STATEMENT OF JOHN J. HERD, PHILADELPHIA, PA.

Mr. HERD. My name is John J. Herd.

Mr. Chairman, I think it might be well first to clarify 1 or 2 points as to my appearance here.

First, I am not here as a professional on retainer but as a citizen of the city of Philadelphia, who received a call in the last few days to see whether or not any modest experience that we may have had in the past might be of some benefit to the discussion of the matter at hand.

Mr. DURHAM. Carrying on the patriotism of the great city?

Mr. HERD. I feel very keenly about this and what effect it might have on the economy of the entire city as well as many of the collateral things that are going to be maintained in promoting the future development of Philadelphia and its port.

As far as my background is concerned, I am executive vice president of the Alfred M. Green Co., Inc., in Philadelphia, and associated with that firm for something between 25 and 30 years.

Our principal activities are as realtors, specializing predominantly in the commercial and industrial fields. Our sphere of activity extends primarily within the metropolitan Philadelphia area, but in the industrial and fields similar to that under discussion all east of the Mississippi River, and up and down the eastern seaboard.

Insofar as the subject matter at hand is concerned, I have been maintaining a very passive but very interested viewpoint as to what might happen down here at piers 96, 98, and 100. I have more than a professional interest in this, for whatever it may be worth, and during the period 1942-45, during the late war, I was a reservist with the United States Coast Guard. I was one of the executive officers who happened to spend a great deal of time right on this pier at a time when it was an Army port of embarkation, and at a time when we shipped from those piers in that installation everything from high explosives previously loaded, down to Tug Island and brought those things up as cargo, as well as untold amounts of highoctane gasoline going overseas, tanks, guns, and everything that you could possibly imagine at that time. Frankly, gentlemen, the situation was uncomfortable in 1942–43.

I give you that as background so that any relationship with this situation, you can see, is just a little bit more than a professional realtor one.

Now, as to the matter of appraising, I belong to a school which believes that any piece of real estate has more than one value. Valuation of any piece of real estate, or any parcel of property is directly related to the use to which it is put. Land on which corn is grown is worth to the farmer that which it will produce in the growing of corn. When I take that same land and convert it to the construction of residential units, that same land changes materially in its value. As I go on up the line to the concentrated density of use of a central city office building, we have again another situation.

We also have in the way of approach to valuation the question of intent. My normal pursuit and my livelihood is to buy for, trade for. and sell for, people, whether they be utilities or private owners back in Philadelphia.

We are expected to have a general knowledge of what people will pay, not a hypothetical or a technical knowledge, but how we may

convert real estate into cash or cash into real estate in a fashion which will be equitable to all principles of the transaction.

That is one type of valuation and even there you usually find three valuations: that which the owner thinks it is worth, what the seller thinks it is worth, and what we think, as negotiators, it is worth.

Going beyond that, then, you have another situation in which you might be willing to lend money with real estate as a security, such as in the mortgage business.

I put on my other hat when sitting, as I do, as a member of the board of two mortgage companies back home.

I have to look into the situation in which I am not interested so much in the immediate valuation, nor the utilization of a parcel of real estate as today, but what is it going to mean over 5, 10, or 20 years, or over the period of the loan then under discussion.

You immediately then have two situations. First, you have the worth of the real estate which I think is most pertinent to the situation in hand. What is the real estate worth from the standpoint of its ability to produce an economic return on an investment? That, to me, is the great thing to be considered here, but for the moment I will diverge and say that there is one additional valuation that may explain-when I come to a differential or a difference with your present appraisal that an appraisal for insurance purposes is entirely and far different than an appraisal or valuation for sale or borrowing, because in insurance you are only interested with the technique of replacement less only depreciation and such offsets as may be in the individual situation.

As to the present piers, pier 98 and so on, so far as I am concerned, they are quite vital to the future development of the port of Philadelphia. At the moment, we have ample facilities up there, in my humble judgment, but I think that we are far seeing enough, or trying to be, that the future of that port is wide open and its possibilities for development and expansion are wide open. It can only be done by a great contribution on the part of the city itself bearing a lot of the expense of the development period, which means the individual citizens and taxpayers of that community.

In order to take on a situation such as we have here now, I, therefore, can only look at one thing: the ability of this particular maritime facility to support itself on an economic level for quite some time, gentlemen.

