet being leased," says Davisson. That figure represents a combination of both city and suburban

office space. At the same time, the development is active as well, he adds.


"We're finding quite a bit of space under construction, and a lot of that is still legitimately under control," Davisson says. "Right now we're seeing approximately one million square feet of new space under construction within the city of Wilmington itself, and about 793,000 square feet in the suburbs."


From the perspective of Jett Ferm, a Ferm Associates, the record amount of space being absorbed in the greater Wilmington area has only served to increase the competition among commercial and industrial real estate developers. That increased competition has meant that more allowances and considerations are being given to would-be tenants in order to obtain commitments on vacant space.


But in spite of the rife competition, Ferm says his firm has done well. At Silverside Carr Plaza, one of Ferm's projects, 90 percent of one building's 55,000 square foot Class A office space already has been leased, as has 85 percent of the development's executive center, Ferm notes.


FROM T's TO CLASS A: One of the most interesting facets of the Delaware real estate boom is the types of developments that have been constructed -- especially in the last two years, says Donohoe's Busch.


"Prior to two years ago, Delaware's office market consisted of 'Delaware TS' -- these were two-story, T-shaped buildings with a brick veneer, and no elevators," explains Busch. "They seemed to be right out of the 1950s and probably were designed by a not very successful architect, but once the boom started, they started to fill up like crazy. And it was because they offered a flexible plan that fit the needs of small tenants very nicely."


Until local developer Delle Donne & Associates began to develop Class A three and four story office buildings at the Barley Mills center, there was no first class office space in the suburban Wilmington market, Busch claims.


"Local Wilmington developers never really took their cues from Philadelphia, so they weren't overshadowed in the manner that Trenton and Camden developers have been," Busch says. "The reason why is that Wilmington had its own base of corporate influence from DuPont, ICI, and Hercules. The local development community might as well have been 200 miles away from Philadelphia."


During the past two years, however, a number of developers have begun to offer Class A office buildings with architectural design that is comparable to other major metropolitan centers. Donohoe, for example, has gone into the Wilmington area with a very high-end product -- an office park that is the area's first all polished-granite project. Such projects by Donohoe and Delle Donne have helped bring Delaware into the mainstream of the nation's commercial real estate activity, Busch says.


RELATED PROBLEMS: Of course, being brought into the mainstream also has brought a number of related problems, as well.


Russ Richardson, regional vice president for DKM Properties, suggests that the sudden explosion of activity may have brought about some serious overbuilding in the Wilmington area. Richardson questions whether or not Northern Delaware's infrastructure will be able to effectively handle all the traffic that has resulted from the tremendous build-out which has occurred in the corridor

extending from Pennsylvania to the Maryland state line.


In addition, Richardson notes that there are signs of a possible shortage of adequate support personnel in the area while the cost of training and supplying that vital labor pool continues to increase.


Although not involved directly in the suburban Wilmington market, DKM Properties is developing the Chichester Business Park, a 125-acre site that is just north of the Delaware state line. From that position, Richardson says his site can take advantage of its proximity to both downtown Philadelphia and downtown Wilmington, as well as the nearby Philadelphia International Airport and the vast labor pools of Delaware County.


COMPETING FOR LABOR POOL: "The thing is, both the 202 corridor and Wilmington are competing for the same labor pool," Richardson says. "Every morning you can see the effect in Delaware County as the cars either head south into Delaware or north toward King of Prussia.


Donohoe's Busch also has noticed some pressure on the clerical labor market in the Wilmington area, brought about mainly because the tremendous influx of new banks and insurance companies "have been sucking up clerical help like crazy," he says. At one point, one major company looking to come into Delaware even hesitated about locating in that area -- until the Delaware Chamber of Commerce stepped in and assured company officials that adequate clerical staff could be found fairly readily.


"The thing is, Wilmington has a very deep market for its size," says Busch. "Compared to the Philadelphia suburban market it's very deep. People who want to locate in Horsham, King of Prussia, Great Valley or City Line want to be there only -- they're not interested in a second choice."


By contrast, companies who choose to locate in Delaware can locate north or south of the city, or in the city itself. With the superior transportation network that exists, getting to and from work is not a problem. "Once they're in Delaware, they don't care where they'll be," Busch says.


And judging from what has happened in that state over the past few years, many Delaware companies seem to be sharing that sentiment.




Selling the Store in Order to Rent It

By Thomas Derr




Pg. 172



PA, US -- In many ways the commercial real estate marketplace has come to resemble a high stakes poker game -- with various competing developers gradually upping the ante by offering yet another concession to nail down the winning pot (a signed tenant).


With that analogy in mind, it will be interesting to see how the other players react to the latest bet placed by Hansen Properties.


LIMITED PARTNERSHIP: The Ambler-based commercial real estate firm recently announced the introduction of an Equity Participation Lease, which will give qualified tenants a percentage of ownership of the Hansen Properties' building they occupy.


"In substance what we are doing is forming a limited partnership with Bud Hansen as the general partner," explains Michael J. Fogel, a senior vice president at Hansen Properties. "The tenants will be the limited partners. Limited partners have no liability under the law. The sole responsibility lies with the general partner -- no matter what happens."


The way it works is that Hansen Properties sells its building to a partnership -- 50 percent of which is owned by the general partner, and 50 percent by the tenants. The partnership pays for the building by obtaining a mortgage from an institutional lender, which typically involves 75 percent of the property's value. The remaining 25 percent is financed through a second mortgage which is

taken back by Hansen Properties. The result is that the partnership ends up paying no cash for the property. But at the same time, the general partner and the tenants will share 50-50 in the equity of the partnership.


NO CASH DEAL: "Typically, you can finance the purchase of an office building with an institutional lender -- with a bank or an insurance company, and get a mortgage for 75 percent of the value. And typically the buyer puts up the other 25 percent in cash," says Fogel. "In this case, we're not going to require any cash. Because Hansen Properties takes back the second mortgage for the other 25 percent, the purchase is 100 percent financed."


According to Fogel, the tenants' 50 percent share is based on how much space they occupy in the building. In other words, if one tenant occupies 60 percent of a building, that tenant will, in essence, own 30 percent of the building.


"What is exciting about this concept from the tenants' perspective is that for no cost, he can share in 50 percent of the increase in value of the building, and with no risk," says David A. Vacca, another senior vice president for Hansen. Vacca notes there is no circumstance in which a tenant can be called upon to put any cash into the partnership.


"He is not responsible if anyone slips on the ice. He is not responsible if the building doesn't lease -- there is no way that he is responsible. It is all Hansen's responsibility," he adds.


GOING THE DISTANCE: Fogel concedes that a partnership incentive to tenants is not completely new in the total realm of commercial real estate, although no one has taken it to the extent that Hansen has.


"Typically a developer will offer a five percent share of ownership in a building if it involves a major tenant," says Fogel. "I've never heard of anything like this, where someone is giving away 50 percent of the equity for nothing as an inducement to become a tenant."


But even though the tenant will be able to participate in the appreciation of a Hansen property, it will likely be several years before the breakeven point is reached and the tenant begins seeing any income from his or her share of the partnership. That's because during the early years of the partnership, rental income will be insufficient to cover operating expenses and debt service. Thus,

for the first few years, the partnership will operate at a cash shortfall.


After the debt service is reduced significantly, and the initial years' shortfall is recovered by the partnership, tenants will begin to benefit from cash distributions which are realized by the arrangement.


"In addition to transferring the building into the partnership, Hansen Properties is going to put up the money to make tenant improvements for the first tenants, and also to pay all the initial leasing commissions" notes Fogel. "That way, the tenant who comes in early will not have to worry about any vacancy in the property And Hansen Properties will, in effect, lease the entire vacancy from the partnership, so that from day one, that tenant is assured a fully leased building."


RESIDUAL BENEFITS: But the people at Hansen Properties see other residual benefits, as well. As David Vacca points out, operating expenses for a building can eat up as much as one-fourth or one-third of the building's rental income. By giving the building's tenants a vested interest in cutting down those operating expenses Vacca thinks his company can significantly increase the

management efficiency of the property.


"Think of yourself as a tenant for one moment," Vacca urges. "If the landlord is paying the electricity, are you going to be concerned about turning the switch off before you leave the building in the evening? On the other hand, if you are paying the electricity, which basically relates to the operating expenses of the building (as well as the time it takes to make up the cash shortfall), you will be more likely to turn off that switch. We also think that owner/tenants will take better care of the property than transient tenants might, and we think that it will cut down on turnover. It is our belief that an owner is likely to stay in a property longer than somebody who has no vested interest. Those are some of the reasons why we're willing to give up half the ownership. It's a win-win



KEY QUESTION: But the key question still remains -- why is Hansen Properties apparently giving up something for nothing? The reason is all too familiar for other, more hard-pressed markets such as Houston and Denver.


"There is a temporary situation in the office market in the five-county area right now in that it is a little overbuilt," explains Vacca. "Now we could sit and remain vacant, and not receive income, which would amount to millions and millions of dollars. Or we could give those millions up and give them up to tenants through this equity participation program."


