Look out the window from the reception area outside John Paterakis' office and beyond the aging industrial foreground you can barely see the shiny towers of the Inner Harbor's present. But step into the windowless conference room and you can easily see the Inner Harbor's future.
Paterakis isn't your everyday developer, any more than the $350 million Inner Harbor East "new neighborhood" he plans to build just south of Little Italy is an everyday project. He was making piles of dough when other developers were little kids -- real dough, because John Paterakis is a commercial baker whose companies make everything from Giant brand bread to McDonald's hamburger rolls. But this non-developer is in charge of what stands to be Baltimore's most important development project of the 1990s. Forget Trammell Crow Co. and its 44-story office building, the biggest in Baltimore's history. Forget the new stadium. This is it.
It will have 800 or more apartments, condominiums and town houses. It will have three midsized office buildings, and one smaller building of doctors' offices. Retail stores such as dry cleaners and flower shops will actually be aimed at the neighborhood instead of tourists, despite being only a short walk from the National Aquarium and Harborplace. There will be an Embassy Suites hotel and a 204-slip marina. Buildings will be 12 or 13 stories, tops.
All together, the eight-city-block development will form a bridge between the high-rise Inner Harbor and quaint, low-rise Fells Point. City officials have compared the project to building a project the size of Charles Center with the old-fashioned urban-yet-small-scale feel of Mount Vernon Place.
The new neighborhood hasn't come quickly. The development has been seven years in the planning, dating from a 1983 study commissioned by the city. The contract with the city that is making Inner Harbor East go forward -- crafted to insulate the developers from much of the risk normally involved in large-scale development -- is the result of three years of negotiations between Mr. Paterakis and his partner, Gilbane Properties of Providence, R.I., and the administration of Mayor Kurt L. Schmoke.
Construction will begin soon on reconfiguring streets and utilities serving the area, and on building a waterfront promenade and marina. That work will take about two years, and the construction of the first buildings will begin when the infrastructure is done or almost done. The first apartments will probably be built in 1993, a Gilbane official said.
It will probably be another eight or 10 years before Inner Harbor East is completed, and the project will face big challenges in the marketplace. The office buildings Mr. Paterakis plans will be well outside the city's central business district, competing in a market that could be glutted. The condominiums he plans will also compete in a crowded market where nearby projects have met with mixed results.
got to be market-driven," said Mr. Paterakis. Over and over, Mr. Paterakis and Michael E. Culbert, Gilbane vice president, stress how flexible the developers have to be, how plans will change if condo markets heat up or retailing plummets, or any of a thousand other things happen that change demand for anything they plan to build.
"If we don't have the demand for one product, we'll try to get another out of it," Mr. Paterakis said. "The market will tell us what's the right mix."
Despite the uncertainty, he's ready to get going.
"There's a lot of excitement in that land. Just looking at it and knowing what can go there is exciting."
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John Paterakis, high-rolling developer, has come a long way from Patterson Park High School, where he graduated in 1947. The Highlandtown-bred Mr. Paterakis didn't go to college because his father got sick and H&S; Bakery Inc. (named for Harry and Steve, Mr. Paterakis' brother-in-law and father) needed him.
"I did everything," he said. "It was a small bakery."
By the mid-1960s, Mr. Paterakis' baking business had a goodeal going -- supplying buns to a thriving hamburger chain called Gino's, for the Baltimore Colts' star defensive end Gino Marchetti. But another chain that wasn't as big in the East asked Mr. Paterakis to give up the Gino's account to do business with them -- on a handshake. "I was scared," Mr. Paterakis admits.
The new customer was McDonald's, which has since made up many times over for any anxiety it caused Mr. Paterakis. He says his Northeast Foods Inc., which serves McDonald's, now has annual sales of $135 million. H&S; Bakery, which does institutional and private-label baking, has sales of about $85 million.
Mr. Paterakis will allow that his company grew up with McDonald's. "That makes you smart," he cracks.
Today, the baking companies' stock is actually owned by Mr. Paterakis' four sons and a nephew, aged 30 through 46, all of whom work for the baking companies.
They run sales, transportation, engineering, operations and the McDonald's division. The younger men also own half of the Paterakis family's stake in Inner Harbor East; the rest belongs to Mr. Paterakis' wife and daughters.
"I work for them," he said.
The East Baltimore background still shows in the 61-year-old's blunt way of speaking, a touch of self-deprecating humor, and in his anti-slick look. With his almost-bald head, mustache and roundish frame, he looks something like the actor who plays the baker on the Dunkin' Donuts commercials. But while disdaining trappings that surround other developers, Mr. Paterakis long ago memorized the big-time developer's creed of not being afraid to roll the dice.
