Maryland voids leases for long-stalled State Center project, plans to study other options

The Board of Public Works voted to terminate lease agreements at the $1.5 billion State Center project.

Gov. Larry Hogan pledged Wednesday to work with city officials to craft a new plan for the State Center after canceling the planned $1.5 billion redevelopment that was expected to revitalize midtown Baltimore.

The Board of Public Works voted unanimously Wednesday to void the leases that underpinned the state's agreement with the developer of the 28-acre site near North Eutaw Street and Martin Luther King Boulevard.

The Republican Hogan, backed by Democratic Comptroller Peter Franchot and Treasurer Nancy K. Kopp, pulled the plug on the project as envisioned under Gov. Martin O'Malley, a Democrat.

"Our administration is absolutely committed to the redevelopment of the State Center project," Hogan said. "It is obvious to absolutely everyone that the previous proposal makes absolutely no economic or development sense."

Hogan did not propose a new plan. After Franchot suggested building a new arena on the site to lure a professional basketball or hockey franchise to Baltimore, the governor agreed to instruct the Maryland Stadium Authority to fast-track a study of how to redevelop the property, including whether an arena would be feasible.

Meanwhile, the developer vowed to file a lawsuit challenging the lease terminations and seek tens of millions of dollars in damages — a move that could further delay the long-stalled redevelopment.

The project first received board approval seven years ago but has been stalled by court challenges, concerns about how much debt it would require the state to take on, and the change of gubernatorial administrations.

Plans have called for a mix of offices, retail and residences to replace the crumbling 1960s-era state government buildings that now serve state workers by day but become a ghost town at night.

A lawyer for the current developer warned that the board's action would delay groundbreaking on any project at State Center for many years.

Hogan "has no plan whatsoever," said Michael J. Edney, who represents State Center LLC, the developer. "It will take five years for a single shovel of dirt to be turned at that site."

Edney said his client's plans were "shovel-ready" and could have started in 60 days had the state given the green light.

Edney asked for permission Wednesday to address the board, but Hogan would not let him speak because of the litigation threat. The attorney replied that he thought the $26 million his clients invested in the project would give them the right to five minutes of the board's time.

Franchot strongly agreed with Hogan's decision to terminate the agreements, noting that he withdrew his support from the O'Malley administration's plans in 2011 because of concerns about the project's affordability after the recession.

The comptroller suggested that the state look into making a new city arena the centerpiece of new development.

"I happen to think Baltimore City is a major-league city," Franchot said.

Hogan said he would instruct the stadium authority to study development possibilities on the site, including Franchot's idea for an arena.

A spokesman for the National Hockey League said there are no plans to relocate a franchise or expand the league. A National Basketball Association spokesman did not respond to an email seeking comment.

David Cordish, a major downtown developer who has called for construction of a "first-class arena" said the proposed State Center location would be a "disaster." He said it was a poor location with inadequate road access.

Cordish also echoed Franchot's criticism of the rents the state had agreed to pay for office space at the canceled project, calling them "insane."

Downtown business leaders have opposed the State Center project, fearing it could siphon off state government tenants from their buildings and dampen west side development.

But for Baltimore, any extended delays in redeveloping State Center could have a significant impact.

Hogan said he briefed Mayor Catherine E. Pugh and Council President Bernard C. "Jack" Young about his administration's proposed course of action and intends to work with the city administration to develop a new plan for the site, which is between downtown and Bolton Hill.

Pugh, a Democrat, said "all of us in Baltimore are sad the project is not moving forward."

Nevertheless, Pugh said she would work with Hogan on a new plan with the understanding the project won't progress under the current developer.

"I said to him we will bring our advocates and the people in the community to Annapolis to have a discussion about how we can move State Center forward," she said. "The community has some major needs, and I want to make sure that when I go to Annapolis that we take those needs to the governor."

Young, a Democrat, expressed concern about further delay. But he welcomed Hogan's assurance that he would work with the mayor, the council and the community to devise a new plan.

"The governor wanted to change course, and that's his prerogative," Young said.

City Councilman Eric T. Costello, a Democrat who represents the area that includes State Center, said he was "extremely disappointed."

He said the current plan had an "unprecedented level of community collaboration."

"We had 12 different community associations on the same page," he said.

The State Center project was first conceived more than a decade ago during the administration of Republican Gov. Robert L. Ehrlich Jr. Environmentalists hailed the plan as an example of "smart growth" that would make use of the area's transit resources — Metro, light rail and bus routes.

The project ran into trouble almost from the beginning.

Business owners backed by Orioles owner Peter G. Angelos sued the state in 2010, questioning the process that led to the selection of the developer.

They won at the trial court level and succeeded in delaying the project for years, but in 2014 the Court of Appeals ruled that the plaintiffs had waited too long before suing and cleared the way for construction to proceed.

However, as O'Malley was about to leave office, Kopp raised concerns about whether the project's structure could put the state in jeopardy of going over its debt affordability limit. When Hogan took office in January 2015, he put the project on the back burner.

Later that year, the administration began negotiations with the developer on changes to the project. Last summer, the state and developer took their disputes to mediation but could not resolve their differences.

Hogan pointed to the debt question as an important reason for rethinking the project. He said that by pushing Maryland over its limits, the project could force the board to raise state property taxes to cover debt service.

Edney said the developer had tried in negotiations to address the administration's debt concerns, but was rebuffed.

"The debt affordability issue is a total red herring," he said. "It's not a reason. It's an excuse."

For now, State Center LLC's status as the master developer remains in effect, and Edney said the group will not relinquish its rights as sole developer for the next 10 years.

"We hope the governor has a change of heart, but otherwise we'll see his representatives in court in January," he said.

Baltimore Sun reporter Luke Broadwater contributed to this article.

mdresser@baltsun.com

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