"Now we don't like giving it up one way or the other but we think this is the best situation for us and for the tenant, because the tenant wins because he gets equity, and Hansen wins because we fill our buildings," he adds. "So if someone is losing something, it's Hansen Properties, momentarily, accepting a little less."


And if accepting a little less in the short-term means that they will be experiencing higher occupancy levels over the long-term, then Hansen Properties is willing to make that "sacrifice."


KEEPING UP WITH COMPETITION: At the same time, Hansen Properties also will be able to offer the same kinds of concessions its competitors currently offer, Vacca adds.


"For instance, if a tenant came to us and said there is an offer down the street from someone who is willing to give me three months of free rent," he says. "What we're willing to do is give the tenant three months either in free rent, or we would give him that equivalent dollar value in improvements to make his space more upgraded with finishes -- if a tenant wants to go from wood in one area to marble, for example. Or we could give it to him in the form of a check, for cash -- and that can mean an awful lot of money. In some instances, we have even made proposals to offer up to a half million dollars in cash to attract certain tenancies."


"If I were the prospective tenant, I would go for the equity program," said Fogel. "The idea is to buy when there is an abundance of space and sell when the space is tight. Well right now it would seem that this is the opportune time to buy -- that's the reason I would go for the equity rather than the cash. I also believe that inflation is going to be here for a while and because these are

Hansen buildings, and because they are well located -- that they probably are going to appreciate faster than inflation. The bottom line is we offer the whole gamut of inducements to a tenant, and this is just one of them."


MORE BUILDING PLANNED: At the same time, this dramatic development to decrease the amount of unoccupied space should not be taken as an indication that Hansen Properties will not be developing any new properties, Fogel adds. "We will be developing new properties at the rate at which they will normally be absorbed," he explains. "This program is effective for everything we are currently developing right now."


In fact, Hansen Properties current projects amount to approximately a million square feet of new space in 1987, as well as in excess of a million square feet that is already being planned and financed for 1988.


Even if Hansen is successful at filling up all that new space with new tenants, Fogel thinks the main impetus for the action -- the Equity Participation Lease -- will be hard for the competition to duplicate.


"The thing is, most developers can't afford to do what we are doing, because we build all our properties ourselves," Fogel explains. "Thus, by using an in-house contractor, we can build very efficiently. So our costs are probably less than what other developers would pay for a comparable produce."


There are other built-in scales of economy, which will also effectively prohibit other developers from duplicating Hansen's partnership incentive program, Vacca adds.


ECONOMICS OF SCALE: "Number one, we own our own construction company that employs hundreds of people. Number two, if you take a look at our development group -- we're putting up 10 buildings right now. Those are buildings that are actually coming out of the ground. Our exterior systems are being put on, and the windows are being put in -- and if you look at another developer and he's doing one building, while we're doing ten, then we can purchase the materials to build those buildings at a much larger volume," he explains.


Those economies of scale enable Hansen to deliver a much more economical deal for the same high quality product, Fogel adds, and those scales of economy are duplicated in the cost of operations of the Hansen properties, as well as by Hansen's in-house management team.


"So it's not likely that others are going to be able to do this. At least do it and stay in business very long," he notes.



Brisk Activity in the Industrial Real Estate Market

By Thomas Derr







Philadelphia, PA, US -- It used to be that property management consisted of little more than seeing to it that the building's heating and air conditioning systems were working properly, that each tenant's waste baskets were emptied on a daily basis, and that no one ran out of toilet paper.


Today's property managers are far more sophisticated, and their range of responsibilities and expertise is far wider.


"There is a recognition that the property management people are now functioning as consultants to building owners even before building construction begins," says Philip B. Rogers, vice president of Property Management for Oliver Realty, Inc. "In fact, a case could be made for the statement that property managers are among the few people who can cross the gap between blueprints and occupied buildings."


PROFESSIONAL: In fact, according a Charles E. Myrtetus, vice president and director of Property Management for the Franklin Realty Group, the importance of property management has become so recognized in the investment community that most institutional or credit investors will not get involved in income-producing real estate projects unless professional management consultation is available.


In the old days, professional property managers often were not brought in until the building was actually occupied. Today, property managers are often utilized throughout the site selection and building design process, as well as the financial and investment negotiations -- in addition to the daily operations of the building, Rogers says.


The reason for the property manager's involvement in the early stages of a project stems from the belief that they often are best able to interpret various city codes and statutes that might affect the design and cost of construction of an office building. In addition, property managers frequently know best what details and subtle nuances will be important to a building tenant once occupancy

is achieved.


Rogers notes that property managers often have the criteria coming in to be able to offer advice as to what is most appropriate in designing various building aspects ranging from mail service areas, telephone areas, vending areas, to the size of restrooms.


ENERGY MANAGEMENT, in particular, has become a much more highly sophisticated concern in the real estate industry than even five years ago.


"The fact that energy often amounts to 40 to 50 percent of one's operating costs means that it is essential to get that cost under control and make sure it stays under control," Rogers says.


Monitoring and controlling energy costs today means utilizing systems and equipment that years ago would have been found only in a science fiction movie. Modern energy management hardware systems encompass fiber optics, microprocessors, digital controls, as well as sophisticated lighting systems and power technology -- which is a buzzword for controlling demand and power in an

office building on and off peak loading times.


"The hours and the use of space in the workplace are much different from five years ago, as well," notes Rogers. "The workplace today is generally just being used longer. As a result, you have to have the systems to allow the building to work actively during what were traditionally off-hours -- because now they are normal hours."


Many older buildings do not have the capability to run HVAC after-hours without incurring tremendous costs, and today, there is a great need for such a capability and to control it -- especially among service firms who do work longer than eight hours a day, Rogers adds. He notes a growing trend toward two-shift operations in white collar office situations.


"You normally would not think in terms of shifts in a white collar office situation, but it is a way of using existing office space more productively," he says. And that increased use places additional demands on the expertise and ability of a building's property managers, who are charged with meeting the increased needs of the building's tenants without unduly affecting the cost of

the building's upkeep.


MAXIMIZING RETURN: As Franklin Realty's Myrtetus notes: Good managers are constantly in touch with various data that can be recommended to owners to maximize their return on investment.


Keeping a close watch on such data is particularly important in the energy conservation field, where innovations are now available in heating, air conditioning, insulation, electric lighting, and glass window design that can cut past utility bills by 25 to 40 percent, he says.


According to Melissa Moran, property manager for Pasquale Real Estate, computerization is also playing a greater role in property management.


"A lot of our buildings systems -- such as HVAC, security, and so on, are computerized," she says. "I would say that any new building that is being constructed will generally include these systems. A few years ago, 'smart' buildings were not as popular as they are today, but then, in the pre-OPEC days no one was as concerned about energy costs. So once everyone became concerned about energy costs, that's when the need for a 'smart' capability began to increase."


Many older buildings either do not have the smart systems, or are being refurbished to include them. This is particularly true in center city, she adds.


"I would say that today it's the only way to go," Moran says. "So it is no longer a question of whether a building should be smart, instead it's a matter of how smart."


This enhanced computer capability is also pervading the traditional environment of the individual business office. As a direct result of the growing push toward building computerization and business office computer add-ons, Oliver Realty's Rogers notes a typical increase in a building's energy costs amounting to 10 percent or more.


INVOLVED IN NEGOTIATIONS: As Ivan Krouk, chief executive officer for Rodin Group, notes, property management firms traditionally have not been heavily involved in handling all the assets relating to an office building.


However, with the growing sophistication of management personnel, it is increasingly common to find property managers involved in negotiations relating to factors

such as operating costs, leases, and how to deal with increased competition from other buildings in the marketplace, Krouk says.


Krouk notes that there are a number of costs that must be dealt with by property owners in order to minimize the cost of up-keep for building owners.


"Two of these costs -- taxes and the cost of real estate administration -- really have not changed a great deal," says Krouk. "But other costs have increased significantly -- especially insurance, utilities, and personnel."


Keeping track of all these assets and keeping them in a cost-effective balance is largely the challenge facing the property management team.


ASSET MANAGEMENT: According to Charles Conwell, vice president in charge of Property Management for Helmsley-Greenfield, asset management has become another important buzzword in modern property management practices.


"The words 'asset management' mean a lot of things to a lot of different people," concedes Conwell. "And that's unfortunate, because building managers are truly becoming more and more asset managers -- in the real sense of the word in terms of caring about the day to day management and assets of the building."


He notes that this new area of responsibility is indicated by the building managers' growing involvement in the evaluation of capital projects, in making suggestions that will keep the building current with the rest of the marketplace, and in the preparation of operational budgets for the project.


The financial part of the operation is falling more and more on the building manager as opposed to having the financial projections being prepared by the development firm.


"The era of computer accounting has produced record keeping of leased data or escalation billing, maintenance material for improvement and repair programs, and other data base pertinent to the real estate and the tenant," explains Franklin Realty's Myrtetus. "We at Franklin provide accounting data that is acceptable and distinguishable by major institutional investors down to the individual investor. Years ago, matters of this nature took weeks to produce, and edit. Modern management accounting can be turned at your fingertips."


Helmsley-Greenfield's Conwell sees the issue of asset management in a similar light.


