Redwood Tower, two blocks north of Harborplace in downtown Baltimore, boasts spacious corner offices, harbor views, a brick-and-glass exterior and a unique perch atop a historic building. It also offers parking and access to shopping, restaurants and mass transit.
What is missing, its managers say, are workers to fill the half-empty, 15-story building, which lost a key tenant when the state Department of Business and Economic Development moved out more than a year ago. The tower is one of many buildings in downtown Baltimore struggling with a high vacancy rate — a problem at the heart of criticism over plans for a $1.5 billion development project on the western edge of the Mount Vernon neighborhood.
Critics contend that the state's plan to build up to 2 million square feet of office space as part of a rejuvenated State Center government complex could drain life from the downtown business district, where real estate experts say more than 2 million square feet is already available in some of the biggest towers on the city's skyline. Critics say the State Center development could lead to higher vacancy rates downtown, further erode the tax base and depress property values. Taxpayers will pay a steep price for the State Center project, critics say, because state agencies will pay above-market rates for leases. The project will also depend on tax increment financing from the city.
"I'm all for development, but it should be done in the right way and the right place," said T. Courtenay Jenkins III, a senior director in the Baltimore office of the commercial brokerage firm Cushman & Wakefield, which handles leasing for Redwood Tower and other buildings in town.
If State Center is built, he said, "there will be pressure to fill that real estate," meaning the state would probably want to move state agencies in downtown offices into the new State Center.
With the vacancy rate downtown at 18 percent, and more than 20 percent for the most desirable and newest buildings, "I don't see the vacancies going down," Jenkins said.
Real estate experts say large blocks of desirable office space downtown are available at competitive prices. According to research by Cushman & Wakefield, the city had 4 million square feet of vacant space of all classes in the third quarter.
State Center would create another satellite development along the lines of mixed-use projects under way at Westport, Harbor East and Harbor Point.
"Baltimore's office market doesn't have that organic growth in it to support" another development that could siphon off tenants from downtown, said Ronald M. Kreitner, executive director of WestSide Renaissance Inc., a nonprofit organization that promotes west-side redevelopment. Attorney Peter G. Angelos, the Orioles' majority owner and downtown property owner, founded the group.
Construction is expected to start this winter on State Center's $200 million first phase, which is to include an underground garage and buildings for rental apartments, a grocery store and more than a half-million square feet of offices for three state agencies. The 28-acre site west of Mount Vernon could include 2 million square feet of public and private office space, 1,400 housing units for rent or for sale and 250,000 square feet of ground-level shops, to be built over the next 15 years. Existing buildings would be demolished or renovated.
State officials and developers defend a new State Center as the most cost-effective way to replace the outdated complex of 1950s-era office buildings, which are now occupied by 3,500 state employees. The officials and developers have pledged to keep the same level of employment in State Center, and say the project would be all but impossible without the state agencies as anchor tenants. They hope the planned cluster of offices, homes, shops and plazas around the light rail and subway will become a model for transit-oriented urban renewal that will attract national attention.
"We are hopeful that over 15 years' time there will be new businesses looking across the country" for transit-oriented development sites, said Caroline G. Moore, chief executive of real estate development company Ekistics LLC, which is leading the State Center project. "The state has teed this up for Baltimore to be able to compete on a national stage."
The State Center plans have been in the works for much of the past decade. The center was proposed under Gov. Robert L. Ehrlich's administration, and planning continued under Gov. Martin O'Malley. But some of the details — costs, potential subsidies, possible state worker relocations and changes to the private development team working with the state — are now prompting an outcry from business-district landlords and brokers and others with downtown interests.
Owners of vacant downtown office space totaling more than 900,000 square feet are offering full-service rents of $20 per square foot or less for newly refurbished accommodations, according to commercial real estate listings. Based on the $20 per square foot rate, the state — which plans to lease more than 500,000 square feet at the new State Center — would pay an added $14 per square foot, or $140 million over 20 years.
Michael A. Gaines Sr., assistant secretary in the state Department of General Services, said the rent would be offset by ground rent that the state is to receive from the developer. Developers have also pledged to share 7 percent of profits with the state. Ground rent and profit-sharing payments are expected to bring in $174 million over the next two decades for the first construction phase.
"We are trying to build something that was nice but not flamboyant," Gaines said. "This is the lowest-cost rent we could get based upon building a new building for this marketplace."
Critics also oppose the use of tax increment financing, arguing that such districts fail to bolster the city's tax base at a time when Baltimore is struggling to maintain services. The developers have requested TIF financing of $10 million to $15 million for public road improvements in the project's first phase.
The board of the Downtown Partnership of Baltimore supports the concept of State Center. But Kirby Fowler, president of the nonprofit corporation that promotes living and working downtown, said, "There's a general desire to be cautious and deliberate about supporting any TIFs that would create speculative office space that could compete against downtown."
Calman J. "Buddy" Zamoiski Jr., a longtime city businessman and philanthropist and former chairman of the Baltimore Symphony Orchestra, said he became so concerned about the State Center project that he and Angelos recently requested a meeting with the governor. They met with O'Malley, but Zamoiski said he still does not understand the state's rationale for the new State Center.
"All we care about is maintaining the livelihood of the city of Baltimore," Zamoiski said. "Why don't you put all these wonderful workers [downtown]? Why not bring these people downtown to keep our city alive? If we leave the city with 2 million square feet of empty space, we have a city that's going to be bust."
Gaines said the state had analyzed the option of moving agencies out of State Center to existing downtown space.
"It did not make sense for us to do that from an operational perspective," he said. "Costs were significantly higher when you spread people out over geographic areas. When we looked at all the options, it came down to staying at State Center and leveraging the power of our occupancy there."
lorraine.mirabella@baltsun.com