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The Cost of Doing Business

by Stuart Michaelson

As 2016 settles in for the long haul now that the holidays have come and gone, area financial movers and shakers are assessing Philadelphia’s economic outlook for the year.

And to a large extent, even with the uncertainty of a heated presidential election process, the inauguration of a new mayor and, after a long silence, federal action (however small) on interest rates, financial pros are glad to be in Philadelphia.

Doubt that? Ask S.A. Ibrahim, CEO of Radian Group Inc., who is a committed Philly booster.

Ibrahim’s voice all but leaps from the phone as he recalls reading with amazement and “chills” as a youth in India of the stirring work of America’s founding fathers, who walked Philadelphia’s “cobblestoned streets and overcame odds involving life and death. If they could do that, how can we not take inspiration from them for the challenges we face?”

As head of a business known among the country’s largest private mortgage insurers, with a focus on protecting mortgage lenders from default-related losses, Ibrahim celebrates the drive, attitude and diversity of his company and city.

The numbers make their case. In 2014, Radian wrote $37.3 billion of new insurance written (NIW) nationally; that includes approximately half a billion in Philadelphia, and about 1,600 loans.

Last year, Radian had total assets of more than $5.7 billion and stockholders’ equity of more than $2.4 billion, which Ibrahim attributes in part to his company’s positive attitude during the 2008 crisis. “We were not fazed by the challenge. … While other sources of financing dried up, Radian still provided borrowing during the downturn; we were a source of home financing in good and bad times.”

Looking at the big picture in the area, Ibrahim says that unlike other parts of the country, including those reliant on the energy sector, Philadelphia “looks good and attractive” with stable home prices, employment up, an attractive cost of living. Ibrahim notes this is especially true for young home buyers who will form a core of future homeowners, “With Philadelphia’s restaurants, lifestyle, museums, young people love to live here.”

EXCITING TIMES
Garrett Miller, managing principal and founder, Washington Square Regional Capital, LLC, says the city is attracting more and more outside institutional capital, putting it at the top of the second tier of American cities.

“We have always been very high on Philadelphia,” says Miller. “With each passing year this becomes a better place to live and work,” he adds, pointing to condominium projects as well as retail growth.

Touting Philadelphia as a possible gateway city in terms of capital and investment, Miller considers its transportation-airport infrastructure as well as job-market growth and says Philadelphia can possibly hit the lower end of the first tier of a gateway city.

“Like New York or D.C., no, but Boston wouldn’t be a bad comparison,” says Miller, who stresses the importance of, for instance, Dilworth and Love parks and the fact that “this is a nice place to work.”

Miller hopes that the new mayor, Jim Kenney, does right by the city by continuing to steer Philadelphia in the direction of former Mayor Michael Nutter. “Philly doesn’t need a transformative mayor,” he says.

Miller also praises city school superintendent William Hite and the fact that those running the financially strapped schools are doing the best they can with available funds, while praising parental involvement and hopeful signs from charter schools as well.

Still, he adds, with a budget crisis and the struggle to keep the lights on and make the payroll, more options—such as charter and private schools—are needed.

“Solve the school problem,” says Miller, “and then it will really be interesting to see what happens in the city.”

Some positives are, of course, happening now. “Center City,” Miller says, “is growing every which way possible. I see a huge focus on North and South Broad Street, towards Spring Garden and Washington Avenue, as the boundaries of the city continue to expand in concentric circles to outer neighborhoods. I see tremendous momentum in the area,” pointing to more growth in Port Richmond, Fishtown and Fairmount.

Also seeing good things in the city is Jeffrey Culp, Philadelphia market change last year with the completion of BB&T Corporation’s conversion with Susquehanna Bancshares, Inc., which leaves Susquehanna operating as a division of BB&T (Branch Banking and Trust Company).

Culp says the newly merged company brings to the Philadelphia area a much broader and deeper service capacity. He calls insurance a prime example of this strength and says wealth management will expand in terms of capacity for the individual side. “This is a great opportunity to introduce world-class financial advice. We will systematically spend time with (Philadelphia-area) centers of industry.”

He says that 2016 will likely be not much different than 2015 in loan demands while, “The economy still bumps around a little bit.” He says loan demand is weak on the commercial side but stronger in real estate in Philadelphia. “We need to focus on driving demand and creating value,” Culp says. Real estate, he says, is strong in the city, with Comcast, for instance, building a second tower, bringing an influx of solid, higher-paying wages, and the ongoing stream of millennials seeking apartments and becoming, in some cases, firsttime homeowners.

Such homeowners, Culp says, as well as those buying cars through loans, could be affected by the Federal Reserve’s December increase in its target-funds rate from 0 percent to 0.25 percent to 0.25 percent to 0.5 percent. Though he notes, “In most parts, the market took [the hike] into consideration.” Overall, Culp sees some pockets experiencing growth in areas of the city that are active. “Most business owners are in a conservative mode to keep debt down and liquidity in place. This is not an investing-and-leverage perspective for the short run, at least,” Culp says.

He adds, “[Center City] is an exception, especially with the meds-and-health-care companies and tech companies, which will probably outstrip the growth rate. Mostly, the economy is growing at a low single-digit rate, which doesn’t do much for loan demand.”