"What you have now is a building manager whose sole responsibility is to see to it that the building is handled as an asset," says Conwell. "So the building manager's relationship with the owner becomes increasingly critical as the owner needs to be kept informed as to what the numbers are going to be for the coming year."


FINANCIAL SOPHISTICATION: The management of a building is becoming more and more like any other business, Conwell adds. As such, increasingly it is the building manager alone who will be lauded for the successful operation of the property, and criticized for when operations go poorly.


"The big thing is that the sophistication of the job has just become more involved than it ever was before," Conwell says. "You have people today who are better educated and better qualified and more specialized in what they are doing than ever before."


The need for property managers to be financially sophisticated has grown tremendously in recent years, explains Oliver Realty's Rogers.


"Years ago, the economic demands were not overly sophisticated. Basically it was a matter of collecting all the rents on the first of the month, making sure all bills were paid during the month, and then seeing to it that whatever profits that were left over were delivered to the building owner by the 15th of the following month."


Today, in addition to all other building operations capabilities, the property manager must be able to effectively recommend and select appropriate higher interest bearing investments for an owner's proceeds so that his or her profits will be maximized.


But regardless of all the new, sophisticated consulting demands that are required of them, the ability to satisfactorily service the needs and demands of building tenants remains the property managers' greatest consideration.


On the subject of why greater sophistication in accounting and engineering is demanded from today's building manager, John E. Arnold, president of Eastman/Arnold Co., a Philadelphia-based management and leasing agent of Class A office buildings, comments, "Since large institutions began taking controlling equity positions in major real estate properties, the role of the building manager either as an agent of the owner, or an employee of the owner, has changed significantly.


"The building manager now has responsibilities and reporting obligations more within the framework of the typical corporate hierarchy. Gone (almost) are the days of the somewhat personal relationships struck between the management agent and the individual, or small group of individuals, who owned the property. Today's building manager is accountable to corporate officers

having strong financial and accounting backgrounds, but with little involvement (and knowledge of day-to-day operations.


"Therefore, not only is the building manager charged with the responsibilities of making and administering significant operating decisions, but is obliged to acclimate himself to the unfamiliar world of accrual budgeting and accounting. This, together with increasingly sophisticated equipment now being installed in Class A office buildings, has transformed the building manager into an asset manager: well versed in all phases of building operation, finance and general business conduct."


MAKES REPUTATION: "Frequently, people will cite the management of a building as a reason for relocating their offices," explains Conwell. "Either the reputation is good management, or the reputation is poor management. On those retrospect questionnaires that come prepared for people, management of the building is often cited as one of the critical factors in a firm's decision to move."


Apparently, one other factor has remained constant as well.


"Nobody ever says to the building manager: Gee, the cleaning has been great, and the elevators work beautifully" Conwell says. "The only time the building manager hears from people is when something goes wrong. It's a shame, because they really do work hard and do a tremendous job on a day to day basis with very little recognition. And I guess that hasn't changed a bit -- that's probably been true since day one. But they can do an awful lot to make people comfortable and affect the operation of a building."



Reading Company's Money-Making Routes: Energy & Real Estate

By Thomas Derr




Pg. 14



Philadelphia, PA, US -- As the young upstart American nation first began to develop as a power to be reckoned with during the industrial revolution of the 19th century, among the major guiding forces were the railroad companies.


Today, of course, the U.S. economy is less industrial and more service-oriented. But at least one of the old railroad companies is still looking to lead the way.


THREE GROUPS: With the days of steel rail profitability a distant memory, the Reading Co. has opted for more fashionable money-making routes -- and what could be more fashionable than real estate and energy?


"There are three basic groups in the Reading Company -- the Energy Group, the Real Estate Group, and the Investment Group," explains James A. Wunderle, Reading treasurer. "The Investment Group is, among other things, mish-mash of assets left over from the old railroading days. It includes investments in some old railroad stocks, and an investment in Trailer Train Company."


It also includes Reading's ownership of a window manufacturing company located in North Jersey called SWS Industries, as well as a limited partnership interest in an 18,000 barrel/day oil refinery located in El Paso, Texas, and a fair amount of corporate cash.


REAL ESTATE: "The real estate side of our business is probably that side for which we are best known," Wunderle says. "We were co-developers of One Reading Center, which is a 620,000 square foot office tower at 11th & Market Sts. We own close to 13 acres of center city Philadelphia real estate which is on or adjacent to the convention center site including the Reading Terminal train shed."


In addition, the Reading Co. is the owner of both the Reading Terminal Market, and the Reading Terminal Headhouse -- the Italian Renaissance building at the corner of 12th & Market Sts. Since its emergence from bankruptcy in 1981, the Reading Co. also has been engaged in selling some of its extensive real estate holdings outside the city, Wunderle adds.


ENERGY: But the fastest growing part of the company' new business interests is Reading's energy group, which came about as a result of the company's 1985 acquisition of a small consulting firm called the Technecon Consulting Group.


"Although it is relatively small in terms of people, it is a pretty well regarded consulting firm," says Wunderle. "We have our Ione, California project, which has just about completed construction, and is actually beginning tests at this juncture. At the same time, the group continues to look for new development opportunities as well, primarily in the alternative energy/cogeneration field."


Heading up this energy group is Dr. Thomas A. V. Cassel, who holds the dual titles of president of Reading Energy, and vice president of the Energy Group for Reading. Prior to this position, Cassel had been head of Technecon Consulting Group since he founded the firm in 1978 for the purpose of performing studies and feasibility work in energy projects.


At that time, Technecon's clients primarily included the U.S. Department of Energy and a number of private investors -- corporations who were looking to get into energy investment primarily on the side of electric power generation.


"Through this work we found an opportunity out in California which was a small montan wax plant called American Lignite Products Company -- ALPCO, for short," explains Cassel.


IGNITE WASTE: What made ALPCO an especially interesting firm to Cassel was its extensive lignite reserves. Lignite is a low-grade soft coal, and the lignite that ALPCO owned contained about six percent of its chemical composition in the form of wax. ALPCO employed a solvent extraction process that would strip out the wax, and which could then be marketed to manufacturers of carbon paper, shoe polishes, and other uses in the chemical industry.


"We found that because the lignite was a fairly low BTU material, they were simply slurrying it out to large storage piles out behind their plant," says Cassel. "Well, we came along and got wind of that pile, which was somewhere in the neighborhood of 800,000 tons of lignite waste -- or dewaxed lignite."


Two developments helped stir Cassel's interest in this small mountain of waste. One was the development in Germany of the circulating fluid bed boiler (CFB) technology that could burn the waste material and turn it into steam and generate electric power.


The other development was the federal government's enactment of legislation that allowed independent power producers to sell power to utilities.


GUARANTEED INCOME: "We approached Pacific Gas and Electric Company, out in California, and said: 'Listen, we have enough material out there both in this pile and in the leases that are owned by ALPCO to supply you with roughly 15 megawatts of electric power from a plant that we will build for a minimum 30-year period,'" says Cassel.


In return, the utility gave Cassel's company a 30-year contract to supply power to Pacific Gas and Electric. At the same time, the steam that is produced will be used by ALPCO for its own industrial uses -- thus the term "cogeneration," which refers to the production of both electric power and steam from the power plant.


"In addition, the price they will pay us is largely fixed, which is a very favorable factor for us when we approach various banks and other financial institutions to arrange the project financing," Cassel explains. "It's largely guaranteed income, although there is a small part that floats according to a

utility's avoided costs.'"


Cassel adds that most of the pricing is fixed, and does not float with the so-called avoided costs. In addition, any adverse affects which might occur as a result of the recent softness in the oil and gas market also would be limited.


As Reading treasurer Wunderle notes, that long-term power purchase contract -- which effectively guarantees a minimum price -- is the primary factor that makes the economics of the project attractive.


COGENERATION: "Going forward, it's true that cogeneration plants are in a situation where the business is changing somewhat," says Wunderle. "Many of cogeneration and small power projects are defined by the Federal Energy Regulatory Commission, which basically provides that qualified cogenerators or small power producers are exempted from the holding company act, and thus cannot be considered as regulated utilities."


Wunderle notes that many of the early cogeneration projects tended to be done with the cooperation of local utilities. But as it turned out, so many projects were developed that the utilities began to view the projects with less and less interest.


"Initially they really promoted and pushed to have more projects started because they would have a source of energy at low cost," Wunderle says. "However, so many started coming up on the drawing boards that they began to realize that they could end up with excess capacity -- which could seriously threaten their own growth plans. So they have changed their tune somewhat."


But at that time, many utilities anxiously pursued cogeneration projects with offers and agreements such as those enjoyed by ALPCO.


ACQUIRED WAX COMPANY: "With most of those ingredients assured, we then were introduced to the Reading Company by a mutual friend and director in the company, and we prepared a presentation to the board of directors," Cassel recalls. "At that time cogeneration was just beginning to get known, and the board was favorably disposed to acquire the project. In doing so, they acquired American Lignite, the wax company."


That transaction took place during the first part of 1985, when the Reading Company acquired American Lignite, acquired the rights to the project, the lignite pile and ALPCO's corporate reserves. Shortly thereafter, Reading incorporated Ione Energy, Inc., which is the company that will contain the cogeneration project and under a sale/lease-back arrangement will be the lessee of the cogeneration plant, which is roughly a $40 million project.


