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State board to vote on Maryland Insurance Administration lease amid controversy over site, cost to state

The owner of the Montgomery Park office complex, next to Carroll Park in Southwest Baltimore, objects to the state backing out of a deal to relocate the Maryland Insurance Administration there from a downtown office building.
The owner of the Montgomery Park office complex, next to Carroll Park in Southwest Baltimore, objects to the state backing out of a deal to relocate the Maryland Insurance Administration there from a downtown office building. (Baltimore Sun photo by Doug Kapustin)

Months after deciding to keep its 250-person agency downtown instead of moving to Southwest Baltimore, the Maryland Insurance Administration wants the state to approve extending its lease at St. Paul Plaza Office Tower.

But its request before the Board of Public Works Wednesday comes amid controversy — unresolved appeals by developers who lost out when the state’s insurance regulator backed out of its initial choice for a new headquarters.

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Owners of the Montgomery Park office complex, which was selected in competitive bidding in 2018, say they’re still waiting for the Maryland State Board of Contract Appeals to rule on a petition arguing the state abruptly and unfairly cancelled the bidding process in April, then failed to justify a “sole source” lease to St. Paul Plaza, the agency’s current location at the corner of St. Paul and Lexington streets.

The dispute is enough to prompt Democratic Comptroller Peter Franchot, one of the board’s three members, to question whether a vote on the lease should be put off, a spokeswoman for the comptroller said Tuesday.

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Nick Cavey, a spokesman for the Department of General Services, which handles leasing for the state, said the insurance regulator decided to stay put after determining a move out of downtown would make it harder to retain workers and would interrupt its operations and regulation of the insurance industry, hurting consumers and businesses.

The jilted landlord says the reversal means the state would pay nearly double in rent and other costs over 10 years at 200 St. Paul Place, including $16.8 million in rent plus $2.4 million for parking, compared with $10.7 million in rent with free parking at Montgomery Park.

Staying in the current space could cost the agency up to $8.6 million more over 10 years than moving to the eight-story redevelopment of the former Montgomery Ward Catalog House next to Carroll Park off Interstate 95, even taking into account the cost of moving, the developers say. Over 20 years, they say, the state would pay up to $15.8 million more, according to a comparison using the state’s figures.

“We feel the [lease] cancellation has not really been explained,” said Samuel K. Himmelrich Jr. of Himmelrich Associates and a co-owner of Montgomery Park, which already hosts the Maryland Department of the Environment. “We won this fair and square ... I’ve never seen anything like this.”

Franchot, who sits on the public works board along with the Republican governor and Democratic state treasurer, has concerns about what he’s calling a “highly irregular process,” said Susan O’Brien, a spokeswoman for the comptroller’s office.

“The comptroller is not opposed to state agencies staying in downtown Baltimore,” O’Brien said. “This is not about whether he supports moving. It’s whether this is being done in an acceptable, business-as-usual way.”

The comptroller plans to ask the state insurance agency to address several questions and concerns during Wednesday’s meeting, O’Brien said.

“There is a contract appeal,” she said. “He thinks it’s only fair and right for the Board of Public Works not to vote until the Board of Contract Appeals renders a decision. It’s not right for the state to inform a bidder they are recommended for an award then pull out of negotiations.”

A spokeswoman for Gov. Larry Hogan said he has reviewed the issue and “looks forward to the discussion” at the meeting.

State Treasurer Nancy Kopp said that while she supports the agency staying where it is, the question is whether the Department of General Services acted appropriately and whether there’s a pressing need to act now before the appeals process is completed. She’s asked the Attorney General’s office for guidance.

The Department of General Services had projected savings of nearly $4 million in base rent alone by moving.

But during negotiations, the insurance administration began to have concerns about moving. A spokesman for the regulator referred questions to general services, which said it was asked to cancel requests for proposals to relocate the agency.

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During appeals hearings, Commissioner Alfred W. Redmer Jr. “testified about the disruption of operations from the move itself and the objections raised by the insurance industry, which fully funds the MIA, to the proposed relocation,” according to general services’ request before the public works board.

Cavey added that “several large insurance companies have complained that the relocation of the agency twice in 10 years is a wasteful expenditure of their funds. General Services reviewed these reasons and agreed it was in the best interest of the state to remain at 200 St. Paul Plaza.”

Under state law, existing state leases can be renewed without seeking competitive bids when it is found to be in the best interests of the state.

The public works board is being asked to approve a 10-year lease renewal with annual rent of $1.7 million, or $24.50 per square foot, and an option for 10 more years. It includes 94 parking spaces at $160 per month each and additional spaces paid for by employees. The state says it will save $10,000 per month in lower rental costs from the prior rental rate of $25.25 per square foot.

By comparison, Montgomery Park had offered average base rent of $16.75 per square foot, or $17.85 per square foot including utilities. It offered free parking and space for the large agency on a single floor, Himmelrich said. The state initially selected the building out of a dozen bidders, he added.

When the state announced plans to move in 2018, the landlord for the high-rise at 200 St. Paul Place said he wrote to the state agency objecting to the decision to pull workers from downtown. Tim Polanowski, president and CEO of The Kornblatt Co., owner of St. Paul Plaza, said at the time he had been in talks with the state for three years about extending the lease first signed in 2009 and was told his company’s proposal came in second. Polanowski declined comment Tuesday.

At the time, others joined the landlord in urging the agency not to move workers from downtown.

A move out of the central business core would “cost the downtown area 250 jobs and Baltimore City hundreds of thousands of dollars in revenue in the first year alone,” wrote Kristin Speaker, executive director of the Charles Street Development Corp. and the Historic Charles Street Association, in a December 2018 op-ed in The Baltimore Sun. “Downtown needs a core of major employers — corporate, nonprofit and governmental — for the area’s merchants to thrive.”

Montgomery Park’s appeals to the state procurement officer in April, August and September were denied. It appealed two of those decisions to the board of contract appeals.

The Department of General Services said it’s requesting approval of the lease before the protests are resolved because the lease expired in May, an extension ran out in November and the landlord is now permitted under the current lease to charge double rent.

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“While Kornblatt has not invoked this provision to date, it will charge MIA double rent if a new lease is not fully executed and approved by Jan. 8, 2020," (or Wednesday), the general services department said in its request. “Funding the double rent payment will require a special assessment on the insurance industry."

O’Brien said Franchot has concerns about that deadline as well.

“The landlord is strong-arming the state, saying, 'Sign the contract by a certain date or we will double your rent,” she said.

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