The sale of Thames Street Wharf in Baltimore to California-based KBS Realty Advisors represents a watershed moment for economic development in Baltimore. The sale establishes a record price for commercial realty in Charm City. KBS paid $341 per square foot, easily exceeding the previous Baltimore record established when 100 E. Pratt Street was sold for $316 per square foot in 2005.
But the sale represents much more than a one-time milestone. It reveals much about Baltimore's economic future, and the news is shockingly positive. The sale indicates that investors hailing from other markets, even those from the state that produced Silicon Valley and Hollywood, are readily overlooking opportunities in their own backyard in favor of placing capital in Baltimore. Why? Because the narrative surrounding Baltimore is beginning to shift.
Ideas for the further beautification of the Inner Harbor, Pratt Street and other highly visible areas are ambitious and imaginative. Many city schools are set to be modernized through more than $1 billion of fresh investment. Neighborhoods such as Locust Point and Canton have been utterly transformed over the course of the last decade and are now among the most vibrant communities on the East Coast.
The city is also awash in neighborhoods with historic appeal and plentiful redevelopment potential, including Druid Hill, Reservoir Hill, Remington, Lauraville and many others. Resplendent with major hospitals and universities, Baltimore is increasingly vibrant and maintains a youthful entrepreneurial culture. Established neighborhoods such as Guilford, Roland Park, Homeland, Otterbein, Tuscany-Canterbury, Oakenshawe and Bolton Hill help support the city's tax base year after year.
These and other factors likely induced investors to pay $89 million for a property the Maryland State Department of Assessments and Taxation had assessed for around $55.8 million. The sale indicates that the property is even more valuable than the state anticipated, which translates into additional tax base for a city government that remains hungry for revenues. The sale also generates additional capital for the developer of Harbor Point to further leverage an effective public-private partnership that has helped to produce one of the city's most successful and transformative communities.
Perhaps most importantly, this is only the beginning. Developers from the Washington area, increasingly unnerved by saturated real estate markets in the Greater Washington area and by sequestration, are increasingly targeting Baltimore for their investments. The Port of Baltimore is filled with promise. The widening of the Panama Canal, scheduled for completion next year, positions Baltimore to become an even more important and increasingly global intermodal hub. Amazon.com has already identified Baltimore as a major distribution hub for both merchandise and food and is committing significant dollars toward construction.
In answer to the question regarding the motivation behind the purchase, KBS eastern region President Marc DeLuca stated that "We chose to add Baltimore to our portfolio because the city is in the forefront for the investment community and has the resources to continue its growth as a valuable center for investment." Note that KBS added Baltimore to its portfolio, not simply a building. Of course, the location and prestige of the building helped, but among other things, the building is LEED Gold certified and boasts Morgan Stanley as its lead tenant.
Some might view the sale as implicating nothing of relevance to the typical Baltimorean. While there are undoubtedly some people who benefit from the sale more directly than others, the fact of the matter is that this economic event portends better economic outcomes for many of us.
Commercial real estate in Baltimore's most fashionable areas is becoming more valuable. This in turn helps to trigger new construction, which creates more room for expanding firms and more opportunity for construction workers to ply their respective trades.
Recent weeks have been witness to a flurry of announcements regarding investment in Baltimore, including potential additional investment in Harbor East, the remaking of key sections of the historic downtown commercial business district, and Questar Properties' proposed apartment tower on the site of the former McCormick & Co. spice factory at the Inner Harbor. The successful sale of Thames Street Wharf reminds us how much more valuable Baltimore has become.
Anirban Basu is Chairman Chief of Sage Policy Group, Inc. and program host of the Morning Economic Report on WYPR 88. His email is firstname.lastname@example.org.
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