Now by Reading standards that project may seem relatively small, but Reading executives seem especially excited for a number of reasons, Cassell says. First, it operates in the black. But also, the staff members connected with it are very enthusiastic, and the market for the lignite is strong.


"Reading is an 80 percent owner of Ione Energy, Inc., and Combustion Engineering of Stamford, Conn., is the minority owner," Cassel says. "Through another series of agreements, they will be performing the hands-on operation of the plant. They have good expertise in that, and we will do the administration and the management and run the wax company."


Currently the Ione, Calif., project is in the midst of what is called its commissioning stage, which involves start-up and testing procedures. Reading's schedule calls for it to be on-line by the second quarter of this year. The project has been under construction since 1985.


It was about the same time that Reading acquired ALPCO that Cassel said he was asked if Technecon would also entertain an offer to be acquired by Reading.


"To make a long story short, an offer was made that was attractive enough, so we joined Reading at that time and became Reading's in-house expertise in the development and management of energy projects. And we have been overseeing the construction of the Ione project since then," he says.


OWN BACKYARD: Interestingly enough, while all that activity was taking place on the other side of the continent, an even promising project was taking shape right in the Reading Company's own backyard. In Kline Township, Schuylkill County, an economically hard-bitten section of northeastern Pennsylvania, Reading already owned approximately 110 acres of old strip mining land that contained a seven-million ton pile of anthracite mining refuse.


Prior to its acquisition of Technecon, Reading asked Cassel to investigate the refuse and determine its usability.


"We ended up developing a project up there which is more than three times the size of the California project," Cassel says. "Again, it's a cogeneration project, and it also uses this circulating fluidized bed technology developed by Lurgi GmbH, in West Germany."


According to Cassel, approximately 60 tons of the refuse material was shipped over to Frankfurt to be examined in Lurgi's test facility. What they found out was that not only did the material prove to be highly combustible, but all the emissions for sulfur dioxides and nitrogens and particulates could be easily contained.


SOLID FUEL BUSINESS: "That's the attractiveness of the fluidized bed -- its ability to control nitrogen and sulfur emissions," Cassel says. "We're very impressed by the technology. It should revolutionize the solid fuel business here in the states, and at least help mitigate the acid rain concerns."


The way the CFB works is that limestone is injected into the bed along with the finely ground refuse fuel. The calcium in the limestone reacts with the sulfur in the fuel to form a calcium sulfate or gypsum-type material, which then comes out in the ash as opposed to going up the stack in the form of sulfur dioxide. Cassel notes that a large amount of ash is produced by the process, but even

this will be an ultimate benefit.


"We will use that ash to backfill old strip mines, and that will help restore them to their original topography as well," he says, noting that the ash residue has passed stringent tests for toxicity and other harmful environmental side effects.


TAX EXEMPT BONDS: In addition, because of the refuse nature of the material Reading was able to obtain a large tax-exempt bond allocation for resource recovery through the Schuylkill County Redevelopment Authority and the Thornburgh administration.


"So we put in place $100 million in tax-exempt bonds for the facility," Cassel explains. "The total project cost is estimated to be about $120 million, and the remaining balance of the $20 million was provided through a construction loan arranged through Banque Paribas up in New York."


The ultimate result will be a cogeneration plant which will sell 50 megawatts of power to Pennsylvania Power and Light -- again under a long-term guaranteed price contract, but unlike the California contract, the entire price is guaranteed; there is no floating component.


And like the California project, the steam that is produced will also be advantageous to business in the area.


"We're selling steam to a 6.5 acre commercial greenhouse, that has been a family-operated business for several generations," Cassel notes. "The demand for their products is just overwhelming, and they were just looking for expansion space. So we came along at just the right time -- he's going to construct the greenhouse right adjacent to our plant."


But the benefits don't stop there. Cassel estimates that the Schuylkill County project will provide approximately 100 new permanent jobs to the area, which has been hard hit since the decline of the anthracite and the textile industries.


MOONSCAPE: "That's something that gets a lot of support from the township," he explains. "And because we're using circulating fluidized bed (CFB) technology, our emissions and environmental impact is nil. Plus, we'll be cleaning up this anthracite waste bank up there. The stuff on our site is the legacy of about 100 years of anthracite mining. And black mountains of this stuff cover about 110 acres, in piles that stand about 80 feet high. It's kind of an eyesore from the highway that goes by there. In fact, it's moonscape in a lot of that area."


Over the next 20 years or so, the Reading Co. will reforest that land and restore it to its original state -- which even the area's oldest residents aren't likely to remember since the landscape has remained scarred for the better part of the last 100 years -- since mining companies started stripping

the area, he says. That 20-year time period will also mark the projected end of the Reading Co.'s pile of anthracite refuse. But that presents no real problem either.


"After that pile is used up, we can either go to other slag banks in the community or we can burn off of straight anthracite," Cassel explains. "There's plenty of the stuff up there."


Cassel is just as positive about prospects for the rest of his group's business activities.


"With these two projects now under our belts, plus Technecon's nine-year history of providing consulting services to the energy industry, we are fairly well positioned and are aggressively pursuing other projects of this nature," he says. "So we look to put together a portfolio of independent power generation projects."


LOOKING FOR NEW PROJECTS: For the moment, Cassel says the company is looking to get involved in about a half dozen major new projects. But it's not simply a matter of going out and acquiring a promising new venture.


"You have to look at a number of them because there is quite a weeding out process here to find the ones that really make economic sense to pursue," explains Cassel. "We're pretty encouraged; we have a good track record established now, and good credibility with the investment community, because these are capital intensive projects. And we have the expertise to know how to put together all the various regulatory, permitting, technological, operating and financial aspects of the projects. So in terms of the Energy Group itself, we're looking pretty good right now."


And after what has sometimes seemed a dearth of good news, that must be welcome news for at least one staid old railroading company.


. . . $23 Million in Cash

Reading Company has agreed in principle with the City of Philadelphia and the Philadelphia Convention Center Authority concerning certain of Reading's properties located within the Philadelphia Convention Center Complex site. In exchange for its properties Reading will receive $23 million in cash, development rights to 22 acres of land adjacent to the Philadelphia International Airport and development rights to the pads located over the Gallery II shopping mall in the 1000 block of Market Street in Philadelphia. Reading will continue to own and operate the Reading Terminal Market, the nation's oldest farmers' market in continuous operation. Reading president Charles M. Carter said, "The additional cash reserves and real estate development rights will allow Reading to accelerate its real estate energy and investment activities."



A Hotel Comes to Chinatown

By Thomas Derr




Pg. 46



Philadelphia, PA, US -- If and when Philadelphia's long-awaited convention center finally becomes a reality, some visitors to the city will be assured of at least one deluxe hotel that is well within walking distance.


Its location may raise a few eyebrows -- right in the heart of Chinatown. And its popular name reflects that cultural heritage. The proper name is the Quality Inn Downtown Suites; its owners refer to it as the Lotus Inn.


"This is Chinatown's first hotel, ever, with the largest restaurant in Chinatown," says Stuart N. Harting, a partner in the real estate development firm of Silver & Harting and Co., Philadelphia. The restaurant is the Lotus restaurant and, naturally, it features a wide variety of oriental cuisine. In

addition, the menu provides a fine selection of American dishes, from steaks and chops to seafood.


"Maybe you've experienced this -- four people go out to eat, and three of them say: 'Let's go get Chinese.' But that fourth person doesn't want Chinese," says Lance Silver, the other half of Silver & Harting. "Here, three of them can have Chinese food, the other guy can have a hamburger, or a hoagie, or a deli-style sandwich."


Harting says that giving customers that kind of long-awaited choice is what brought him into the hotel business in the first place.


'HOMES' TO PEOPLE: "We did not design this hotel specifically with hotel standards in mind. We designed this as we design our other projects," says Harting. "We are primarily residential builders -- so we build homes. And what we have done is we've built hotel rooms that are homes to people. That is something that has never been done in this city before. And in the process, we've created some really nice environments."


Harting says that his hotel rooms compare favorably to the highest rated hotel in the city, with rooms that are "luxuriously laid out and elegantly appointed," but at a significantly lower nightly rate.


"We have been very excited by the comments that people write on their hospitality cards. The majority of the people comment that this is the most exquisitely appointed place they have seen, as far as the suites are concerned. The hotel rooms are definitely as spacious as they could possibly be, and it's a delight for people to stay in a very different type of atmosphere. We get those comments from 75 to 80 percent of the people who stay with us," says Harting.


KITCHEN IN EACH SUITE: Luxury and comfort may be the two most important words at the hotel, says Silver. Each suite has its own unique layout and design, including exposed brick walls and wooden timbers, high ceilings, and ornate brass fittings. In addition, each unit features its own kitchen, as well as several rooms furnished with the high quality Tai-Ming line of Drexel furniture.


There are also lofts to provide additional sleeping space for families with children.


"I think there is nothing more horrible than to go into a hotel and have to go to one room where you have to eat, sleep, get up, and spend a lot of time. It's terrible," explains Silver. "With this hotel, it's more like a house. That's the neat thing about it."


