Paterakis uses dough to turn waterfront vision into reality
By By Tom Pelton
|Baltimore Sun reporter|
Jul 23, 2000 | 3:00 AM
Not bad, for a baker who got his start rolling dough in the basement of an East Baltimore rowhouse.
On a recent afternoon, John Paterakis Sr. stood on the roof of a nine-story office tower he's building near Fells Point and inspected the army of more than 1,000 construction workers building his Inner Harbor East, a small city of 12 buildings rising beside the water.The $500 million project promises to be the largest ever built by a private developer in the city, dwarfing Harborplace and the Gallery mall.
The bankroll of the "bread man" - whose family has written $100 million in checks to start work on the complex - is the main reason Baltimore is riding its most significant construction boom since the renaissance of the mid-1980s, city officials say.
It would be impossible for most people to miss Paterakis' 31-story Marriott Baltimore Waterfront hotel and nine-story F&G Insurance Co. offices that have been growing for the past year along Fleet Street, with the hotel scheduled to open Feb. 15 and the offices in November. But not everyone is aware that Paterakis has another nine-story office building under construction just east of the hotel, and six more buildings planned by 2004.
When completed, Inner Harbor East will feature the equivalent of 62 football fields of offices, hotels and retail space. Plans include 50 stores with chains such as Pottery Barn and The Gap; 10 restaurants; three hotels; 428 apartments in three buildings; an 18-screen movie theater; a Fresh Fields supermarket; a 200-boat marina; a public plaza facing the harbor; a landscaped waterfront promenade; 3,300 parking spaces in six buildings; and a 44-foot-tall bronze war memorial designed to look like a giant flame, according to Michael S. Beatty, vice president of development for the H&S Properties Development Corp.
Dreams and hard work
As cranes swung, saws screamed and workers slathered cement onto the façade of one of the buildings, Paterakis watched through his tinted glasses while the clouds darkened and rain began to fall on his real estate empire.
"When I was young, I didn't dream about hotels and buildings. I didn't have any money. To be honest with you, I dreamed about broads," he said, laughing. "I dreamed about building the family bakery business. And to do that, we had to work very hard. And we had to take some risks."
An enthusiastic poker player, the 71-year-old has made risk-taking the central theme of his business life.
After his Greek immigrant father died of leukemia in 1952, Paterakis made speculative investments in high-speed bakery equipment to develop his family's H&S Bakery business from a three-employee shop, based in a rowhouse on Ashland Avenue, into an international baking empire. His bakeries earn $800 million a year and churn out the buns for every McDonald's hamburger in the East, the South, Ohio and Texas.
In this sense, Inner Harbor East might be called Bread City, because it is built on the wealth Paterakis accumulated pounding out 2.4 billion McDonald's buns a year.
Paterakis said he won McDonald's as a client using the same risk-taking style he has employed building the Marriott and the F&G Insurance offices.
In 1965, he invested $1.5 million building an automated, state-of-the-art roll-manufacturing plant on Moravia Road for McDonald's before McDonald's officials had ever heard of him. He decided to play the odds, having faith that McDonald's would use his plant because it would make better buns than the competition did.
Breaking with conventions
In a similar way, Paterakis broke with the conventions of the development industry by writing millions in personal checks to build the Marriott Baltimore Waterfront and the F&G Insurance building before he had financing or tenants for the buildings.
On May 10, more than a year after workers started building the hotel, Bank of America approved a $70 million loan for its construction.
M. J. "Jay" Brodie, president of the Baltimore Development Corp., said he has never seen a developer build without loans or tenants in his more than two decades coordinating projects in Baltimore and Washington, D.C.
"If John Paterakis had not been writing personal checks to get construction started, we would still be sitting here without a hotel," said Brodie. "But he had both the personal fortune and the willingness to use that fortune in this way. I think it's a great vote of confidence in the future of the city."
Paterakis said he learned the necessity of taking risks by watching the deaths of almost all of the 46 small, independent bakeries that were flourishing in the city when he started in the business almost a half-century ago.
