Maryland seeks to void State Center development agreement

The following article first appeared in the Baltimore Sun on Dec 21, 2016:

The Board of Public Works is scheduled to vote Wednesday on a proposal to end the state's 7-year-old agreement with the developer of the stalled $1.5 billion State Center in Baltimore.

If approved, the move could send the project back to the beginning and allow the administration of Gov. Larry Hogan to select a new developer. However, a lawyer for the current developer said that if the board cancels its contract, the state can expect a lawsuit that could hold up the project for years.

The project, which has had the strong support of Baltimore elected officials, would redevelop the aging state government complex north of downtown with a mix of office, retail and residential properties. State agencies have been expected to be the main tenants.

The further delay of State Center's redevelopment could be the second billion-dollar blow to Baltimore's development prospects since Hogan took office. In 2015, Hogan pulled the plug on the proposed $3 billion Red Line light rail project.

The State Center project has faced bitter opposition from downtown property owners, including Orioles owner Peter Angelos. Owners of buildings in the central business district have expressed concerns that a redeveloped State Center could unfairly compete with them for state government tenants.

A court challenge to the choice of the developer under Gov. Martin O'Malley failed but managed to delay the project.

Hogan spokesman Doug Mayer said the administration would have no comment on the Board of Public Works agenda item before the board meeting. All he would say is that Hogan remains committed to redeveloping the property.

"That's not going to change," Mayer said.

In the agenda item, the state Department of General Services says that "for numerous reasons, including litigation by opponents, economic market changes, technology changes, proposed changes to the project, changes in the State's needs, a change in administrations, and the passage of time, no material, constructive actions with this project have taken place."

The proposal coming before the board calls for termination of a series of agreements reached between the state and State Center LLC, the developer chosen by the O'Malley administration. The lead company in the State Center group is Ekistics LLC.

The developer had sought a modification to its overall agreement in December 2014 to reduce the size of a planned parking garage from 928 spaces to 580. But the proposal became hung up over concerns that the project could put the state over its borrowing limits, and action was deferred until Hogan took over as governor.

Hogan never resubmitted the garage proposal to the board, and his administration has spent nearly two years deciding what to do with the project.

Reached in Germany on Tuesday night, Caroline Moore, CEO of State Center LLC and Ekistics, said she was unaware of the state's action. She said she had no comment.

Michael Edney, a Washington lawyer who represents the developer, said the administration's action blindsided the developer.

Edney said the administration is jumping the gun by seeking the board vote to cancel the agreements before a 30-day standstill agreement runs out. The standstill stems from a failed mediation effort that began this past summer after negotiations between his client and the Hogan administration went nowhere.

The administration rejected a proposal by the mediator within the last two weeks that would have ended the dispute, Edney said.

"We'll be suing the state for tens of millions of dollars in the first two weeks of January," he said.

If the administration seeks to move forward with another developer, he said his client would seek an injunction to halt that effort.

"The administration has taken no substantive or serious move toward executing its obligations since Governor Hogan was elected," he said.

Edney said the developer's contracts with the state clearly bar the state from developing "even a square foot of State Center without our consent."

The lawyer said legal action could hang up the project for years and leave state employees continuing to work in a "crumbling, unhealthy building" unless the administration decides to move their jobs out of the city.

A spokesman for Mayor Catherine E. Pugh could not be reached to comment Tuesday night.

mdresser@baltsun.com

Melissa Heuer