By Hanah Cho and Steve Kilar, The Baltimore Sun
1:12 AM EST, February 2, 2012
Harbor Point, a development project led by bakery magnate and developer John Paterakis Sr., will be the site of the headquarters for the combined Constellation-Exelon company if the proposed merger is completed, the energy giants announced Wednesday.
The prospect of adding a new office tower to Baltimore's skyline excited city officials and the development community. But some were disappointed that the companies chose a site between Harbor East and Fells Point, rather than in the central business district. Others questioned whether the burgeoning waterfront area can handle all of the recent development.
J. Kirby Fowler, Downtown Partnership's president, called Exelon's commitment to downtown "good news" but said he was disappointed in the site selection.
"There were many compelling and appealing sites that would have had the added benefit of reinforcing downtown, particularly the older core," said Fowler. His group had been advocating for properties in the central business district, including the former McCormick and News American properties near the Inner Harbor.
Exelon, which has pledged to build a Baltimore headquarters as part of a $7.9 billion buyout of Constellation Energy Group, did not release details on the building's design or the project's scope. The development deal is contingent on Exelon and Harbor East Development Group LLC reaching an agreement on lease terms and other conditions. The property once held an AlliedSignal chemical plant.
The Constellation-Exelon merger must be cleared by regulators, including the Maryland Public Service Commission, which is expected to make a decision by Feb. 17.
"We are committed to Baltimore's downtown and its business district, and we look forward to being a growing part of the Baltimore community as the overall vitality of the city's downtown continues to flourish," Exelon President and Chief Operating Officer Christopher M. Crane said in a statement.
For its new Baltimore headquarters, Exelon sought proximity to the waterfront, 300,000 to 370,000 square feet of rentable space, at least 7,000 square feet on a single floor for its trading operations, an office floor of about 30,000 square feet and occupancy in 2014. Exelon said it evaluated developers based on their experience and proposed "competitive and economic lease terms."
"It was a challenging decision and one based on a variety of criteria," Exelon spokeswoman Judith Rader said. "The Harbor [Point] site best met those criteria, and we think the development overall will be very good for Baltimore's economy."
Rader said Harbor Point also provided flexibility for future growth and the developer has experience on "delivering downtown Baltimore high-rise office buildings on schedule." Harbor East Development also owns the Legg Mason Tower.
Exelon did not reveal all the sites that it considered, but developers, city leaders and others had identified a handful of locations that could accommodate a new office tower.
Besides Harbor Point, other sites that had been proposed to Exelon included the former McCormick site at Light and Conway streets; the old Southern Hotel site at 1 Light St., Baltimore City Community College's Bard Building at Lombard Street and Market Place; and the old News American property at 300 E. Pratt St.
Three of the sites — 1 Light St., the BCCC building and Harbor Point — are in state-approved city enterprise zones that offer tax breaks of varying levels over a 10-year period.
Advocates for the city's core business district, including the Downtown Partnership of Baltimore, had been pushing Exelon to select a location to reinforce the area around Pratt and Light streets. They also feared that a new structure could hurt the city's business center by creating an excess supply of office space.
Looking forward, Fowler said city officials and other stakeholders should evaluate how incentives are used to lure businesses downtown.
"We want to ensure that older parts of downtown get a shot at succeeding as much the new parts," he said. "It's paramount for us to engage the public and private sectors on how incentives are being used to move office tenants around the city."
The owner of the old McCormick plant recently sought a property tax break from the city to allow it to compete with other developers for Exelon's headquarters.
"I just wish we could have developed a comparison of sites that was apples-to-apples," said Councilman William H. Cole IV, whose district includes downtown. The McCormick site was disadvantaged in the process by being outside long-established tax incentive zones, he said.
