State Center backers dismiss recent setbacks

A vision to create a 21st-century urban village in midtown Baltimore has faced more potential setbacks in the past month than perhaps at any time in the decade-long effort to transform State Center, the aging state government office complex along Preston Street, into a $1.5 billion mix of offices, homes, shops and plazas.

State officials and the developer say the project is moving ahead, but the recent events — including a lawsuit — could at least delay commencement of the massive, five-phase, transit-oriented project, officials acknowledge. The complex is supposed to be constructed over 15 years.

Proponents point to significant jobs and investment lost if the endeavor does not go forward.

Critics, however, say the project is ill-advised at a time when the state is financially strapped — and when empty downtown office space is going begging (and is cheaper per square foot than the offices to be built at the State Center).

Here are the recent headlines:

•Early this month, the Maryland Public Policy Institute issued a report criticizing potential taxpayer costs associated with the project, which the conservative-leaning group estimated at $127 million for the first phase.

•Next, a judge cleared the way for a lawsuit brought by commercial property owners challenging the State Center project because they worry it will drain tenants from downtown, where vacancy rates are already high.

•Then state Comptroller Peter Franchot withdrew his long-standing support for the State Center, saying in a July 15 letter to the secretaries of the state Department of General Services and the Department of Transportation: "I simply do not believe that we can risk the possibility of 'maxing out the State's credit card.'"

Despite the downpour of bad news, state officials associated with the project and the developer vowed to push ahead.

"The project is still on," Michael A. Gaines, assistant secretary in the Department of General Services real estate division, said Friday.

State officials say the administration of Gov. Martin O'Malley plans to proceed because the project will not only provide much-needed office space for 3,500 state agency employees but will also return state-owned land to Baltimore's tax rolls, create jobs and reconnect historic neighborhoods separated by what some have called a 28-acre "wasteland" of 1950s-era structures.

Despite the lawsuit plaintiffs' fear that the sprawling project could destroy downtown Baltimore's commercial district, Mayor Stephanie Rawlings-Blake is in favor of the new State Center, a mayoral spokesman said last week.

"Her thinking is, Good projects have a way of continuing to move forward despite difficulties," Ryan O'Doherty said.

O'Doherty continued, speaking of the downtown property owners' lawsuit: "[There is] this notion that you can continue to threaten viable projects by constant, ongoing litigation. … She's of the belief that you can have two successful areas of the city or more moving forward."

The developer plans to start the first phase of development — some 500,000 square feet of offices in two buildings for three state agencies, as well as a garage, a grocery store, shops and 100 apartments — "at the earliest possible date," said Caroline G. Moore, chief executive officer of Ekistics, the lead developer, in an interview Friday.

Moore said she could not give a more specific time frame because of the pending lawsuit, but she said the state was on track to move agencies into their new buildings by 2014.

Work on the initial, $200 million phase is moving forward, Moore said, including design work and planning.

The first element of the new construction — a garage to be mostly financed by the state through a planned $33 million bond sale that has been delayed by the pending lawsuit — "is not in jeopardy" and will proceed according to plan, Moore said.

Preliminary work is also progressing on the later stages of the project. All told, the five phases are to contain some 6 million square feet of space.

That total includes 2 million square feet of public and private office space — about 1 million of which are planned for state agencies currently at State Center — as well as 1,400 rental and for-sale housing units and 250,000 square feet of ground-level shops. Plans call for the developer to lease the ground from the state, build and own the office buildings, and then rent space to the state.

Not moving ahead would be a costly mistake, State Center proponents say.

Not only would it would waste what backers call possibly the best transit-oriented development site in Maryland — with access to light rail, Metro and train service — but it would cost the city $170 million in private investment in new construction, as many as 1,000 construction jobs, and tens of millions in new tax revenues.

Those benefits will accrue only if the state anchors the mixed-use project as a key tenant, said Christopher Patusky, director of the real estate office for the Department of Transportation.

Though officials emphasize that they are moving ahead, the recent brouhaha over the State Center has made some project backers uneasy. Further delays, they say, could be destructive.

"If there are a series of projects that are significantly delayed or canceled as a result of litigation, that can have a kind of chilling effect on new investors and businesses and people who want to develop and build things in Baltimore," O'Doherty said.

In addition, a potential loss of jobs in the city — which would happen if the state were to begin moving agencies elsewhere — has officials concerned, said M.J. "Jay" Brodie, president of the Baltimore Development Corp., Baltimore's development arm.

"The retention of the state jobs in Baltimore City is critical for us," Brodie said. "The mayor and the governor and everyone recognizes that they are vital to the future of the city. There are other jurisdictions in the state that would be happy to have those jobs."

Residents of neighborhoods near State Center are also concerned, said John E. Kyle, president of the State Center Neighborhood Alliance Inc., a coalition of nine neighborhoods that support redevelopment, including Seton Hill, Marble Hill, McCulloh Homes, Madison Park and Mount Vernon.

They worry that the project will never be constructed, leaving an aging set of buildings that will continue to deteriorate and drag down an area that already closes after office hours.

"We're certainly worried that there will be a derailment," Kyle said. "We don't think anything that's been brought to light should derail it. But we're worried. The needs of the community surrounding it ought to be the paramount concern."

Continued Kyle: "The concern is that … there will be delay, delay, delay, and this is an area of the city that has experienced delay, delay, delay before."

The recent State Center headlines come after months of simmering debate over potential costs to taxpayers, centered on the above-market-rate rent that state agencies would pay the developer — at a time when downtown is struggling with a vacancy rate of 24 percent for newer office buildings.

In December, a group of downtown landlords, restaurants and small retailers filed a lawsuit contending that the project would unfairly compete with downtown office buildings and that the state had used a noncompetitive process to select developers. Baltimore Circuit Judge Althea M. Handy denied the state's motion to dismiss the lawsuit on July 13. State officials have defended their procurement process.

The MPPI's July 7 report focused on what the group estimates to be a taxpayer cost of $127 million in the project's first phase, based on state agencies paying above-market-rate leases, the value of a state-financed parking garage, and tax credits and subsidies.

Opponents of the project took heart last week when Franchot announced he would no longer support efforts to complete the State Center as planned. Undertaking a commercial real estate venture in a bad economy, he argued, would plunge Maryland taxpayers into deeper debt and threaten the state's fiscal health.

"We've asked to hit reset on this project, and now that's been validated by the comptroller," said David E. Johnson, a senior vice president of Lexington/Charles Limited Partnership, the owner of the 201 N. Charles St. office building and a plaintiff in the lawsuit.

The State Center "will compete with downtown office buildings for tenants," Johnson said. "This is a state-subsidized development competing with private businesses for tenants."

Recent events have given lawsuit plaintiff Bonnie Scible hope that the State Center project may be stopped.

The owner of The Peanut Shoppe in Charles Plaza on North Charles Street, Scible fears the project would pull more state workers out of downtown. The loss of downtown companies over the years already has cut into lunchtime business, she said.

"There are so many empty buildings downtown, and they're not being filled," Scible said. "So many businesses have left. Twenty years ago there were so many people out at lunchtime. Now the customers aren't out there. All these little things eat away at a small business."

She said she's all for redevelopment in the city but urges the state to "put [its] money into projects that are started. Or buy some buildings that are vacant and for sale."

Otherwise, she said, downtown businesses will lose a large chunk of their customer base — "and I don't think I'll survive that."