Furthermore, many of the suites have been designed with the business traveler especially in mind. Many feature two telephones, two color televisions, as well as a built in flexibility to accommodate business conference needs, as well as smaller business functions such as presentations and interviewing.


"We are targeting a lot of business travelers. We're going after that market, because we believe once they stay here, they will never go back to another hotel," says Harting. "That's our absolute challenge. We can't go so far as to say 'complete satisfaction or your money back' but that's the challenge."


PERSONALIZED STAFF: One of the reasons the Quality Inn can make such a challenge is the fact that the hotel has a very small, well-trained, personalized staff, Harting notes. He says this enhances the "bed and breakfast atmosphere" which the hotel attempts to create.


"We maintain an adequate staff for the 96 rooms at the hotel, which enables us to offer that bed and breakfast orientation," says Harting. "At the same time, 96 is a far cry from the Franklin Plaza or the Four Seasons, where they have 500-plus suites. Our hotel is very different from that impersonal kind of thing."


An even bigger advantage may be the location of the hotel. As Harting is quick to point out, the hotel is located within a few blocks of the historic area of the city, and is even more convenient to the shopping areas of Market East. Tourists or business meeting attendees also have easy access to the many oriental restaurants and specialty shops in Chinatown.


"We also serve many people who come to attend meetings at some of the nearby hospitals and companies," says Silver.


Metropolitan Hospital, the Pennsylvania College of Podiatric Medicine, Hahnemann, Jefferson, and Wills Eye hospitals are all within a short walking distance, he adds.


Silver relates how one businessman and his wife were guests at the hotel for 39 straight days -- the hotel has only been open for a little longer than that.


"He could have stayed anywhere in the city," Silver adds, paraphrasing the advertising slogan of a local university, "But he chose to stay here."


Silver says the customer offered three main reasons for staying at the Quality Inn. First, the rooms were "incredible, like living in a house," second, the rates were very competitive, and third, it was very convenient to where he worked -- Rohm & Haas.


LOCATION: In the months to come, that location should prove to be an even bigger advantage, as the new convention center begins to take shape. Harting notes that the Quality Inn will be the closest hotel to the convention center (when a new one is built). He hopes to capitalize on that fact by providing quality meeting space for smaller groups of business people who may be attending a convention or business meeting, but who may also appreciate having a conference area that is outside the large convention facility and convenient to where they are staying.


The Quality Inn will be ideal for that type of situation, he says. Corporations who send employees to Philadelphia to participate in training programs will find the Quality Inn offers a comfortable, cost-efficient solution to their lodging problem, Silver adds.


"They can easily get two people in here comfortably because of the suites," he says. "after all, most people don't live in one room. These suites give our guests two televisions, two telephones -- they can get work done without running into each other. It's really set up nicely."


ALL-SUITE HOTEL: According to Silver, the Quality Inn is also the first hotel in the city to be built originally as an all-suite hotel. There are others that have been converted from apartment buildings, he says, but this is the first Philadelphia hotel to be completely built, designed and marketed as an all-suite hotel.


Silver further notes that the all-suite concept is the "hottest new concept in hotels in the United States," as well as the most significant growth area in the hotel industry. He attributes much of the growing popularity of the all-suite concept to the ever-growing sophistication of the business traveler.


"But even with the growth in the all-suite marketplace, Silver and Harting still have managed to surprise many business people, including some in the hospitality industry.


"One man came in here, and he was the national sales manager for the Quality Inns. He called this the finest hotel in our chain. But the really thrilling thing is when other people in the hospitality industry come in and just go bananas. They say: 'Do you realize what you have? It's magnificent! You should be very proud of it! There's nothing like it in the world!' Etc., etc. The point is it is so exciting to the hospitality industry, it is so different, and so innovative and unique. And we look at each other and we really don't understand why they are so excited, because it's exactly the kind of thing we do on Pier 3 and the rest of our residential development project," says Harting.


HISTORIC BUILDING: Getting to this point was no easy matter, however. The building itself is historically-certified and dates from 1875. When Silver & Harting purchased it two years ago, the building had been the home of a furniture factory. In fact, Harting claims, the first Bentwood rocker in America was actually built in his factory-turned-hotel. All told, Silver & Harting invested more than $15 million into the project. Also involved were the interior design firm, Gargoyles, and the architectural firm of Alesker, Reiff and Dundon, Inc.


According to Hadassah Serbin, president of Gargoyles, the interior color schemes, furniture, fabrics, and wall coverings were carefully selected to produce a look that is contemporary, but which still maintains a strong Chinese/oriental flavor.


The end result offers a "very rich" environment in the restaurant area, and a more subdued, functional, but very attractive look in the suites that many visiting business people will find particularly appealing, Serbin says.

But, Silver admits, it was still an extremely risky project to undertake -- but then, that's the nature of the development business.


"It's not only risky to buy a building, but it's very risky to get a development concept together," says Silver. "You have to get financing for it. People will say: 'Is it possible to do?' Then you have to get a subcontractor to build with you, and you have to go through the risk of construction. Then you go through the risk of completion of the building, and finally you go through the risk of the operation and management of the business, not to mention the risk of the economy."


But, Silver and Harting agree, the risk has definitely been worth it. They say occupancy rates for their first month of operation were higher than expected -- they hope to eventually operate at a level of about 75 percent.


Reaching those ambitious goals will be the responsibility of Benjamin Harris, vice president and general manager of the hotel. Harris has been in the hotel business for more than 20 years, and has been manager of the Holiday Inn at Fourth and Arch streets, and he has worked with the hotel division of Disney.


CHINATOWN IS RECEPTIVE: Harting feels the hotel will, in the long run, be a boon to the city as well as Chinatown itself. He says the Chinatown community has recognized the hotel as a tremendous economic opportunity that will attract other development as well. Thus, the community has been "very receptive" to the project, he says.


"It's also kind of a sociological experiment," adds Silver. "It's a neat building in a good location. It's alive. It's breathing. It has its own personality. You take a piece of dirt, some brick, lumber, add a little of this, a little of that, shake it, and it comes out looking like this. This is really a very exciting place.


"And the funny thing is, we didn't build these suites with the idea in mind of building something stunning and fantastic. We just built them in a way that we thought would be a really neat way to build a hotel."



Hansen Considers Acquisitions Prudent

By Thomas Derr




Pg. 108



Philadelphia, PA, US -- REAL estate developers sometimes have the personae of the riverboat

gambler-freewheeling, fast-living poker players who will bet their last chip on the hope that that last card, or investment, will give them that one spectacular prize pot that will sustain them for life. On the other hand, there are also developers who tend to hedge their bets.


E. F. "Bud" Hansen is one of the latter. That's why Hansen has gone into the banking business. Hansen, who for the past 19 years has served as the president and owner of Hansen Properties, a highly successful real estate development firm based in Ambler, recently announced the acquisition of Fidelity Bond & Mortgage Co. from Fidelcor, Inc.


This acquisition marked his second major purchase of a financial institution within the last six months. In January, Hansen bought all outstanding stock of the Raritan Valley Financial Corp., East Brunswick, NJ, parent of Raritan Valley Savings and Loan Association, and Raritan Valley Mortgage Inc. The new umbrella organization for Hansen's overall business interests is known as the Hansen Group.


PRUDENT INVESTMENT: To the untrained eye, it would seem that perhaps Hansen is beginning to tire of the real estate business, and is simply switching games -- as a riverboat gambler might switch from seven card stud to five card draw. Not so, says Hansen.


"Any investment is a risk. Obviously, there are no guarantees," says Hansen. "But there is a far less risk in this than in some of the risks I take in the real estate business. I really don't look at what I have done as being risky."


If any of the companies he had purchased were in financial trouble, then it would be a risk, Hansen concedes. But so far, he has only bought and controlled profitable companies, as an investor. So instead of a risk, Hansen prefers to describe his recent acquisitions as being a "prudent investment."


"One of the reasons I got involved in the financial services business is because my preference, as a developer, is not to have to develop outside our geographical area. I don't want to leave the Philadelphia area," says Hansen. "So I was faced with a decision -- either I go outside the area, or I change the thrust of how we develop at this point."


Hansen Properties has specialized in low-rise office buildings, mainly in the suburban Montgomery County area. Hansen says that there were other development routes open to him, such as industrial, or shopping centers, or residential, or multi-family, but that his professional expertise was limited in those areas.


"My business in the office building field is very narrow. I don't know about the marketing aspects, or how to determine good site selection in constructing a manufacturing building or residential development. So for me to grow, I either had to increase the number of products I had in the development business, which I did not want to do, go outside the geographical area, which I also did not want to do, or get into financial services -- another business, another product," says Hansen.


MODEST INVESTMENT: Compared to his office building development business investments, Hansen says his investments in the financial services field are rather modest. In fact, the capitalization involved in buying his savings and loan operations has been far less than what is necessary to acquire many sites and troubled real estate, he says.


The Raritan Valley acquisition, for example, cost Hansen approximately $12.5 million in capitalization. In return, the Hansen Group obtained a savings and loan organization with assets amounting to 125 to 150 million dollars.


Regulatory requirements call for the institution at least to be capitalized at five percent (about $6 million). With the acquisition, the capitalization amounts to approximately $14 million, or close to 12 percent -- extremely high figures by banking standards.