Plans for the old McCormick property, owned by Questar Properties, called for nearly 400,000 square feet of office space topped with about 350 apartments with street-level shops and an above-ground garage. Last week, the Baltimore Development Corp.'s board of directors considered Questar's request for a subsidy known as payment in lieu of taxes, or PILOT. BDC board members were prepared to make a recommendation to Mayor Stephanie Rawlings-Blake after last week's meeting, according to BDC President, M.J. "Jay" Brodie.
Now that the decision has been made, though, the city's focus needs to be on "back-filling the vacancy created [at Constellation's current headquarters on East Pratt Street and next door at the Candler Building on Market Place] as quickly as humanly possible," Cole said.
Several hundred thousand square feet of office space along Pratt Street may depress office lease prices uptown, said Terri Harrington, a commercial real estate broker with MacKenzie Commercial Real Estate Services in Baltimore. As more space comes on the market along Pratt Street and prices drop, she said, tenants north of Pratt who previously couldn't afford prime space in the central business district will move, leaving less desirable spaces empty.
Recent moves into downtown — such as Transamerica Life Insurance Co. moving into Legg Mason's former home at 100 Light St. — provide reason for optimism, said Ryan O'Doherty, spokesman for Mayor Stephanie Rawlings-Blake. Legg Mason moved its employees to a new structure in Harbor East in 2009.
"Recent history has proven beyond a doubt that it is possible to have growth in Harbor East and in a downtown building" that a company vacated, just as is happening with Constellation, he said. "Harbor East versus downtown doesn't need to be an either/or situation."
Rawlings-Blake also supports converting office buildings into residential space if there is an appetite for it, O'Doherty said. Baltimore Gas and Electric Co.'s old building on East Lexington Street, for instance, is now a thriving apartment structure, he noted.
City Councilman James B. Kraft, whose district includes the Harbor Point development, said the area has been zoned for dense commercial development for more than a decade and can absorb the influx of human and vehicular traffic that will result from Exelon's arrival. He expects temporary "growing pains" as Harbor East and Fells Point adapt to more bodies and cars, he said.
But Robert Manekin, managing director and principal at the commercial brokerage firm Colliers International in Baltimore, was more worried. "There is a very real concern in the marketplace that the density cannot be effectively addressed by the current streets and mass transit," he said.
If the merger is completed, Exelon would maintain its headquarters in Chicago, but the Baltimore office would house its growing power-selling and renewable energy businesses. About 1,500 workers are now based at Constellation's downtown headquarters.
The merger would lead to the elimination of about 600 positions across both companies, but the job reductions would be felt most in Baltimore, affecting Constellation's legal, information technology, financial and other corporate departments, according to Exelon officials.
Exelon plans to move 200 to 250 jobs from its Pennsylvania energy-trading operations to Baltimore.
Exelon put out a request for proposals on a headquarters site in August and by late October had focused on proposals from nine developers. The company narrowed the field even further and received input from "key community stakeholders," Exelon said.
Michael S. Beatty, president of Harbor East Development, said in a statement that Exelon wanted a "unique headquarters facility that would create a dynamic home for their growing Baltimore workforce."
"This project will be a model catalyst for the development of a truly sustainable and vibrant neighborhood," said Beatty, whose group also developed the Thames Street Wharf building anchored by Morgan Stanley. In addition to being involved in waterfront development, Paterakis heads the nearby H&S Bakery Inc.
Chromium chemical processing took place on the Harbor Point site for more than 100 years, according to the Maryland Department of the Environment, and required a decade of cleanup to make the acreage suitable for construction. The environmental remediation was completed in 1999, leaving behind a hydraulic barrier to prevent chromium from leaching into the harbor and a 5-foot-thick protective cap that stops the dangerous substance from being released on the surface of Harbor Point's property.
Exelon said it has selected Washington D.C.-based SmithGroupJJR as the interior design architect; Baltimore-based RTKL as the mechanical, electrical and plumbing engineer, and GreenShape in Washington D.C. as the consultant for Leadership in Energy and Environmental Design.
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