8:00 AM EDT, July 4, 2013
Recent debate over city tax credits for the Harbor Point development project miss the point ("BDC says Stokes spreading misleading information about Harbor Point plan," July 2).
Harbor Point is a large parcel that is proposed to accommodate the new Exelon building as well as an entire fantasy land of additional development, including condos, apartments, retail space and office buildings. All of the glossy projections of bountiful tax revenue for the city and thousands of jobs are based on building out this magic kingdom.
The Exelon building is a done deal. This is a project with complete long term occupancy by a blue chip tenant. There is no risk to developer Michael S. Beatty: Financing is a slam-dunk, and its likely that it's set up on a 15-year repayment schedule, meaning he will own the building with a projected value of, say, $150 million at the end of the lease period.
The remainder of the parcel is for the magic kingdom, i.e. speculative development. As Mr. Beatty points out, the parcel has been vacant for a long time and market conditions change over time. As the BDC states, it takes at least a 15 percent return on investment to attract investors to speculative development. Thus, in order to attract money for further development of the parcel the city needs to subsidize the private market.
Herein lies the big issue: This parcel has been vacant so long for the same reason that all of the other prime parcels downtown have been vacant, namely because market conditions will not accommodate major new development of any kind.
The downtown is overbuilt with offices, condos and a huge build of apartments. Things are going to have to change in the national and local economy to warrant any major new development downtown.
Developers with nothing to do exercise their most creative salesmanship during times such as these. But more of any kind of development at Harbor Point will just cannibalize existing space and cause a musical chairs effect. It is a landlocked parcel that will choke the downtown, Fell's Point and Canton with traffic if developed as densely as is being proposed.
Does it make sense for taxpayers to finance $107 million in infrastructure on the parcel, on top of all of the other freebies that already have been bestowed on Mr. Beatty by Mayor Stephanie Rawlings-Blake? The parks and promenade are really just the front yards of the buildings, but the developer has designated them as parks to get them off his tax liabilities and onto public construction expenses and lifetime free maintenance.
The agreement is that the developer and tenants will be responsible for servicing the infrastructure debt. It should be clearly understood, however, that Mr. Beatty and Exelon are the only two parties that will be servicing this debt load. Any additional parties are a long way in the future.
It's interesting that the majority equity party in the parcel, John Paterakis, has atypically pulled out of the deal and will take his money out up front through the land sale to Mr. Beatty for the Exelon building. When the infrastructure debt service comes due he'll be long gone.
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