As developers try to stay afloat, some see opportunities


The sluggish economy has meant a slowdown in business for most commercial real estate developers, and real trouble for a more than a few. But it has also spawned entrepreneurs such as Steven Sibel, who believes there is an upside to the downturn.

A real estate attorney, Mr. Sibel left his job with Frank, Bernstein, Conaway and Goldman this summer and formed a management and development company Aug. 1 to take advantage of opportunities he sees in the current real estate market.

The first property he acquired was the old Hilltop Shopping Center on Reisterstown Road, which was sold to him for $750,000 by members of the Myerberg family. It fell into their hands because the previous owner defaulted on a loan they held and later filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The sale price five years ago was $850,000.

That sort of chain reaction has been occurring with increasing frequency in recent months as property owners run into financial trouble and lose their buildings to lenders who aren't in the property-management business and don't want to hold on to them. It's exactly the kind of transaction that Mr. Sibel hopes to use to his advantage as he builds up his new business.

"Although the real estate industry is going through a difficult period," he said, "I believe the current market presents a unique opportunity toacquire commercial properties at depressed prices."

If any characteristic separates this downturn from others in terms of its effect on real estate developers and others in the construction industry, it is the spotty nature of the negative news.

Over the past few months, developers filing for bankruptcy court protection have included such longtime players as Lawrence Rachuba, Peter Issel and Murray Wolman. Others have had legal skirmishes with lenders, including Ackerman and Co. in its recent negotiations with Provident Bank of Maryland over repayment of a loan forEquitable Bank Center Tower II.

An increase in auctions is another byproduct of a weakening economy. In a 10-day span this month, auctions were scheduled for a number of properties whose owners ran into financial troubles or filed for bankruptcy, including the Academy Row office complex, the Inner Harbor Ford showroom, the Merchant's Club, the Inns of Evergreen South nursing home and the Woodmere I and II office buildings in Columbia.

During the same period, though, there were nearly as many ribbon-cuttings, including the Hunt Valley Business Center, the Physicians Pavilion at Owings Mills, the Imaging Center at McDonogh Crossroad, and the sales center and yacht club at HarborView.

For those who say the completions of those projects were in the pipeline before the economy turned sour, other projects are just getting under way, including the latest conversion of Henderson's Wharf in Fells Point, the Dogwood Station shopping center in Woodlawn and the 44 Montgomery Square town houses in South Baltimore.

At the same time, certain projects that were scheduled to be under construction by now are stalled because of loss of financing. They include the 925 N. Charles St. office building; the C&B; Crossing off-price retail center planned for the old Crosse and Blackwell plant in East Baltimore; Spencer's nightclub on Market Place; and the student housing complex at the Maryland Institute College of Art.

According to the state Office of Planning, the number of building permits issued for new construction in Maryland decreased only slightly during the first seven months of this year, to 21,670 from 21,834 in the first seven months of last year.

The dollar volume of non-residential construction in the Baltimore area actually increased during the same time period, to $292.1 million in the first seven months of this year from $243.5 million for the same period in 1989.

Statewide applications for permits for single-family construction, however, dropped more than 12 percent during the same period, to 15,078 for the first seven months of the year, from 17,158.

"The drop in single-family housing construction activity is tangible evidence of a slowdown in this sector of our economy," said Ronald M. Kreitner, director of the Office of Planning.

Some developers and public officials blame federal bank regulators for a widespread credit crunch that is restricting development and threatening the state's economy.

"Now is not the time for the federal government to start fooling with a whole lot of regulation and doing a whole lot of things to make up for the savings and loan crisis at the expense of the banks," Gov. William Donald Schaefer said at a news conference earlier this month.

"I'll tell you this: If there isn't a letup, if there aren't ways to borrow some money and the housing industry goes down the drain, the country goes down the drain."

For many developers who aren't in immediate financial difficulty, the goal is to ride out the storm.

James Locke, one of the most active developers in the city's Mount Vernon area during the 1980s, said he had planned to build a shopping center at 29th and Remington streets but wasn't able to get financing. He said he has scaled back his activities in Baltimore and is now managing his existing assets rather than launching new projects.

"The real estate market is a little rough, especially commercial development," he said. "I would be willing to move right back into it as soon as I see a decent opportunity. But I haven't seen a decent opportunity in a year."

Baltimore is in better shape than some markets because it is not as overbuilt, but the lending climate makes it difficult for developers everywhere, Mr. Locke said.

"The banks are not funding, not even good projects," he said. "Banks have to make money, and construction is one of the most lucrative businesses. The regulators have to realize that. But during the transition, it's going to take time. It could be two or three years before it turns around."

Bill Struever, president of Struever Bros., Eccles and Rouse Inc., said his company is in good shape because much of what it does, including affordable housing and rehabilitation of abandoned factories as industrial-warehouse space, generally is not affected by economic cycles.

"Industrial-warehouse is probably the strongest segment of the market right now, and there are a number of users looking for space. So we're still making deals," he said. "We're also at the lower-cost end of the industrial market, and that helps too."

Among Struever Bros.' residential projects are Alcott Place, the conversion to housing of a surplus city school on Reisterstown Road; the Indecco apartments in Canton; and new houses in Sandtown-Winchester that are financed under the federal Nehemiah housing program.

"There's such a pent-up demand for affordable housing, the economy doesn't affect it," Mr. Struever said.

In many ways, the lack of financing for new suburban projects may turn out to help the city, he said.

"There has been a whole double standard in financing, where if you had a new, pretty, suburban building in Prince George's County, the lenders would snap it up," he said. "But many of those 'safe' deals have turned out to be not as safe as the complicated, old-building deals that we're doing."

Baltimore also looks better in comparison with the suburbs during a downturn, Mr. Struever said, because it has less activity to begin with and doesn't have as far to fall. When a slowdown comes, he said, "there's not so much of a difference."

In recent months, public officials and private developers have announced plans to begin several large projects this fall, including the first phases of the $350 million Inner Harbor East development and a $37 million federal office building at Howard and Baltimore streets.

Cranes also are in the sky over the Johns Hopkins Medical Institutions complex in East Baltimore, the Camden Yards baseball stadium, the Waterloo Place apartments in Mount Vernon and the IBM Building and Commerce Place office projects.

Samuel Trivas, executive director of Hendersen-Webb Inc., which opened the 53,000-square-foot Hunt Valley Business Center last week and also had the best-selling local housing development in the first half of the year, said he considers it important for developers to stick with what they know best.

Developers who are "ego-driven" or risk-takers can run into trouble, but "those who stay with that which they do and do well have continued to be successful," he said. "You have to be conservative and have your pulse on the market."

Many developers say those with cash in hand are likely to fare well, while those dependent on banks and thrifts could have more trouble.

One project that illustrates how one company can profit from anothers' misfortune is the 124-unit Henderson's Wharf development in Fells Point, which an out-of-town partnership acquired this summer for $9.25 million after the original owners, who invested a reported $37.6 million, filed for bankruptcy protection.

"Because we had the cash, we were able to buy this property for our investors for about 25 cents on the dollar," said Terrence P. Sullivan, president of Boston Bay Capital, a group that buys and rehabilitates historic properties by raising capital from investors.

"I feel it's the best deal I've seen in my 19 years in the real estate business."

That's what Mr. Sibel is looking for, too.

"In this market, there are some very good buys out there for people who have the ability to raise money, and I think there are going to be a lot more," he said.

"It just seems to me the real estate market always comes back, whether it's one year or three years," he added. "Long term, it's always a good investment."

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