The "H" and "S" of his company's name come from his brother-in-law, Harry Tsakalos, and Paterakis' father, Isidoros "Steve" Paterakis, who started the bakery in 1943 in the basement and first floor of the family's 12-foot-wide rowhouse on Ashland Avenue near Johns Hopkins Hospital.
John Paterakis, his father and his mother, Kyriaki ("Clara"), mixed and shaped dough by hand in the basement. Steve Paterakis baked. Steve's daughter, Liberty, worked the bakery's counter. Her husband, Harry, delivered.
"I didn't go to college," said John Paterakis, a 1947 graduate of Patterson Park High School. "I was going to go to college, but my father got sick, and so I took over the family business. After a while, I was making $20,000 a year, and that was a lot of money in the 1950s. So, I thought: Why go to college with this kind of money coming in?"
Over the years, Paterakis watched as a growing number of family bakeries like his were crushed by competition from supermarkets. Instead of fighting the trend toward mechanized bread-making, Paterakis mastered it by coming up with a process for mass-producing specialty items such as Italian bread, French bread and kaiser rolls, normally made by small, neighborhood bakeries. No one else had done it.
He'd often spend money for baking equipment before he had supermarkets willing to buy his bread. In 1954, he landed his first big supermarket account with Food Fair. "Everything we've ever done, we've done on chance," Paterakis said. "You've got to keep spending money to keep updating to remain competitive. If you don't keep up, the big fish will eat you."
Now Paterakis is the big fish.
Not only does his family run the largest privately owned bakery in the United States, but he built a distribution center for McDonald's in Ireland and supervises production of rolls for the company in Singapore and India. He also supplies many of the baked goods for the Giant, Super Fresh, Shop Rite and Pathmark chains.
Friends describe Paterakis - who talks in the blunt, working-class style of his native Highlandtown - as a detail-obsessed workaholic who puts in 20 hours a day, even coming into the office on Christmas and Thanksgiving.
He avoids the press and loves playing high-stakes poker with a close circle of friends and donating large sums to the Cathedral of the Annunciation on Preston Street and other Greek Orthodox churches.
"I play poker sometimes, sure," said Paterakis. "But, look. When you play cards, you can lose $100 or so. But when you build a hotel, you could lose $100 million. Now that's risk."
Konstantine J. "Gus" Prevas, a friend and lawyer to Paterakis for almost a half-century, said: "If it took brains to be successful, all college professors would be millionaires. John is a very decisive type of person, and he doesn't always take advice."
Despite his personal fortune, Paterakis favors open-collar shirts over suits and until recently was so frugal he drove a worn-looking tan-and-green Lincoln that had more than 200,000 miles on it and an engine that had been replaced three times.
With his quiet, low-key demeanor, Paterakis is something of an opposite to the city's other Greek-American powerhouse from East Baltimore, Peter G. Angelos, the mercurial owner of the Orioles.
"I contrast John with Peter Angelos, who is very outgoing, always out front and seems to like the newspaper publicity," said former Gov. William Donald Schaefer, the state comptroller. "They both do good things for the city, but John is much more laid-back, and he doesn't like to be recognized as a leader. But he is."
Paterakis has also earned a nickname as a political "bread man."
He's a behind-the-scenes heavyweight whose fund raising has helped politicians including the late governor and vice president Spiro T. Agnew, former Gov. Marvin Mandel, Sen. Paul Sarbanes and former mayors Schaefer and Kurt Schmoke.
Anthony J. Ambridge, the city's real estate officer who served as a 2nd District city councilman from 1983 to 1995, recalled one example of Paterakis' frequent attempts to help Greek-American politicians.
"I remember one time John gave me a call and said, `Tony, come to my office; I want you to meet someone.' I went over there, and sitting there with him was Massachusetts Gov. Michael S. Dukakis, who, of course, at the time was running for president," Ambridge recalled. "John said, `He's too liberal for me, but you'll love him, Tony.'"
With the help of Ambridge and others, Paterakis held a fund-raiser at the Omni Hotel that raised more than $250,000 for Dukakis' candidacy in 48 hours.