I believe with all sincerity that our friends of the Army would get from that facility as much as the traffic will bear from tenants operating it, as they have for a number of years now, as a maritime facility. May I point out that it is one of the piers down there with 1,500 feet in extent, which is unusually large, and there is another with 1,200 feet, and another with approximately 1,000. With those advantages, the maximum rental brought to my attention has been $200,000 per year. Gentlemen, that is on a tax-free base, not under private ownership where it might be subject to a very heavy tax debt.

On the basis of $200,000 on a pier, I might add further that the only difference between a pier and any other industrial building primarily is not in the cost of the superstructure, that which you see at grade or at street level, but the additional costs of your substructure or what is required to be built into, upon, and over the water. You have your piling, cross-membering whether it be in wood, brick, or whether

it be in iron or concrete, in part of which these piers are built-that is the only reason that you are going into that added expense. When you convert that operation back into a lease matter, your ownership is going to produce it for berthing fees for vessels, and then the only thing anybody is justified in paying is what it will earn on the capital that is being discussed as the possible value.

Piers are subject to a great interruption of income. They are dependent upon the number of vessels, number of bottoms, and the tonnage flowing into that, or any given port, whether Philadelphia or any other in the country. If the vessels do not come in, you have lost time and you cannot recover it. It is not like a manufacturing company which can put on three shifts if they need them to make up for a falling off when they are lying idle.

When you bring ships in, you are using it and selling time, time at which they are berthed.

Every minute those berthing spaces remain vacant is irrevocably lost. For instance, yesterday there was 1 ship berthed at a facility which can accommodate 12.

Yet during the period that I mentioned before, 1942-45, this facility not only berthed 12 ships but I have seen it turn 16 in a day on an in-and-out basis.

If we cannot support a higher income than $200,000 without a tax problem to worry about, how can we then capitalize its economic worth? Admitting, if we may for the purpose here, some of the hazards of loss of income, I cannot see how any private capital—I put the city of Philadelphia's funds in the same category for the purpose of this hearing, gentlemen-would be justified in going there and contemplating anything less than a 12-percent return on an investment. It should be higher. I do not see how you can go lower.

When you get into a situation like that, I have come to the firm conclusion, and it is my considered opinion, that the worth of the pier facilities themselves would be somewhere in the neighborhood of $1.3 million to $1.350 million, with an additional consideration for the 25 acres of land not directly connected with the pier excepting by tunnel.

That is the 25 acres at the westerly side of Delaware Avenue at the corner of Oregon Avenue and that represents probably another $300,000 or $450,000 of value.

I give you that spread on the value of that because I am quite satisfied it is filled land and the development of that would require the use of piling.

That means an added cost to the construction and inversely affects the worth of the land, so you come out on the value of this somewhere $1.5 million and $1.8 million for the whole package. I think the city of Philadelphia would be justified in paying for the protection of the port and the city and as a protection, if I may say so, for anything which might interfere with the situation I have described. I cannot understand anyone feeling that that facility would not be important in the event of a future emergency. With that emergency coming up, the preservation of its availability in the event-Heaven help us, and I hope we do not have another one-that maritime facility will be there if we need it 10, 20, or 30 years from now.

That, gentlemen, in my opinion, is the situation and I would be very glad to go into any questions.

Mr. DURHAM. Thank you very much. You made a very fine statement and we will think it over carefully.

Mr. PRICE. I would like to ask one question.

You are familiar with the figures of $4.25 million?

Mr. HERD. That is right.

Mr. PRICE. Mr. Herd, in your experience for this particular piece of property, could you give us some reasoning as to how you might arrive at appraising it for that value?

Mr. HERD. I hate to go into the position of trying to partition the work of a contemporary, but I will try to justify it in all fairness. Mr. PRICE. It is necessary for us to have some idea of the difference in these figures.

Mr. HERD. I make that statement because I do not want to deliberately try to tear down somebody else's opinion. He is just as entitled to his opinion as I am to mine.

Mr. PRICE. I thought you might want to make that statement.

Mr. HERD. I could say this: Yes, you can do this, but on a slightly different approach. That is why I mention these elements of value. If I were approaching this from an insurance standpoint, I do not think that I could set an insurance value as low as this.

