GlobeSt.com: How does 2004 look in terms of revenue growth vis a vis market performance?

Sweeney: We'll do a little better than we did in 2003, but real estate markets being what they are, we're projecting minimal revenue growth in '04. We do anticipate that the markets will start to recover a bit toward the latter part of the year. It's tough to project when things will turn because so much of the office business is pure reaction to general economic conditions. Right now, though, the overall psychology seems positive and job growth, while still anemic, is positive too. More tenants are looking at longer-term planning options, which is very positive. But how those things will converge to create a stronger marketplace and increased levels of leasing and net absorption remains to be seen.

GlobeSt.com: It's a critical question, given that the local market is at 16% vacancy.

Sweeney: There's a fairly wide spread between class-A vacancy and general-market vacancy. As a class-A owner, our portfolio is close to 92% leased. We're outperforming the marketplace by a fairly wide margin.

GlobeSt.com: There's been a lot of press about Keystone Opportunity Zones. Why is something so positive to local growth viewed in such a negative light?

Sweeney: Because there are several issues being confused. First, opportunity zones were established in 1998 in the commonwealth and modified in 2001. The objective was to identify sections of the commonwealth deemed to be blighted or undevelopable. KOZ designations were intended to create a catalyst for development. In fact, KOZs have actually done a fairly good job of both creating and retaining jobs. They've generated something like 14,000 new jobs, retained 8,000 current jobs and helped infuse about $1.5 billion into local real estate. In 2001, both the commonwealth and the city of Philadelphia designated specific parcels as KOZs. The two primary pieces were parcels in West Philadelphia. One was the pad site we call Cire Centre, and the other was the Philadelphia Naval Business Center. In the past six months or so, there has been a movement to assign KOZ status to prime downtown parcels. That has created a lot of the controversy.

GlobeSt.com: Where does Cire Centre stand now?

Sweeney: We're just delighted. We commenced construction early in January and have plans to deliver in the early fourth quarter of 2005. We're 54% leased on the office component, and Dechert is about 65% of the leased square-footage. When we announced the project in May of 2002, our news was greeted with a fair degree of skepticism. But one of the things we're really delighted with is that our program is very much on schedule. We announced we would need to be 50% preleased and we're slightly ahead of that. And we have high expectations that we'll generate some additional leases in the near future.

GlobeSt.com: Why?

Sweeney: It's a consistent reflection of the opportunity zone legislation's original intent, and after we announced, we embarked on a broad-based marketing campaign to attract tenants from outside the region, and at this point we've talked with more than 3300 companies located outside. As people see steel come out of ground, some of those prospects will be converted to tenants.

GlobeSt.com: Talk to us about some of your other development initiatives.

Sweeney: We have a number of developments in the suburban counties around Philadelphia. We just completed a 100,000-sf project in Lehigh Valley, which is about 70% leased, and we're moving forward on a mid-rise building in Southern New Jersey that's about 60% preleased. We're also seeing tremendous activity throughout the rest of the portfolio for build-to-suit opportunities. We're definitely sensing an uptick in activity out there.

Instant Insights /

Jerry Sweeney of Brandywine Realty

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