Paterakis' political contributions - he and his companies gave about $10,000 to Schmoke from 1994 to 1996 - have also provided ammunition for critics of the Inner Harbor East project. They claim that Paterakis won favors in receiving more than $20 million in public subsidies and tax breaks for the project.
The history of the project stretches back to the early 1980s, when developer and former Mandel aide Michael Silver bought up what were then mostly weedy lots and railroad tracks to build what Silver hoped would be a suburban-style shopping mall.
'Sucker' for the city
When Silver ran into financial trouble, Schaefer persuaded Paterakis to buy the land for $14 million in 1985 and - despite Paterakis' lack of experience in building - to develop the site as the important next step in the Inner Harbor's revitalization.
"The city found a sucker who was willing to do all this," said Paterakis.
The project has been embroiled in turmoil for more than a decade, with three lawsuits from citizen groups unsuccessfully challenging the complex's tax breaks, height and size. The management firm that would run the hotel changed twice. And its proposed height has wavered from 48 to 32 to 44 to 31 stories, as architects tried to cope with complaints that it was too tall.
"Nerve-racking? It was a lot more than that," said Paterakis. "We didn't know what was going on. First it was the Hilton, then the Wyndham, then the Marriott. And then the lawyers got involved. Boy, that was a picnic."
Paterakis said discussions about building a casino on the site ended in August 1996, when Gov. Parris N. Glendening threatened to veto legislation that would legalize slot machines. This broke what Paterakis considered a deal between Glendening and Schmoke to allow gambling. "That threw a twist in the planning, because everybody said this would be an ideal spot for slots and gaming," said Paterakis. "Unfortunately, that didn't work out."
Skeptics have questioned whether Paterakis can attract all-important convention business because his hotel is located almost a mile east of the Baltimore Convention Center. And some have questioned Paterakis for using public subsidies to build a complex taller and more dense than was allowed in a city land-use plan that called for a modest-scale neighborhood. The plan was later modified to accommodate Paterakis' project.
"It's just outrageous greed," City Councilman John L. Cain said. "Little Italy is going to be dwarfed by it. Fells Point is going to be dwarfed by it. The traffic is going to be horrendous. It might just kill the area."
'Very positive influence'
Many local homeowners say they're watching the construction with hope and look forward to shopping in the Fresh Fields supermarket and watching their property values go up. Business owners expect that the 5,000 to 6,000 office workers and 600 residents of Inner Harbor East will stroll through the area and bring more money to local stores and restaurants.
"This will have a very positive influence on not just Fells Point but also Canton and beyond to other areas of the city," said Dominik Eckenstein, head of the Fells Point Business Association.
Beatty, Paterakis' vice president for development, said he hopes the offices and shops will help draw major corporations and keep Baltimore shoppers from fleeing to suburban malls. "It used to look dead down here, just vacant lots," said Beatty. "Nobody wanted to walk through. Now there's a highly visual connection between downtown and Fells Point."
One of the project's magnets will be an 18-screen Crown Imperial Theater that will specialize in art and foreign films, Beatty said.
Other centerpieces will be a public waterfront plaza with a beautiful view of the harbor, and the largest outdoor sculpture in the city, a 44-foot-tall work of art called the Katyn Memorial, which will resemble a flame and honor Polish army officers massacred by the Soviet Union in World War II.
The developers are planning to build almost 3 million square feet of office and retail space by 2004. But Paterakis doesn't want to stop there.
In the works
He has also entered a partnership with another well-known local development firm, Struever Bros. Eccles and Rouse, to build a cluster of buildings along the Fells Point waterfront, on Thames Street between South Caroline and Broadway. This 4.7-acre project might include 150 apartments, an office building, parking garage, hotel, café and shops, said Janet Marie Smith, vice president for planning and development of Struever Bros.
The two companies are also teaming up to negotiate with the owners of a 27-acre peninsula just west of the Thames Street site to explore the possibility of building a mixed-use project even larger than Inner Harbor East.
The huge, vacant plot of land - once a toxic waste site left by the former Allied chrome plant - might become "Harbor Point," a complex of high-tech offices, apartments and a large public space on the water that could feature a performing arts center, Smith said.