Space too chopped up to lure big tenants DOWNTOWN'S OFFICE MARKET


David Gillece, president of the Baltimore Economic Development Corp., looks out over the Baltimore skyline and wishes he had more large chunks of office space with which to entice major corporate tenants.

A tour of Baltimore's premier office locations encompasses just a few buildings and takes only a couple of hours, he says. "Our goal is to have a healthy amount of inventory for lease," he says.

But for James Joseph Casey, president of Casey & Associates, there is at least one too many buildings on the market.

For nearly two years he has been trying to find tenants for the former Merritt Tower, at St. Paul and Baltimore streets. The 304,000-square-foot office building has been re-christened 6 St. Paul Centre to distance it from its former owner, the now-defunct Merritt Savings & Loan, but it remains nearly 80 percent vacant.

"Do we have too much space on the market today? I guess I would have to conclude we do," Casey says.

More than two million square feet of office space is available in Baltimore, ranging from glistening new Class A properties to tattered and aging Class B offices. Class A space generally rents for around $25 a square foot, but a sluggish market is forcing many owners to cut prices by several dollars a square foot or offer other incentives in order to lure tenants, brokers say. Deals are being worked out to delay rent payments or give tenants more luxuries. In other cases, landlords anxious to keep the tenants they have are offering free renovations.

"This is very good news for the tenants," says Bryon Mollica, leasing agent for KLNB Inc.

Estimates of downtown offices vacancy rates vary. Legg Mason Realty Inc. says that 12 percent of Class A space is vacant and about 25 percent of Class B space is available. W.C. Pinkard puts the vacancy rate at about 12.5 percent for Class A space and a little more than 19 percent for Class B space. Coldwell Banker figures that 14 percent of the Class A space is vacant and 23 percent of the Class B space.

Compared to some parts of the country, such Fort Lauderdale, Fla., where the vacancy rate is 29 percent or Dallas where it is more than 25 percent, the picture in Baltimore looks bright.

Yet the amount of office space being leased in downtown Baltimore is less than in the past. Last year, the vacancy rate for Class A space was less than 10 percent.

Gillece says that rather than being worried about too much space, he is concerned that there are not enough large blocks of Class A space available to attract a major tenant.

When the U.S. General Services Administration went looking for 250,000 square feet of office space, it chose a 300,000-square-foot office building that is still on the drawing board. The building, to be constructed at Howard and Baltimore streets, is the first phase of a proposed $73 million mixed-use project developed by Theo Rodgers and Otis Warren.

But the good news for Rodgers and Warren was a disappointment for Casey, who had tried to woo GSA to his 6 St. Paul Centre. In trying to provide enough space to meet the government's requirements, he bought out the leases of some of his existing tenants and took the building off the market for several months.

"We chased a deal that in retrospect was not the smartest thing," Casey says. "Now we have got to pick up the pieces and move forward."

He says he and the owner, S/A Associates, will have to rethink their marketing strategy on the building built to be Merritt's headquarters before the thrift became embroiled in the state's savings and loan crisis. Casey says he and the owners will have to find ways to overcome the building's tainted image.

The re-emergence of 6 St. Paul Centre in the marketplace increases the concern some brokers expressed about the city's office economy.

"I was hoping they would take 6 St. Paul off the market. It's been such a white elephant," Mollica says. "Having that property back on the market adds a significant amount of space to a market that's already soft."

Leasing also is moving slowly at 250 W. Pratt St., a 370,000-square-foot building that has about 70,000 square feet vacant. While praised as a quality building, agents say it is just a few blocks too far west of the city's financial district to attract some tenants.

"Baltimore is a funny place. You can't just jump blocks at a time out of the financial district and expect to attract tenants," says Robert Kleinpaste, president of Legg Mason Real Estate Research.

The 535,000-square-foot Candler Building accounts for another chunk of vacant space. Although it is characterized as a Class B building, it is considered by some to be a factor in the Class A market because it has been completely renovated and offers large floor plans. About 300,000 square feet of space remain vacant and even more space will become available when the U.S. Army Corps of Engineers moves into the Crescent City project in March 1992.

