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Future of State Center in question after judge's decision

The $1.5 billion overhaul of State Center in midtown Baltimore is effectively dead after a judge voided development contracts essential to the project.

“The court’s ruling reconfirms the significance of following the competitive bidding laws,” said Alan M. Rifkin, the attorney for a group of business owners and landlords who sued the state, alleging that the contracts were illegitimate.

Unless the state mounts a successful appeal and can resurrect the public-private partnership deal, the court order Thursday requires the state to go back to the drawing board on the project, in the pipeline since the administration of Gov. Robert L. Ehrlich Jr. A new start would mean following the state’s procurement laws, which require finding public financing for the project — a tall order in austere times.

Attorney General Douglas F. Gansler’s office declined to say whether it would appeal Baltimore Circuit Judge Althea M. Handy’s ruling. The state is reviewing its options, said David Paulson, a spokesman for Gansler.

“We’re discouraged by Judge Handy’s conclusions,” said Caroline G. Moore, founding partner and CEO of Ekistics, State Center’s lead developer. The project has been through five Board of Public Works approvals and “hundreds” of public meetings, she said.

The Baltimore firm will consider all avenues for recourse, Moore said. At least Handy ruled quickly, she said, “so we can get on to the next step.”

The State Center deal guaranteed the developer long-term, above-market leases with state agencies that would enable the builders to secure financing. The arrangement leased state land to the developer, which agreed that the tract and structures would revert eventually to state ownership.

The landlords and business owners, from downtown and Little Italy, filed suit in 2010 alleging that the State Center lease terms would create unfair competition and cripple the downtown’s struggling economy.

The mixed-use plan for the 28-acre site would have replaced 1950s-era structures that house several state agencies with space for 3,500 state employees, residences and retail space. It was to be built over a period of 15 years but has been stalled by the litigation.

“Despite the purported structure of the transaction, the ‘essence of the transaction’ was not a simple disposition of land ... but a complex, creative way to develop state land,” Handy said in the order. The contracts, therefore, are subject to the procurement code, she said.

The Maryland attorney general’s office, during a hearing Tuesday, asserted that the contracts constituted the state disposing of land to a developer of its choice. Tuesday’s hearing was on the state’s motion for summary judgment.

“The court finds, and the defendants admit, that defendants did not comply with the procedures required in the code, therefore, the [contracts] and the ground leases are void,” Handy wrote.

Handy’s decision marks the fourth blow for the State Center plans.

She had previously denied the state’s motion to dismiss the case and threw out a $100 million countersuit the attorney general’s office filed on behalf of the state Department of Transportation and the Department of General Services, which are overseeing the project in conjunction with a private developer. The state contended that the delay caused by the business owners’ and landlords’ suit, financed largely by Orioles owner and trial attorney Peter G. Angelos, increased costs of construction, financing and building maintenance.

A General Assembly bill last year that set out new rules for public-private partnerships failed. The bill offered an expedited legal process for some public-private developments and would have applied retroactively to the State Center deal. The O’Malley administration plans to reintroduce a revised bill this year, which could restart the project if passed.

For now, the landlords and business owners are satisfied — and hope that the state will rethink its strategy, put more resources into the downtown and abandon the State Center plan.

“In the downtown district, rates are still above 20 percent vacancy,” said Dave Johnson, senior vice president of Lexington Charles LP, one of the landlord plaintiffs.

Too many large office buildings in the city center have gone into foreclosure and the owners of others remain stressed by mortgages, he said. A new development just north of the Inner Harbor would not help many downtown properties, which often appeal only to government agencies, Johnson said.

“With this ruling, we can at least stop, take a deep breath and reassess,” he said. “It would be great public policy if the state decided to invest in downtown.”

Bonnie Scible, owner of Bonnie’s Peanut Shoppe at North Charles and West Saratoga streets, was delighted by the news because a third of her customers are state employees, who might move to State Center if it is rebuilt, she said.

“When I moved here, on Charles Street, I was very happy because I thought I was at the heart of everything,” Scible said. “A business like mine, you really need a lot of foot traffic.”

Baltimore Sun reporter Candy Thomson contributed to this article.

Have a real estate news tip or experience to share? Email me at steve.kilar@baltsun.com.

Copyright © 2014, The Baltimore Sun
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