"He's not a developer and he's the first to tell you," said Mr. Culbert of Gilbane Properties. "But he's a quick study. In any business, he understands the bottom line."
Mr. Paterakis had invested in Baltimore real estate before, including interests in the Anchorage town house project and Anchorage Tower condominiums in Canton, and in the Omni International Hotel downtown, but he hadn't taken a leading role in any of those deals. At Inner Harbor East, he has decided to take charge himself.
"He's smart enough to say to the Gilbane people, "what do you need me to do?" said developer Louis Grasmick, a longtime friend who introduced Mr. Paterakis to Gilbane executives. "They tell him what his role should be, and he'll bring it to a successful conclusion."
Mr. Paterakis got involved with Inner Harbor East almost by accident. A developer named Michael Silver, who owned part of the land where Inner Harbor East will be built and had been trying in vain to convince the city to let him build a suburban-style shopping mall, fell behind on mortgages and turned to Mr. Paterakis, who lent Mr. Silver $11 million to help him hold on to the land.
But plans to sell the land to the city fell through, and two partnerships led by Mr. Paterakis, but technically owned by his wife and children, bought the land.
"I thought I was making a bridge loan to the city," which owned adjacent land that will also become part of Inner Harbor East, Mr. Paterakis said. The plan was for the city to buy the Silver/Paterakis land when it could come up with about $13 million, representing the $11 million Mr. Paterakis lent Mr. Silver plus another $2 million to cover a year's interest and carrying costs.
There were two problems. First, Mr. Paterakis was known as a friend of then-Mayor William Donald Schaefer, and no one wanted headlines suggesting that a friend of the mayor had made a $2 million profit selling land to the city. Second, as Mr. Paterakis recounts, "the city didn't even have the 11 [million]."
Mr. Paterakis' attempt to do the mayor a favor by holding the land until the city could buy it, as he described his action at the time, left him stuck with a big piece of land. Selling it wasn't an option.
"I felt and still feel this land should be controlled by the city or
someone working closely with the city," Mr. Paterakis said. "It's the most important piece of land in the city right now."
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The city, of course, agreed. Officials had been looking for something to do with the eastern end of the Inner Harbor since 1983, when officials asked New York architect Stanton Eckstut to study an area reaching from just east of the National Aquarium almost all the way to Fells Point.
Mr. Eckstut called for a smaller-scale, mixed-use neighborhood blending shops, offices, entertainment and housing, often within the same building, on today's Inner Harbor East site. A hotel and an inn were also proposed. The buildings were supposed to be four to six stories near the water, rising to as high as 12 stories farther inland.
The density of the development proposed was actually less than Baltimore County allows to be built in the center of Towson.
"The character and form of the area as a whole is to create a modern version of an urban neighborhood, in character and scale compatible with Little Italy, Jonestown and Fells Point," the plan read.
Mr. Paterakis entertained more than 30 proposals from other developers, including Donald Trump. But he eventually hired Mr. Eckstut as Inner Harbor East's architect, and the overall scheme of the 1983 plan is very similar to what Mr. Paterakis and Gilbane plan today.
"Most people who came down here wanted to do skyscrapers," Mr. Paterakis said. "We knew the city didn't want that. . . . I didn't want that either. I have to live in this town."
Mr. Eckstut proposed 800 residences, the same as the current plan. The Eckstut plan called for a conventional hotel and a smaller inn. The current plan is for one Embassy Suites hotel.
The current plan has only about half as much retail space as the 1983 plan called for. It also lacks any specific mention of entertainment spaces -- restaurants and bars, for example -- and a community supermarket mentioned in earlier versions. But the food store and some of the other missing items may show up yet, said Mr. Culbert; Mr. Paterakis said the partners are talking -- to three supermarket chains.
The Gilbane-Paterakis team hasn't made major changes in what it plans to build during the two years since its first formal development proposal to the city in late 1988. But it has changed its building schedule. One big reason is the mixed performance of waterside condominiums in the city.
The 1988 plan proposed a first phase including the grocery store, other shops, 100 or more condominiums, apartments, office space and a marina. Now the first phase has cut out all of those elements except the marina (even that is smaller than was planned in 1988), the apartments and a smaller office building that hasn't yet located a tenant.
But the first phase shows a sign of the flexibility that Mr. Paterakis and his partners say will be the hallmark of Inner Harbor East's development -- it includes the Embassy Suites hotel. The 1988 plan didn't call for a hotel until 1993 or 1994, in the third phase of the project. A 50,000-square-foot building for doctors' offices, not mentioned at all in the development plan, will also be built at the beginning of the project, Mr. Paterakis said.