In the event of fire, you might or might not have to replace it, but you would have a different set of facts.

Let us go back to the original cost of 12 to 13 million dollars, whatever it might be, and I can present the academic theory of X years, or 30, 31, or 32 years of depreciation. Then, I can apply 1 or 2 other formulas and I can take my minimum depreciation of 1 percent a year or I can take the maximum, but I believe the allowable figure by law is 3 percent a year, or I can come in between the two, and, based upon my own judgment, take my depreciation. Then I would come out probably with somewhere around $4 million or $4.5 million.

That is why I say the approach to this thing and the intent and the objective of the valuation is very important, gentlemen.

If you were trying to get something academically set up and if you were sitting on a corporation and wanted to set these up as a book value in order to establish a depreciation base, then you would probably use the approach here. We are talking about an exchange of dollars and we are talking about a facility here which has to earn and pay its way.

In my judgment the city of Philadelphia would not be justified in taking it on forever and a day and making a contribution on a deficit basis to maintain this for the general welfare, not only of the city but perhaps of the Federal Government. I do not think they should get into that position and in my personal feeling I would be opposed to it.

As a maritime facility from the standpoint of need of berthing for ships, I have reservations that they need it. We are talking about the future and the preservation of something that cannot be replaced, a natural advantage. It is there and I would like to keep it there. We have more warehouses than we need in Philadelphia.

Mr. PRICE. What is the present warehouse situation?

Mr. HERD. At the present time we have more than a million square feet and in one account you have the Merchants Warehouse, the Bainbridge Stores, Franklin Stores, Kennelworth Stores, Traders' Warehouse, and I say to you gentlemen, if the Federal Government came into Philadelphia right now and needed a million square feet of warehouse and load-bearing capacity, I could furnish it.

There is that whole great change in the distribution of products today. Today your warehousing is done at the point of manufacture and origination as opposed to the time these warehouses were built when manufacturers shipped in here and we distributed from the central point, whether it be Philadelphia, Baltimore, or New York. That has all changed.

Mr. KELLEHER. Mr. Herd, I understood your testimony to be that these piers are worth between $1.5 million and $1.8 million to the city of Philadelphia?

Mr. HERD. No, I say to anyone who has looked

Mr. KELLEHER. For any use?

Mr. HERD. From the standpoint of economic return as a maritime facility.

Mr. KELLEHER. As a maritime facility?

Mr. HERD. That is right.

Mr. KELLEHER. If this were placed on the open market and could be used for any purpose whatsoever, then your $1.5 million to $1.8 million would not necessarily be a valid figure?

Mr. HERD. As a matter of fact, it would not necessarily hold, but it might go for less.

Mr. KELLEHER. And it might go for more.

Mr. HERD. Depending upon such use as is consistent with the zoning regulations and waterfront controls of the city of Philadelphia. We have to bear that in mind. It would then go over into private capacity which would then be subject to our local ordinances.

There are some violations down there right now because the physical condition of those piers is abominable. There is not a fire door in the whole pier working. They are all bashed up from the trucks hitting them overhead. There is not a cargo vent working and you have water flooding the second and third floors of pier 98 and buildings 1 or 2. I do not think that more than 20 percent of the elevators are working and yesterday they were in the midst of repairing, trying to do something to keep them going.

The elevators for modern-day handling of bulk cargo are inadequate. Mr. PRICE. I do not see why the city wants it.

Mr. HERD. Only one condition and reason. The whole thing is that the money has to be spent and frankly, Mr. Kelleher, that is a very important thing with me. It is not only the original cost but plus what it is going to need to correct the things that I mentioned. That is going to cost more than the original purchase price. You have to take the end result. You do not get a darn cent more to berth a ship at that pier right as it is now than you would when you fix up the elevators. Your income does not change in accordance with that additional investment.

All you are trying to do is to attract and keep that tonnage flowing in so it does not go to some of your competitor ports. That I am in favor of.

Mr. GREEN. Mr. Chairman, I want to thank Mr. Herd for his testimony today and I want to say this: You are one of the best witnesses that I have ever seen or heard before this committee and I believe you have explained this thing in the simplest terms so that everybody can understand it.

Mr. HERD. Thank you.