On the horizon is the IBM Tower, which will have about 215,000 square feet available, and Commerce Place, a 30-story, 430,000-square-foot office tower.

Other pending major products, Trammell Crow's One Light St., a 44-story office building, and the Lazard Realty-Hearst Corp. tower on the former site of The News American will not be built until major tenants are found, the developers say.

The future of Baltimore's downtown office development, some experts say, depends on its ability to attract new tenants to the city.

"I think we've just about run out of law firms and financial institutions," Kleinpaste says. "We don't believe there are a lot of major firms in a position to move."

Contributing to the concern has been the consolidation among financial institutions, such as MNC Financial Corp.'s buyout of Equitable Bancorporation.

While Baltimore has not been successful in attracting major private corporations in the past, Kleinpaste says he believes that might soon change. As cities such as Washington and New York become more congested and their office rates more expensive, bTC Baltimore will become more attractive to companies looking to relocate, he says.

In Washington, for instance, Class A space rents for $15 to $20 a square foot more than in Baltimore.

First to take advantage of Baltimore's lower rates have been non-profit groups such as the National Association for the Advancement of Colored People, Catholic Relief Services and the American Center for International Leadership. American Field Services, which operates foreign exchange programs, also is considering a move to Baltimore.

"I think the private for-profit sector is going to follow," Kleinpaste says.

Gillece does not rule out the possibility of growth within the Baltimore area, but he also is looking for outsiders to lease in the city. He said that with a number of national corporations restructuring and decentralizing their headquarters, Baltimore has a chance to attract an independent subsidiary of a major corporation.

"The success of tourism and the convention trade has dispelled for many the negative image that Baltimore is a sleepy town," he says.

Major blocks of vacant space

Following are downtown office buildings with large amounts of vacant space:

*6 St. Paul Centre -- The 304,000-square-foot tower was built by Merritt Commercial Savings & Loan Association as its headquarters but was completed in 1986, after the state S&L; crisis hit. It was then bought by New York-based S/A Associates. The building is nearly 80 percent vacant.

*250 W. Pratt St. -- The 370,000-square-foot tower was built in 1986 by Cabot, Cabot & Forbes and has 350,000 square feet of office space and 20,000 square feet of retail space. Still vacant are 70,000 square feet of office space.

*Candler Building -- A total renovation of the former Coca-Cola Co. bottling plant at Pratt Street and Market Place was finished last fall. About 300,000 square feet of the 535,000-square-foot building remain available.

*Redwood Tower -- The 210,000-square-foot building at 217 E. Redwood St., was built by Toombs Development Co. of Connecticut. It opened in 1987 and has about 60,000 square feet of space available.

On the horizon

The following are downtown office towers currently under construction or considered likely to be built:

*100 E. Pratt St. -- A 26-story, 389,000-square-foot addition to the IBM building is under construction and to be completed in the fall of 1991. It has 215,000 square feet available to lease.

*Commerce Place -- A 30-story, 430,000-square-foot office is under construction at South and Redwood streets. The tower is being built by a joint venture of the New York-based Harlan Co. and Kajima Development Corp. and is to be completed in 1992. It has 400,000 square feet available.

*City Crescent -- A proposed $73 million mixed-use complex is planned that will include an 11-story, 300,000-square-foot building to house U.S. government offices. The project is being developed by Otis Warren and Theo Rodgers at Howard and Baltimore streets and is planned for 1992.

*One Light Street -- A 44-story, 750,000-square-foot office tower is planned by Trammell Crow on the site of the old Southern Hotel. Developers say they will wait to sign a major tenant before beginning construction.

*Lazard Realty-Hearst Corp. Tower -- A proposed 32-story, 690,000-square-foot office building is planned for the site of the former News American plant. Developers say they will wait until they sign a major tenant before beginning construction.

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