"It was very profitable for us. In fact, it was more a matter of buying a very profitable business as opposed to what was standard in the industry," notes Hansen.


According to Hansen, a number of banks and savings and loans which he has been evaluating for potential acquisition were in much worse condition. A major reason why many of them are for sale is because they were involved in problem investments, he says. Many of the institutions lent money for what proved to be poor investments over time, or they were not properly watched, managed,

controlled or divested at the right time.


As a result, many of their investment portfolios have fallen below market value. That means the capitalization of a bank often will have fallen below zero because the actual market or resale value of the investment portfolios is well under the book value.


Thus, by the time the investment is sold, it creates a negative net worth. Raritan Valley, being a well-managed and profitable savings and loan institution, was a much less risky investment, Hansen says. Furthermore, Hansen's determination to keep the Raritan Valley management team intact after the purchase reflects his view that he does indeed hold a winning hand.


"Both Raritan Valley and Fidelity are profitable operations, and we have no intention of changing the management in either one," says Hansen. "There are some efficiencies and economies of scale that we can take advantage of, and the president of Raritan Valley and the president of Fidelity Bond are now working together to try to make their operations a combined operation, and more



RETAINING STRENGTH OF EACH: Hansen adds that these efficiencies will be realized

in the general administrative and selling operations, and perhaps the mortgaging servicing ends of the organization. He says that the main strengths of the organizations are in direct contrast to one another.


Thus, by allowing Raritan Valley to focus on its main avenue of business -- apartment and condominium-type multi-family mortgaging and mortgage banking, and Fidelity Bond to focus on

residential homes, Hansen plans to let each organization do what it does best, thereby maximizing productivity and efficiency within each organization. With each institution dedicating its efforts to specific areas of expertise, the higher efficiencies will enable the companies to provide better financial services in the areas of mortgage origination and mortgage service. These services constitute important sources of income for Hansen's mortgage banking operations.


STEADY INCOME: Origination fees result when a mortgage is obtained and issued. When interest rates are down, many new homebuyers invade the marketplace, while current homeowners seek to refinance existing mortgages down from higher levels. This increased activity provides more origination fees to the financial institution which originates the new mortgages.


Mortgage service fees offer an important source of steady, long-term income to the institution. Mortgage servicing involves the collecting of mortgage principal and interest and taxes, as well as supervising all required paperwork for escrow accounts, insurance, and the like. This type of income is not subject to broad fluctuations in the economy or interest rates.


Therefore, Hansen's new financial services acquisitions will provide him with at least one ace in the hole -- a source of regular income that is not affected by the same influences and cycles that impact his commercial real estate development interests.


In the same vein, the additional profits which Hansen realizes from his financial services may be of only limited value in the real estate end of his business interests.


"The regulations and the restrictions involving the federal home loan bank and banking regulations in general prohibit any kind of self-dealing. Therefore, we won't be able to finance any of our buildings through our new financial services acquisitions," says Hansen.


He can, however, use dividends realized from the profitable operation of his new financial services acquisitions to pay for new real estate investments. And in that sense, the timing of the new financial services acquisitions probably could not have been better.


BUYING COMMERCIAL PROPERTIES: During the past six months, Hansen also has been

extremely active in the acquisition of new commercial properties, which together are worth more than $35 million.


"We have been very aggressive in the last six or eight months," Hansen concedes. "For example, we just bought Hidden Springs Golf Club in Horsham Township. It is a 220-acre tract with two 18-hole championship golf courses, and which is zoned planned industrial. We anticipate going after a land planning approval to develop about a million square feet of office space, while keeping one of the golf courses in existence."


Hansen also acquired the old Bloomingdale's building and department store in Jenkintown from Nutri-Systems. The 120,000 square foot facility already has been renamed "Rydal Square" and two lead tenants have signed on. Hansen says leases on additional space are pending and, when enacted, will bring his group close to a break-even situation on that property.


Other important acquisitions for Hansen Properties include the 210,000 square foot Blue Bell Office Campus, and the Union Meeting Corporate Center, which will become 110,000 square feet of space in two 55,000 square foot office buildings. Ultimately Hansen hopes to develop approximately half a million square feet on the site.


In addition, Hansen has under agreement the acquisition of a 62-acre site at the intersection of route 63 and 309 in Lower Gwynedd Township. Montgomery County, where he anticipates developing up to 500,000 square feet of office space.


"These were all consummated within the last six months, so the real estate end of the business is growing as rapidly as the financial services," says Hansen. So much for the theory that Hansen is leaving the real estate game.


BLUE ROUTE BONANZA: Possibly the most important acquisition Hansen made was the Kaiser Refractories site in Plymouth Meeting, at the intersection of the long awaited Blue Route and the Pennsylvania Turnpike. Hansen paid $4.4 million for the site, which consists of approximately 40 acres of useable acreage, as well as a number of existing structures which can be utilized for storage and industrial-type space.


"I think people were just lulled to sleep over the last 10 years. Many never anticipated the Blue Route was really going to happen. But once it became a reality, than all the activity started to happen," says Hansen.


The activity Hansen refers to was the sudden rise in the value of the land. Prior to the final approval of the Blue Route, that site was a "a big elephant sitting there. It wasn't going for anything," Hansen notes. But rather than buy at a time when tremendous uncertainty still surrounded the future of the Kaiser site, Hansen waited until the true worth of this strategic location was assured.


"We are not risk takers to that degree. My preference is to buy excellent locations." Hansen explains. "I would prefer to pay for the land than sit with vacant buildings. I can't afford to land bank, and the Kaiser site could have been a land bank situation if the Blue Route project did not go forward. So my philosophy is that I would rather pay more for a site, as long as I know it can

be developed immediately and it is in a location that we feel will lease more readily than another."


LESSON FROM LITS: That's a lesson which Hansen has learned during years of experience in the real estate game. One of the most instructive was his short-lived involvement in the Lit Brothers Building renovation project.


"The Lits Building was not a mistake, but certainly the risk involved in buying the Lits Building was far more significant than the risk of my buying a savings and loan that is making money," Hansen says. "If I had proceeded with the Lits Building, I would have had to commit 50 or 60 million dollars in the deal -- and without a major lead tenant, that risk would have been critical."


Even today, without the savior like Mellon Bank signing on as a major lead tenant, the Lit Brothers Building would not have gone through, Hansen avers. That kind of result would have been "devastating" to his business. Thus Hansen followed what he felt was the most prudent course of action.


"Without a major tenant, I couldn't sit there with a big vacant building that was a tremendous fire hazard. It was under constant scrutiny. So to limit our risk, we had no alternative but to make a decision to demolish it, because we couldn't go any further," Hansen explains. "Fortunately, a buyer came along who did everything for everybody. It got me out. It saved the building, and they made a profit on it. So everybody walked away from it very happy."


"But I am especially happy because I learned a tremendous amount out of it," Hansen adds. "I don't think I would ever want to get involved in a situation like that again."


STACKING THE DECK: And getting involved in the banking business is one way Hansen hopes to make sure situations such as that do not reoccur. After all, there are a tremendous number of synergies involved in combining the two types of operations, Hansen notes, because so much of his real estate dealings tends to revolve around the banking business.


Thus, by getting involved in both fields, Hansen seems to be conscientiously paving the way for greater efficiency and stability within his overall business operations. A card player might call that stacking the deck.



Sheraton Society Hill:City's Birthplace Spawns New Arrival

By Thomas Derr




Pg. 84



Philadelphia, PA, US -- THOSE philosophers among us who look upon life as a series of cycles should be particularly pleased with the new Sheraton Society Hill.


For as Philadelphia begins to prepare for its new life as a major convention city, it is only fitting that its newest hotel facility should rise at the same point where the city was born more than 300 years ago.


The new 365-room hotel. developed by Rouse & Associates, is situated on the original site of some of the city's first colonial rowhouses at Front and Dock Streets, as well as one of the earliest entertainment establishments, the Blue Anchor Inn. According to Richard C. Meara, director of marketing at the Sheraton Society Hill, the overall design and ambience of the building is meant to

capture that historical sense of the area.


"Although it's not what you would call a colonial-looking building, it's low-rise, four story red brick that fits in with the neighborhood," says Meara. "And being on a nice cobblestone street also adds a unique touch to the hotel."


HISTORY & HOTSPOT: That concern for the historical and aesthetic considerations of the area is carried over to the inside of the building as well. According to Meara, one portion of the ground floor public area, the Nicholas More Room, will serve as a mini-museum to showcase pieces of pottery, artifacts and other historical memorabilia that were either unearthed during the construction of the hotel, or which otherwise relate to the cultural heritage of the Society Hill area.


In addition, the design of the hotel's lobby/atrium is intended to recall the public garden tradition of Philadelphia -- as envisioned by William Penn in his "green country town" concept. Afternoon tea and cocktails are served in this courtyard from 2:00 p.m. until 11:00 p.m. In addition, the hotel has its own restaurant, Americus, featuring regional American cuisine, as well as a video lounge, Spectacles, which Meara says is designed to be the area's newest nighttime "hot spot."