The city has approved the development in concept, but will still review plans for each individual building before it's built, a Gilbane official said.
Mr. Paterakis said the condos were put off because "rentals were more in demand than condos. There was an overabundance of condos."
Indeed, condominiums may present the toughest marketing challenges at Inner Harbor East, partly because the condo market has been tricky and partly because Mr. Paterakis and Gilbane will have to compete with HarborView, a major condo development under construction across the harbor in South Baltimore.
"The condominium market in Baltimore has had a very uneven performance," said Jeff Middlebrooks, vice president of Center City-Inner Harbor Management Inc., a quasi-public corporation that coordinates development. The market is there, but is still a question mark, he said. "How deep is that market? Nobody knows."
Scarlett Place, a condominium complex near Inner Harbor East, was forced to sell units at auction last year after failing to sell them any other way. And Harbor Court, a luxury condominium tower across the Inner Harbor on Light Street, has had to resort to generous incentives to move units.
John Paterakis doesn't mince words, and he doesn't think selling the condos at Inner Harbor East will be such a problem -- at the proper time. "What hurt the market was when people put up a product that wasn't as good as what people wanted," he said, mentioning Scarlett Place by name.
The biggest failing of both Scarlett Place and Harbor Court is that they don't bring condo buyers as close to the water as they want to be, Mr. Paterakis maintains. Scarlett Place had particular problems selling units that faced away from the harbor, some offering views of a housing project.
"We've told our people, 'Make sure you don't do what they did,' " Mr. Paterakis said. "You've got to play to the water. There's no other reason why people want to live down here."
Inner Harbor East will also hedge the risk of its condominium investment, whenever the condominiums are built, by spreading the units across all price ranges, Mr. Culbert said. "We're not going to build 800 luxury units," he said.
As tricky as the condominium market may be for Inner Harbor East, the development is also an unusual location for offices. The downtown market is anticipating more than 4 million square feet of proposed new office space (it has 6.7 million square feet of Class A offices now) and real estate brokers are saying there aren't enough customers for it all.
Another problem is that Baltimore executives have been slow to move their companies out of the city's small central business district unless they leave the city altogether. Buildings such as 250 West Pratt Street have had problems because of their out-of-the-
way locations. Many city officials and architects consider 250 West Pratt the most handsome office building in town, but it has been open for four years and still has big vacancies despite being only three blocks west of Charles Street.
Inner Harbor East has the same problem. But Mr. Paterakis has a plan, which depends on an untested strategy of luring tenants who otherwise would locate in the suburbs. It's a strategy born of necessity, say brokers, and Mr. Paterakis agrees.
Instead of the usual approach of building a big downtown tower and trying to line up 10 or 20 law firms, accounting firms and other companies to fill it up, he hopes to build three main office buildings, each smaller than a typical downtown tower, and get one company to fill each if he can. The buildings will be cheaper than other downtown offices. If it sounds like the way suburban office parks are developed, it's supposed to.
Four companies that the partners wooed so far have resisted the temptation. T. Rowe Price Associates Inc.'s back office LTC operations and Baltimore Life Insurance Co.'s headquarters went Owings Mills. The Ryland Group Inc. decided to move from its Columbia headquarters to a new building nearby. A fourth company decided not to move at all.
Nevertheless, Baltimore Life President Joseph E. Blair said he was impressed with the Paterakis-Gilbane strategy. "We were impressed favorably with the site," he said.
Even if the condominiums or offices remain hard to sell, the dea between the city and Mr. Paterakis is designed to spare the developers some of the financial pressures that slow markets can bring.
The Inner Harbor East site includes both Mr. Paterakis' land and land that he and Gilbane Properties have agreed to buy from the city. Last month, the partners and the city signed a contract under which Mr. Paterakis and Gilbane will buy two city-owned tracts over the next decade.
Developers often get in trouble when they rush development so they can pay back loans used to buy land. But Mr. Paterakis can run parking lots on the land he already owns to service any debt, and he doesn't have to pay for the two parcels the city is kicking into the deal until 1995 and 2000. With land costs contained, he doesn't have to take chances on speculative development and can wait for markets to develop for either offices, apartments or condos.
"The elegance of this deal is that it can afford to be market-sensitive," Mr. Middlebrooks said. "That's the beauty."
The task now is to move from a deal that looks beautiful on paper to a neighborhood that looks beautiful in concrete, glass, water and grass.