Will Amazon make the difference in bringing jobs to Philadelphia? Gerard "Jerry" Sweeney says maybe — but Philadelphia could create even more jobs just by changing its tax structure and doing more to boost business in the city.
The president and CEO of Brandywine Realty Trust addressed the Chamber of Commerce for Greater Philadelphia on Thursday morning to a packed house, and said that whether or not Amazon picks the city for its next headquarters, Philadelphia needs to generate more jobs.
Currently, Philadelphia lags in job growth, at just 1.3 percent annually over the last six years, compared with the national average of 2.1 percent over the same period, he said.
The average job growth rate of the top 25 cities is 2.8 percent annually. "We have an anemic job growth track record," he said. "Amazon has done a great job disrupting procurement. I love that they broke the bounds of traditional site selection processes. What they wind up doing, who knows? I was delighted we put together a great proposal in Philadelphia. We'll see what happens."
Amazon promised to bring 50,000 jobs to the city, which now has 600,000 jobs.
But more important, Sweeney said, "if Philadelphia grew at just the national average growth rate, we could generate 90,000 jobs over 10 years. That's the important thing. It's not 'Amazon, please pick us.' We've got to look inward to drive that growth."
Compared with Austin, Texas, where Brandywine has business interests, and other high-growth cities, Philadelphia can do better, he said.
"We're the largest landlord in Austin, one of the highest-growth markets in the U.S. One hundred and thirty people a day move into Austin. Last year, 50 companies moved their headquarters to Austin," he said. "Every week. They have great weather, but the reality is, they have a business community that drives the agenda."
Like Austin, "Philly's business community has to drive the agenda."
Sweeney is lobbying for a change in the state constitution that would allow commercial real estate to be taxed at a higher rate than residential property. If that change was made, the commercial real estate tax rate alone could be raised to offset cuts in the wage tax. Mayor Kenney supports the plan, Sweeney said. "He views it as a tool."
But City Council does not.
"They're focused on the ability to have commercial properties to pay more, but that money has to go into the general fund," he said. "It's a grow jobs program, not a grow government program."
At the state level, "the response from Philadelphia's house delegation and leadership in Harrisburg is good. The Committee of 70, the African American Chamber and Hispanic Chamber, the Philadelphia Chamber did not support our plan. They feel the break in uniformity is a slippery slope. We've had that forever. It hasn't helped us out too much. Let's pass it at the state level. It doesn't obligate the city to do anything. It makes Philadelphia more competitive to grow jobs.
"Currently, only 19 percent of tax revenue comes from commercial real estate taxes. We get almost 70 percent from taxing wages and businesses. So we think it's great to reset the formula."
Sweeney and Brandywine's proposal would give the city the option to have commercial properties pay 15 percent more than residential properties, as long as that was dedicated to wage and business tax reduction. "It would bring the wage tax down to three percent in 10 years and cut business taxes 50 percent, which would generate 100,000 jobs and $300 million for the school district" over the decade.
But City Council "want that money to go into the general fund," instead of schools, Sweeney said.
In terms of office rental trends, "rents in Philadelphia are low compared to the cost to build. The amount of office inventory in the city today is the same as it was almost 20 years ago. Despite Cira Center and FMC Tower and Comcast buildings, the reality is there were 15 buildings taken out of service due to residential conversions. To build a new building in the city today, you need rents all in the mid $50s" per-square-foot.
"That's a 20 percent premium over what existing stock trades for."
"That's a far cry from other cities. In New York, they're building Hudson Yards, Manhattan West. In Austin we're breaking ground on a high-rise, and rents down there will be in the $55 range. And we'll move rates up during the development cycle."
In the suburbs, King of Prussia could be "a Reston, Virginia, or a Silicon Valley. Simon Properties is investing millions to renovate the mall. Simon, one of the best investors in real estate, sees King of Prussia as a growth vehicle, the potential for the [Septa] rail, which will open up neighborhoods, and that's worthwhile to invest."
"We are constantly around the world selling Philadelphia. One of our first undertakings was this building" in the Cira Center with Amtrak as a partner. Brandywine redeveloped the post office across from 30th Street Station and next will come the University City District in partnership with Drexel University, starting with Drexel Square, a $13 million park and public square outside of the west portico of the train station.