The hotel also features a 7,400 sq. ft. ballroom which can accommodate up to 650 people in a banquet setting, as well as nine smaller meeting rooms. Meara notes that eight of the meeting rooms are named after eight of the original residents who lived on the site of the present hotel.


The Sheraton Society Hill already has seen a fair amount of meeting activity. In fact, the hotel's first major gathering was held in the ballroom in early August, despite the fact that the room had not yet been completed.


"It was the Monkeys convention," says Meara. "And it was the first major convention in the hotel. When the plans for the group started, we were told there would be about 200 people. But eventually, that number went up to 900." He says despite that quick rise in attendance, the event went very well -- a tribute to the hotel's young but very professional catering services and support



Meara expects that meetings and conventions will be a major source of revenue for the Sheraton Society Hill.


CORPORATE BUSINESS: "We are not really positioning the hotel as a luxury hotel, although we are very close," says Meara. "In fact, if you look at the marketplace in Philadelphia, in our opinion, there is only one true luxury hotel, and that's the Four Seasons. That's a five star hotel. We definitely have the potential of being a 4 1/2 star hotel. But we're calling ourselves a first-class deluxe hotel, even though I think we can compete effectively with the Four Seasons."


Nevertheless, Meara says it would have been a mistake to go head-to-head with the Four Seasons by trying to position the Sheraton Society Hill as a luxury hotel. Instead, he plans to take advantage of the Sheraton Society Hill's more extensive meetings facilities, and in that way give the Four Seasons a run for its money.


Meara predicts that in his hotel's first full year, 1987, approximately 55 percent of the Sheraton's business will involve various corporate and group meetings. In fact, the Sheraton sales staff already has exceeded the hotel's group roomís budget for the remainder of 1986.


"We've been very successful in prebooking the hotel with a 50 to 250 room group this year, and we expect 1987 will be real strong for us as well," Meara says.


Local corporations and the national association market currently represent the highest percentage of the hotel's meetings business.


MARKET RESEARCH: That early success is apparently no accident.


"When I first got here (December 1984), I spent about three months doing nothing but market research, just to find out what kind of business is in Philadelphia, where it was coming from, and what the mix of business in Philadelphia was," explains Meara. "That way I could see what was happening in the marketplace, how we fit in the marketplace, and what areas we needed to concentrate on to successfully fit into the picture."


What he found was a lack of strong transient demand in the city. That finding, in turn, lead Meara to the decision to concentrate on booking a higher amount of convention than he would prefer to do.


"Now we are doing about 55 percent of our business through group meetings. Eventually I want to turn that around to be about 40 percent group, and 60 percent transient. And I see that happening over the next four or five years," Meara says.


GOING AFTER TOURISTS: In order to drive up that percentage of non-group meeting business, the Sheraton Society Hill has taken a number of other promotional steps as well. One such step involved the establishment of a relationship with Tauk Tours, which Meara calls "probably the most upscale tour operator in the country."


"They really go after the cream of the crop in the tour business, and it has been many years since they have brought any tourists to Philadelphia. They have been out at Valley Forge for the last six or seven years, and they just come through Philadelphia, as too many tourists do, on their way to someplace else," says Meara. In 1987, the Sheraton Society Hill has arranged a series of bookings with Tauk Tours which should bring approximately 2,000 room nights of business to the hotel.


In addition, Meara believes the Sheraton Society Hill will do well on weekend package business. To further that aim, the hotel is currently advertising in some of its "key feeder" markets, such as the New York Times, and other publications in North Jersey and Central Pennsylvania. Meara hopes the ads will bring significant new business not only for the hotel itself, but also to the

city in general.


EXPECTS HIGH OCCUPANCY: Over the next three or four years, Meara says he would like to see the hotel operate at a 72 or 73 percent occupancy level, which would make it one of the highest levels in the city.


"Philadelphia's hotel occupancy rate is significantly below other cities -- such as Baltimore, Washington, New York, and Boston, and there are a couple of reasons for that," Meara explains. "The main one is the lack of a lot of city-wide convention business coming into Philadelphia, and the concurrent need for a new convention center."


The second major problem is the fact that the region's other two key markets are located so near to Philadelphia -- New York and Washington.


"We are one hour and ten minutes from New York, and one hour and forty minutes from Washington via Amtrak," says Meara. "If you do travel Amtrak, you will see that you can count on one hand the number of passengers who carry luggage. A trip thus becomes very much a day trip. In fact this city may be too well located -- too easy to get to."


Nevertheless, bookings at the Sheraton Society Hill have far exceeded the management's expectations. Part of the reason for this is the way the hotel has approached the marketing of both the hotel and its location.


UNIQUE NEIGHBORHOOD: ďOne thing we have done very effectively, especially in the

outer markets, is not so much to sell Philadelphia, but sell Philadelphia and Society Hill together as a destination," Meara explains. "It's a unique neighborhood down here. There's no doubt about it -- with the history, the charm of the neighborhood, the old rowhouses -- just what has evolved out of this neighborhood during the last 25 years. And then when you add the restaurants and the nightlife -- it's really the best neighborhood in Philadelphia."


The Sheraton Society Hill's prime location has been a major selling point for the Sheraton corporation's worldwide marketing effort. Meara says the hotel is fortunate to be part of a worldwide chain that can have individuals all over the world selling Philadelphia as a destination.


"We have been successful, and I think when we book our business into Philadelphia, we are not necessarily just taking a new share of an existing pie; I think we have actually booked a good percentage of new business in this hotel that according to our studies would not have met in Philadelphia," Meara says.


According to Meara, Philadelphia has long been an "unknown destination" to people who have never visited the city. Chicago, for example, is generally familiar to people who have never visited the city as having many architectural wonders, and Washington has its character shaped by its focus on governmental activities.


"Out-of-towners are beginning to find that Philadelphia really has a lot to offer, not only in terms of its history, but also its 'European city' style of charm, it's nightlife, and its entertainment offerings," Meara says. "And with all the development taking place at Penn's Landing, and the eventual

construction of the convention center -- those activities can do nothing but help us."


In addition, the completion of the I-95 ramps to and from center city should help to stimulate business to the hotel and other center city concerns as well.


ROOM RATES: According to Meara, the Sheraton Society Hill's room rates will place it in a niche between the Four Seasons and the next tier of "commercial-type hotels."


"We fit right in the middle of that rather large gap," says Meara. "Our rates are lower than the Four Seasons and higher than everybody elseís."


Normal room rates range from $122 per night single occupancy for a suite with either a king size or double bed ($142 for double occupancy), on up to $172 for double occupancy of a deluxe suite with a king-sized bed and a sitting area.


Until its grand opening in mid-September, the hotel is also featuring an introductory offer of $79 per night for a double occupancy suite. In addition, there is a "romance" package designed for two which includes champagne and flowers for one guest, a free in-house movie, and breakfast for each party the next day. The package costs $129, but additional nights are priced at $79.


Another advantage is the "very affordable" room rates, says Harding. Room rates range from $79 per night for a suite with a double or queen sized bed for one person ($89 for two), on up to $109 for two people in a deluxe king suite.


SHUTTLE SERVICE: One possible drawback to the Sheraton Society Hill's location is the fact that it is a dozen or more blocks away from the city's central business district. Meara plans to overcome that objection with a complementary shuttle service that will take hotel guests up to that area in the morning, then pick them up again in the evening. Even in rush hour traffic, it usually takes only 10 or 15 minutes to get to the core of that central business district, Meara notes.


"At the same time, there is still a good deal of business at this side of town," Meara says. "Rohm & Haas is only a few blocks away, as is Penn Mutual and several other major insurance companies."


In addition, he points to the wealth of government offices and that related business, as well as the large number of hospitals in the area.


"We've already done extremely well with the hospitals -- Jefferson, Hahnemann, Pennsylvania Hospital. They have given us a lot of business, particularly with continuing education programs, and regular transient business from doctors who come into town for various medical-related meetings."


These hospitals were singled out as a primary target market early on, and are expected to continue to be an important source of business for the Sheraton Society Hill. In fact, the amount of overnight business generated by a hospital can be surprising -- Jefferson University alone can account for approximately 1,500 rooms a year on the basis of individuals traveling to and from the city to attend various programs and seminars, Meara says.


TRAINING STAFF: One problem hotel guests sometimes encounter at facilities with such a strong outside marketing program is a lack of attention to "inside" guest service, says Meara. To overcome that problem, the Sheraton has hired a fulltime training director to train guest service agents and other hotel employees.


"We've spent a lot of time and effort in training people the way we want them to treat a guest, and we stress as much as possible the fact that the guest is the important part of a hotel. And that service aspect is what makes or breaks a hotel," says Meara.


"Quite frankly, I think we've surprised a lot of people with this hotel. When you walk into that lobby, for example, I think it just knocks your socks off. It's warm, inviting, friendly, and unlike most luxury hotels, where it is very formal looking, our has a very warm, comfortable feeling to it," he adds.


"But more important than that, we've done a superb job of putting together a great team of staff people, because we realize the importance of service. The doorman, the front desk guest contact people -- they have to make the guest feel comfortable, and help solve whatever problem they may have. Otherwise, the building's not worth a darn," Meara says.