FAVORABLE FACTORS
Also looking with confidence at 2016 is Orlando M. Rivera, J.D., principal of ASPIRA Business Brokers, which services business valuations and acquisition financing in New Jersey, Pennsylvania, New York and Colorado, and, in the future, Florida. Rivera started the business last year after spending 15 years with Tannenbaum Business Brokers.

He calls Philadelphia a major market and is especially bullish on the city’s restaurant-and-bar industry. “People are still drinking and eating at an economically healthy rate in the Philly metro area,” he says. “Tech seems to be growing in Philadelphia, with a hot buzz among all generations with the hopes of creating similar results the likes of Silicon Valley.”

Rivera says retail businesses thrive in Pennsylvania, including Philadelphia, because of population density, but adds that the city’s emphasis on millenials doesn’t make it exactly a hotbed for those buying and selling businesses, as people 55 and older tend to be his clients. The city, he adds, has a large concentration of tech workers.

Another financial leader bullish on Philadelphia is Michael Devlin, outgoing president and CEO of Cape Bank. Devlin plans to retire this year as Cape Bank merges with OceanFirst Bank; he will be a member of the newly merged bank’s board of directors.

Devlin says the Philadelphia market has been strong for Cape Bank and that it will continue to be a strong market for the newly merged bank.

“Philadelphia has a large multi-family development market,” says Devlin. “We expect a greater Philadelphia market this year. The Philadelphia market is getting frothy, and it is a strong market overall.” He does not see a big change for involvement in the Philadelphia area with the ongoing merger.

Daniel J. Ruotolo, CEO of Now! Financial Network and a partner of the Ruotolo, Spewak & Co. CPA firm, handles accounting, consulting and tax services for clients including nonprofits, small-to-medium-sized businesses, community associations and individuals. He sees big things ahead in 2016.

Ruotolo says 40 percent of his firm’s practice is in Philadelphia and that the city has a lot going on with technology and health care among its major areas of likely growth in 2016.

While he isn’t involved much in the health care aspect, Ruotolo sees movement mostly in start-up businesses, health care and bio-tech with such institutions as the University of Pennsylvania leading the way.

“There are many start-up opportunities in Philadelphia,” he says, noting app developments as a key point in what he expects as more growth in the city as it transitions from Nutter to Kenney.

“A lot of good things are in place from Mayor Nutter’s administration,” Ruotolo says, though he cautions that the ongoing uncertainty surrounding Pennsylvania’s budget casts a shadow in some plans, notably those involving the financially beleaguered city school district.

ROOM TO GROW
Also looking to good things from the city this year is Joseph Rehm, executive vice-president and chief lending officer at Capital Bank of New Jersey, which serves the Philadelphia area, including its millennials (“many of whom work at our bank”).

“The ongoing desirability of the millennial market,” Rehm says, “could cause strategic challenges to housing stock in South Jersey, though that might not be what millennials are looking for, as their vision of success is different, they want more mobility, marry later in life and wait longer to have children. Kids are less of a priority, and they have huge student loans to pay off and like to walk or bike to work.”

Also offering their takes on the Philadelphia market, from their New Jersey locations, are the father and son financial professionals, Carl H. and Matthew Bagell.

Carl, CPA, is managing partner, Southern New Jersey, of Friedman LLP, accountants and advisors, while son Mathew is financial planner at BJL Wealth Management. While the firms are separate entities, the two are strategic partners who work hand-in-hand with financial clients.

Carl—whose firm in January started integrating into its practice the Philadelphia-based accounting firm, Shechtman Marks Devor PC, thus expanding its Philadelphia presence—says it’s too early to tell what changes are afoot for him in the city, but that they are looking forward to that extra expertise expected from the change.

Matthew calls Philadelphia “one of the biggest boom areas” and while noting such challenges as the city schools’ financial woes, he sees good things happening, including this summer’s Democratic National Convention in Philadelphia.

Beyond the much-touted millennial presence, Matthew points to the fact that suburbanites in their 50s and 60s are leaving the suburbs and buying homes in Center City, as more proof of Philadelphia’s vibrant era.

Robert Worley, senior vice president and market manager, Republic Bank, is looking ahead to expansion across the river (notably new locations in several areas) and says a Philadelphia-area addition is slated for April in Wynnewood and that additional lenders are being hired for the Philadelphia area.

He also points to the expected economic impact of this summer’s Democratic National Convention, which, according to convention CEO, the Rev. Leah Daughtry, could be around $350 million.

Talk to Richard Bell, president and founder of Planning Capital Management, which handles business and personal financial planning, about 2016, and you hear about growth.

Bell says 90 percent of his business involves asset management and about 10 percent planning, though the latter may hit 15 to 20 percent this year with aggressive growth; from 2013 through 2015, he adds, there was about 25 percent growth in the financial-planning side.

Looking at his business on the Philadelphia side, Bell sees no major impact with the inauguration of a new mayor. “Things should remain fairly stable [in the city],” he says, adding “The fundamentals of the economy remain, with manufacturing, housing and jobs in the area remaining strong [in terms of small businesses].”

Like most interviewees for this article, he sees no major change caused by the Fed rate hike. Bigger in terms of impact, he says, is the result of this year’s presidential election: “How the incoming president handles small businesses and encourages small businesses’ investment in jobs [will be crucial],” he stresses.

Published (and copyrighted) in Philly Biz, Volume 1, Issue 2 (January, 2016).
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