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What raid? Developers say all systems go in Allentown Reading businessman sees potential negative impact on its recovery

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Officials in Allentown say a recent FBI raid of Allentown City Hall should not slow the dramatic economic development that is occurring in its downtown.

But it could be a different scenario in Reading, where an FBI raid of City Hall could hurt a nascent recovery in a downtown that does not have the enticing tax incentives enjoyed by Allentown.

Regardless, an ongoing federal probe centered on construction contracts issued by municipal officials in the two cities is heating up. There is speculation that the FBI is looking into a potential connection between the awarding of city contracts and political contributions – and people are watching.

“The investigation is a complete disaster,” long-time Reading developer Jack Gulati said. “Obviously, it’s going to affect the future development.”

Yet in Allentown, the probe apparently has not hampered what so far has been more than $1 billion in new and planned development in Allentown’s Neighborhood Improvement Zone special taxing district, developers and officials said.

“The NIZ has helped turn Allentown around and will continue to do so,” said Allentown Mayor Ed Pawlowski in a statement. “Interest in building in our city is as strong as ever, and our downtown and waterfront will continue the impressive growth and development it has seen over the past year.”

The financial mechanism of the NIZ is not going away, said Jennifer Mann, an Allentown business consultant and former state representative.

“The opportunity that exists is not going away and that’s what’s driving the growth,” Mann said. “I don’t see this as having a significantly adverse result as far as stalling or inhibiting the growth that we’ve been seeing.”

In the end, companies decide where the best opportunities lie, she said.

Sy Traub, chairman of the Allentown Neighborhood Improvement Zone Development Authority, said he does not know what the investigation is about but that no one from ANIZDA has been contacted by the FBI.

“To the extent that ANIZDA is involved in the development of the NIZ, I don’t believe this should at all affect the redevelopment of the city,” Traub said. “So far as we can see, tenants want to come downtown, and banks want to lend money. I don’t see any reason why it should stop as a result of the FBI investigation. This is just another thing we have to deal with.”

ANIZDA formed in 2012 as an organization that reviews economic development projects in the NIZ and approves whether or not they should get financing. Developers with a proposed project in the NIZ appear before ANIZDA to ask for tax revenue to support the development.

The organization is separate from the city and its members are appointed, Traub said. Three members are appointed by state Sen. Pat Browne, three by state Rep. Mike Schlossberg and three by Pawlowski. All are approved by the mayor and city council, Traub said. Its executive director is Sara Hailstone, who is also the city’s director of community and economic development, he said.

“We operate completely independent of any political oversight,” Traub said. “Its function is obviously to promote the best interest of the city. There is no one who gets a leg up because they know someone. In terms of determining what projects are financed and what projects are approved, the city has absolutely no influence on it.”

Development on The Waterfront project along the Lehigh River, in the NIZ, should move forward as expected.

Interest in the project is strong, said Zachary Jaindl, chief operating officer for Jaindl Enterprises of Allentown, one of the lead developers in The Waterfront.

“Our leasing efforts have been at an all-time high” he said. “We received a significant amount of interest. We’ve seen more interest than ever, that interest has not slowed down.”

Overall, the developers are close to announcing tenants, and prospects have not expressed concerns about the investigation.

“We don’t see this as a hindrance; we are pushing forward,” Jaindl said. “There’s enough momentum behind Allentown’s renaissance.”

J.B. Reilly, who was unavailable for comment, is president and CEO of City Center Investment Corp., the major developer in Allentown’s NIZ. The FBI wants the city’s records and correspondence with Reilly, a campaign donor to Pawlowski, according to published reports.

City Center Investment Corp. does not have any contracts with the city and does not see the investigation as having any impact on future development, said Jim Harbaugh, vice president and director of sales for City Center Lehigh Valley.

“We certainly haven’t had any indication of it; our strategy and vision is the same,” Harbaugh said. “We are working on our existing projects as we always have.”

He said City Center talks to prospective tenants every day and has not had one phone call or conversation with a prospective or existing tenant who brought up the subject.

“The work we are doing is too important to slow down or let this affect us,” Harbaugh said.

Allentown and Reading have seen a rebirth of business, and the investigation should not have a negative effect, said Ken Kilpatrick, president of Sylvia Marketing & Public Relations of Pottstown.

“I don’t think it’s going to impact the image of the Valley,” Kilpatrick said. “This will not, in my mind, have a PR impact.”

Kilpatrick, who specializes in crisis communications among other aspects of PR, said the investigation could reveal that the process of winning these construction contracts is not all that clear, but again, this is speculation, he added.

For a company looking to locate in the Lehigh Valley, something like this FBI investigation would not influence them to take the Valley off the short list, he said.

In Reading, economic development is occurring at a slower pace. The city struggles to achieve successful development, although several projects are underway or being planned.

The FBI probe could affect growth, according to one Reading developer.

“In Reading, it does have an effect in a sense that development likes stable government,” Jack Gulati said. Developers want stable government so they can see what the ground rules are, he said.

Gulati owns the Reading Royals professional hockey team, is a developer of the DoubleTree by Hilton Reading – being built downtown – and chairs the Main Street Reading Program.

The investigation will have an effect on economic development for about two to three years, he said.

With a new mayor in Reading next year, developers will want to take a look at what his policies are, Gulati said.

“Rules and regulations are very critical for us all,” he said.

Though there is such high uncertainty, “this too shall pass,” Gulati said. “I’m sure we will come out OK.”

In Reading, the city’s redevelopment authority is an organization separate from the city. None of the authority’s economic development projects are connected to the city or the FBI investigation, said Adam Mukerji, executive director of the Reading Redevelopment Authority.

While Mukerji said the FBI was in City Hall, he said he has no idea what the investigation is about.

“I am as surprised as anyone,” Mukerji said. “We are independent from the city. I personally do not see any connection whatsoever.”

Several calls to the Reading mayor’s office were not returned.

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Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 4108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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