Bank Influx Spurs Wilmington R.E. Boom

By Thomas Derr




Pg. 120



Wilmington, DE, US -- NEWS item -- The tiny state of Delaware has recently declared war on the major financial centers of the world.


The objective -- to make Delaware so attractive to the world's most important financial institutions that they will be inclined to come to Delaware and set up shop, thereby bringing with them hundreds of new employees, countless ancillary and support companies, and millions of dollars in new revenues.


Now before you go reaching for your copy of The Mouse That Roared to see how Grand Fenwick would have accomplished it, consider this -- Delaware is already on the verge of winning its first such conflagration. And for proof, just take a look at the array of sparkling new commercial and industrial buildings and parks that have taken hold in and around Wilmington during the past five years.


SERIOUS PROBLEMS: According to Pete Davisson, Office Leasing Specialist for Jackson-Cross in Wilmington, that area's commercial development boom can be traced to the late 1970s, when business and legislative planners began to investigate possible solutions for what was then a very serious economic problem.


"The state was almost bankrupt in the late 70s," says Davisson. "At that time, everyone knew that, yes, Delaware was the chemical capital of the world. But that was never going to cure the budgetary problems or the unemployment problems which the state was experiencing."


To solve these problems, the planners researched a variety of options. "What they came up with was that this is a great geographic location, and with the proper legislation, Delaware could entice the financial institutions of the world into coming to the state," says Davisson.


LIFTED USURY LIMIT: The Financial Center Development Act, which was written and passed in 1981, did two basic things. First, it eliminated the usury limit on loans and credit card operations. Thus, unlike states which maintain a usury limit (Pennsylvania's is 18 percent) banks in Delaware are free to charge credit card percentage rates anywhere above or below that level.


"Obviously a point or two makes a big difference in the bottom line," Davisson says. "So there are numerous banks that have come to the state and just built their credit card operations. There is also some legislation that says if you bring your other banking activities to Delaware and run them through your corporate books here, we will give you reduced tax incentives. Standard corporate income tax was in the 8.7 percent range at that time, and depending on the amount of business a company does and its net profits, that tax could be reduced to as low as 2.7 percent. So without quoting numbers, there is a reduced tax structure for the banking activities operated within the state."


PEOPLE NEED SPACE TO WORK: In addition, there was a requirement that each new banking operation must hire 100 people in its first year, and 100 additional people in the second year. That translates into a tremendous need for additional office space.


Currently "33 or 34" of the nation's most important financial institutions have come to Delaware since 1981, with an average office space requirement in excess of 40,000 sq.ft. per institution, says Davisson. That translates to more than 1.3 million sq.ft. of office space since 1981 for the banks alone.


The list reads something like a roll call of Who's Who in the banking industry -- Morgan Bank, Chase Manhattan, Citibank, Barclays Bank, Bank of New York, Chemical Bank, Manufacturers Hanover, and more. American Express also has established a presence in Delaware, although it is not, as yet, originating its charge card operations from the state.


"Sears is going to be doing its Discover card out of Delaware, and that is expected to be larger than either the Visa or Mastercard. Their projections are unreal," says Davisson.


But rather than going through the intensive effort of establishing a brand new banking operation, Sears instead purchased an existing bank which it will use as the focus of its new credit card operations. J. C. Penney also purchased a Delaware bank, but will use it as the base of its own

Visa or Mastercard credit operations.


SUPPORT SERVICES: "Now, once the banks and financial institutions come, all the support services have to come," Davisson notes. "The phone companies, the insurance companies, the lawyers, the accounts, the computer companies, all of the support and ancillary services come to support that boom of office space requirements. So that has added to the consumption of office space on top of the 1.3 million that the banks themselves have generated. So, in a nutshell, that's

what has happened over the past five years."


But there is still an attitude of restraint among the developers in the area, Davisson adds. "The developers here are on the conservative side, so they are not just throwing up office building after office building as has been the case in some of the other major areas in the nation, such as Houston and Denver."


NO GLUT: What that planned, careful approach helps promulgate is a remarkably low percentage of vacant office space.


"We do not have a glut of office space by any means," says Davisson. "As a matter of fact, our Class A space in Wilmington is less than seven percent vacant." The suburban numbers are a little higher, but that is largely due to the fact that suburban buildings go up more quickly, more easily, and less expensively, he explains.


According to Davisson, the combined vacancy rate for both Class A and Class B office space in the Wilmington suburbs is only 11.5 percent. That breaks down to 11 percent for Class A and 12 percent for Class B. In the city, the Class A vacancy rate is 6.9 percent, and 19.3 percent for Class B, for an average rate of 13.1 percent. The average around the country is 16.2 percent, says Davisson.


Generally speaking, Class B space includes older, smaller office buildings that are not quite the 1983, '84, '85, and '86 vintage, he notes.


"The reason there is such a stark difference in the city is that when these out of town people -- New York, Texas, Georgia, Michigan, wherever it might be -- when they come here and see that our best space, the Class A office space, is going for an average rate of only $17.44 per square foot, they're amazed. In Philadelphia the average is $22 per square foot, and it could be as much as $30. And people who come from New York are accustomed to rates ranging from $25 per sq.ft. to $45 per sq.ft. with similar numbers for the other major urban areas. So when they come to Wilmington and see $17.44, they don't even look at Class B space. They go right to the best stuff, and rightly so, because their bottom line is still better than what they were paying back home," says Davisson.

"That's why the Class B space has a little higher vacancy rate, and it's that space which is being occupied by the support services -- the smaller insurance companies and the CPAs, as they come to town. It is still decent space, it's just not brand new."


And the amount of available new space continues to grow. Morgan Bank, for example, which first established its downtown Wilmington operations in December, 1981, is now in the process of building a new facility in the suburbs that will amount to approximately 350,000 sq.ft. of new office space.


"Chase Manhattan is also building a brand new facility here that will be 246,000 square feet, and we just had a groundbreaking for a Manufacturers Hanover building that will amount to some 170,000 feet of new space," says Davisson.


BANKS GET CREDIT: Michael J. Antonoplos, vice president for Leasing and Investment with Oliver Realty, Inc., based in Philadelphia, says "there is no use in trying to explain the growth in the Wilmington market by talking about what the historical cycles have been. There is simply no question that the major impetus for development has been the banks coming down to Delaware."


As for the increasing demand for office space. Antonoplos suggests a "chicken or the egg" explanation. "It's really a very subjective choice," he explains. "You simply can't build or sell new office space without tenants. But at the same time, you can't satisfy a potential tenant's requirements without new office space."


Antonoplos says that while availability of additional office space has precipitated a significant amount of movement among already-existing tenants in the Wilmington market. "Now that the space is available, tenants are utilizing it," he observes.


Nevertheless, the influx of outside companies and institutions into the state -- and the subsequent establishment of regional offices to represent their interests -- has created great excitement within the local commercial marketplace, he says.


"As the number of banks and major corporations continues to increase in Wilmington, the service base that must support them grows as well," says Antonoplos. "That means law firms, accountants, marketing firms, and other business-service firms are being caught up in a snowball effect. So what we have, in reality, is companies such as Linpro, Rouse & Associates, and LaSalle Partners (a Chicago accounting firm) all coming down to Wilmington and riding the crest of government intervention (exemplified by the Financial Center Development Act)."


According to Hunter Lott, executive vice president of Gilpin Allegheny Realty Co., office development in downtown Wilmington will increase by a total of approximately 850,000 sq.ft. of new space by the end of 1986. This would mean an increase of nearly 31 percent, and will bring the total amount of office space in downtown Wilmington to approximately four million sq.ft.


ADDITIONAL BENEFITS: But there are other reasons -- beyond the ramifications of the Financial Center Development Act, that have helped spur Wilmington's growing preeminence as a focal point of commercial growth. Other factors contribute as well: a deep water seaport, location on Amtrak's line as a major rail stop between Philadelphia and Washington, D.C., and the fact that it is only 20 minutes from Philadelphia National Airport.


"In addition, Wilmington now has the second largest deposit of gold in the United States -- second only to Fort Knox," says Davisson. "Because of all the financial activity here, we have to have that gold to back it up.


INTERNATIONAL BANKS: And that advantage may help ensure the success of Delaware's most recently announced development plans. Governor Michael N. Castle recently unveiled a new legislative initiative, called the Foreign Banking Development Act, which is aimed at enticing international banking interests to come to Delaware.


During his May 21 news conference, at which he announced the plan, Castle said it would be targeted primarily at Japan, Great Britain and Canada, with additional interest being given to both Taiwan and the People's Republic of China. The bill would, in effect, offer the same benefits to international banks that American banks have enjoyed for moving to Delaware.


"This is more than just wishful thinking," says Tom White, vice president of AIMS Inc., a development company in Wilmington. "The first piece of legislation was really just the head of the pin. We could very well see that Wilmington will become the banking capital of the world -- even more important than either Brussels or Geneva."


"I'm not an unbiased observer, because I was born and raised in the Wilmington/New Castle county area," White adds. "But the changes that have occurred over the last ten years are exciting, and as far as the future is concerned, it seems the sky is the limit. It seems more and more people are

finally coming to discover what we Wilmington natives have known all along --

this is the best small city in America!"