3:27 PM EDT, May 13, 2013
Harbor East is moving farther east with baker-cum-developer John Paterakis Sr.'s announcement Friday that he will break ground this summer on a new, mega-Whole Foods and later on a new residential/retail building across Central Avenue from the glittering mini-city he has almost single handedly built during the last 15 years. Things are bustling in that corner of the city, what with the planned construction of a new headquarters office tower for Exelon Corp. and a variety of other smaller scale residential, retail, office and hotel developments nearby. Mr. Paterakis is even talking up the possibility of adding more stories atop the Four Seasons hotel that opened on the waterfront less than two years ago. When it comes to Baltimore development, this stretch of land between the Inner Harbor and Fells Point seems like the place to be.
And that, no doubt, is giving property owners in the traditional downtown business district palpitations, particularly as T. Rowe Price goes through one of its periodic reviews of its office space on East Pratt Street. The money manager and marquee downtown tenant has a lease that expires in 2017, and as it has before, Price is exploring its options — stay put, move to its existing corporate campus in Owings Mills or build a new headquarters, perhaps on one of the long-vacant parcels downtown. Or perhaps near the Exelon tower in Harbor Point, which is just south of Mr. Paterakis' planned developments.
In a speech last week at the Greater Baltimore Committee's annual dinner, T. Rowe Price Chairman Brian Rogers all but quashed the idea that the company will move out of Baltimore. Though he wasn't completely definitive, he noted that the company's workers and clients appreciate a location in the middle of the city with all the amenities it offers — good hotels and restaurants, entertainment and accessibility.
That certainly describes its current location, which sits diagonally across the street from the Inner Harbor, but it also would describe Harbor East. Might the firm leave a 400,000 square foot hole in a prime downtown location in exchange for a new home in Harbor East, with reduced property taxes to boot?
Time will tell. This exercise may be an effort to shake the city down for tax breaks — Legg Mason, after all, moved to a new Harbor East office tower built with $33 million in property tax breaks, plus more reductions because it was located in an enterprise zone. But it could just as well be an effort to shake its current landlord down for a better deal.
But the speculation reignites the worries fostered by Legg Mason's move and Exelon's decision to move from Pratt Street to Harbor Point: Is Baltimore's traditional downtown hollowing out in favor of shiny, new Harbor East, and is the city subsidizing it all through property tax breaks?
Downtown office occupancy rates and rents are generally strong along Pratt Street itself but less so farther north. A number of office buildings are effectively obsolete and are unlikely ever again to command premium tenants. Harbor East grew so quickly and attracted the marquee tenants it did because it presented as close to an opportunity for greenfield development as you'll get in the middle of a city — it was controlled by one owner who was able to build new from the ground up. If your primary consideration is brand new, modern office space, it's the place to go.
But it is worth noting that Harbor East's development has not signaled the end of downtown. The owner of the former Legg Mason tower downtown invested more than $40 million in upgrades to the property and landed a variety of new tenants, most notably Transamerica, which consolidated local operations there and brought in more employees from other states. That building is now almost fully occupied. The enterprise zone that contains Harbor Point extends to virtually all of the central business district (along with Midtown and points north), meaning that commercial construction, renovation and expansion projects there are eligible for property tax breaks for a decade.
And the bulk of the city's downtown workforce remains in the traditional business district. According to the Downtown Partnership, 65 percent of the area's 113,000 jobs are on or north of Pratt Street, and just 4 percent are in Harbor East.
In a broad sense, what is happening is that Baltimore's downtown is expanding but also changing in character. Harbor East is and has always a decidedly mixed-use area, blending residential, retail, restaurants and offices. The traditional downtown, meanwhile, is moving in the same direction. The process is slow, owing to the multitude of different property owners and the age and diversity of buildings there. But the transformation of obsolete office buildings into apartments and condominiums has sparked a population boom downtown, and along with it have come more restaurants, entertainment and retail. Mayor Stephanie Rawlings-Blake has sought to foster that transition through legislation that went into effect last week providing property tax credits for some conversion of office buildings to residences.
T. Rowe Price may stay in the central business district, or it may move to Harbor East. Either way, it is not make-or-break for downtown.
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