This article appeared in The Daily Record on Tuesday, February 6, 2018.
State Center developer argues analysis shows development benefits Maryland
By Adam Bednar
A new report compiled largely from research performed on the behalf of the state of Maryland shows the proposal to overhaul State Center, according to the developer, isn’t the bad deal opponents of the project have portrayed.
On Monday, Urban Information Associates released an analysis of the proposed State Center overhaul in Baltimore’s Madison Park neighborhood. The analysis compares rents in office buildings in the city compared to what state leases require; evaluates the cost of replacing the office complex compared to maintaining the sites as is; and highlights benefits to city and state tax revenues.
“Hopefully, it’s a road map, also, for just reminding everyone what a good deal looks like … I hope State Center gets done and it gets done under the bright light of day, and with all of the facts on the table,” said Caroline Moore, CEO of Ekistics LLC and co-managing member of State Center LLC. “So, don’t be fed a bunch of hogwash: The state’s presence at State Center is really important to leveraging this enormous economic development opportunities, not just for the city, not just the communities around it, but for the state of Maryland.”
Developer State Center LLC has for more than a decade sought to transform the office complex, which is served by light rail and metro lines, into a mixed-use development. The project called for new office space at the site as well as construction of multifamily units and the transformation of a historic armory on the site into a grocery store.
The analysis released by Urban Information Associates follows on the heels of the state releasing The Baltimore State Center Site Alternative Land Use Study late last month. It found that the best uses for the roughly 28-acre site include a strip retail center between 5,000 and 9,000 square feet, fast-food establishments, low-rise office space and park land. Listed among the study’s low potential for use was a new arena, high-rise apartment and high-rise office space.
Plans to overhaul State Center, a state office complex with buildings from the 1950s and 1960s, go back to 2005. The project was delayed in large part by a lawsuit from landlords in downtown Baltimore challenging the state’s procurement process for selecting a developer. In 2014, the Court of Appeals sided with the developer, finding the property owners waited too long to challenge the process.
Following the election of Gov. Larry Hogan later that year the development hit several road blocks. Following a lengthy mediation process in 2016, the Board of Public Works voted to terminate state leases at the project, essentially killing the proposed overhaul. Hogan’s administration argued the leases were capital leases and required the approval of the General Assembly and that they pushed the state over its debt limit.
The Hogan administration then sued the developer in an effort to have various other agreements nullified. State Center LLC responded and sued the state seeking damages. According to the developer, it has already invested $26 million in trying to bring the project to fruition.
The case is still in the discovery process in Baltimore City Circuit Court.
In an interview Monday, Moore defended the plan as a deal the state can’t find anywhere else. The only rent being paid, she said, was to repay bonds. At the same time the state would control the property at the end of a ground lease agreement. Maryland would also gain 7 percent profit-sharing on every other facet of the project, including a planned grocery store and additional retail and residential units.
As part of the development agreement the state’s base lease payments would be $25.85 per square foot. Maryland’s leases at State Center included an escalator rate of 15 percent in years five, 10 and 15 in a 20-year lease. In the city’s downtown area the median rent for properties constructed or built since 1999, according to the report, is $28 per square foot.
The report also projects the state would gain $47 million a year in tax revenue annually and that city coffers would receive $12.4 million annually following the completion of the project.
Joe Nathanson, of Urban Information Associates and a regular columnist for The Daily Record, said that finding development with which to compare the State Center project was difficult because of several reasons, such as State Center being proposed as a public and private partnership.
The offices in the State Center plan were being custom-designed for specific state agencies. The closest comparison that exists, he said, is the Social Security Administration space on Wabash Avenue in west Baltimore. That project involved a 538,000-square-foot, two-building complex. The General Services Administration is paying a rental rate of $38.83
“There’s a lot of complexity here, and it’s not that easy a story to tell,” Nathanson said.