THE GRAYING OF COLUMBIA No longer new, the corridor's 'capital' is reeling from the recession. To its developer, that means lost profit, but Rouse is looking to the long term.



From a distance, the brick and glass building on Gateway Drive casts an impressive profile. Sleek and angled, the suburban-modern structure rises up five stories from a field of yellowed grass, dominating a corner of the Columbia Gateway office park.

It's a symbol of Columbia's emerging role as capital of the Baltimore-Washington corridor.

The site, along Interstate 95, once was reserved for a sprawling General Electric complex, an industrial anchor designed to bring blue-collar jobs to the new city sprouting nearby. But Columbia's robust growth -- and the rapid development of the corridor -- soon attracted bankers and engineers to the site, too.

Today, Columbia's eastern edge has been recast as a modern office park, a cradle for young, high-technology companies.

But look closer. Look past the large sign that shouts: "LEASE"!

The silver-framed doors at 6751 Gateway Drive are locked. The parking lot is empty. And the large, tinted windows provide see-through views of barren office suites.

For all its promise as corridor capital, for all its affluence and lofty goals, the planned community of Columbia can't escape the problems triggered by a nationwide recession.

The economic slowdown has left Columbia Gateway, a 620-acre project of The Rouse Co., littered with vacant offices. Meanwhile, Rouse's plans for completing Columbia have been interrupted -- a move that has depressed earnings and has created a mood of cautiousness at the corporate headquarters.

Still, Rouse officials aren't panicking. They're pushing ahead with some low-risk projects in Columbia, including the new 165,000-square-foot headquarters for The Ryland Group. And they're resisting pressures to boost profits by slashing land prices or by loosening tight development controls in Columbia.

Douglas A. McGregor, a Rouse executive vice president and general manager of the Columbia project, dismisses such pressures. With the confidence -- or, some would say, arrogance -- that characterizes Rouse, he says simply, "Short-term profits are not what we're about."

That attitude reflects Rouse's unusual role in Columbia: somewhere between corporate citizen and benevolent despot.

The planned community was born in 1967, when James Rouse began subdividing 14,000 acres of farmland he had assembled. Mr. Rouse, founder of the company that bears his name, dreamed of a new kind of city, without the helter-skelter development common in American suburbs. His carefully sculpted city would be characterized by parks, cul-de-sacs and street names taken from Walt Whitman's poetry.

In many ways, The Rouse Co. is Columbia. Like a government agency, it sets architectural and construction standards for homes and offices built in Columbia. Like a bank, it can demand pre-leasing agreements from developers who want to buy its land. Like the overseer of a company town, it is a demanding business partner and a tough negotiator, able to set land prices with little regard for the laws of supply and demand.

Developer Robert Manekin, whose company has built several buildings in Columbia Gateway, says, "The Rouse Co. has an extremely high opinion of itself. We feel they have earned it. As Will Rogers once said, 'If it's true, it ain't braggin'.' "

Mr. McGregor, 48, always has taken the long view of Columbia. He came to Rouse -- after short stints as a trial lawyer and as head of a computer software company -- when the new city was but 5 years old.

He was looking for a spot on the front lines of development, where risk-taking was a way of life. And he was driven by an "edifice complex" -- he wanted to work for a company that built big, signature projects.

Like Columbia.

Mr. McGregor's entry to Rouse wasn't very glamorous. His first job, as associate development director, involved rerouting a small road that separated the Harpers Choice shopping center from area residents. Later, he handled the development of Clemens Crossing, a neighborhood in Hickory Ridge Village.

In those days, Rouse's Columbia development was divided among several teams, which acted like small businesses and competed with each other. That spirit honed entrepreneurs -- in fact, two development directors, John Liparini and John Troutman, soon left Rouse to found their own companies.

Mr. McGregor, who sought the big project, the home run, stuck with Rouse.

Tall and solid, cloaked in a veil of earnestness, he fits Rouse's corporate image as the nation's largest publicly held real estate developer. Yet he also has a lighter side, which allows him to defuse tense situations with a witty, well-turned phrase. And his innate ability to charm large groups -- from pin-striped financiers to pee-wee lacrosse players -- earned him the nickname "The Dancing Bear" among Rouse insiders.

Today, Mr. McGregor steers the city of 73,000 toward the lofty goals set when development began in rural Howard County. The goals: building a complete city, encouraging human growth, respecting the land and making a profit.

Don't overlook the last goal.

For all its New Age feeling, Columbia is an important profit center. Even for a company the size of Rouse, which operates 80 shopping centers -- including Harborplace -- and more than 100 office buildings across the nation.

Rouse makes a lot of money as Columbia's dominant landlord. It operates The Mall in Columbia, as well as seven small village shopping centers in the city. It also runs the 288-room Columbia Inn. And don't forget the company's 1 million square feet of office space.

But Rouse has made most of its profits from selling Columbia's dirt. Since 1985, land sales in Columbia have generated 10 percent of Rouse's revenues, and 25 percent of earnings before depreciation and deferred taxes.

Land sales have fallen dramatically in recent years.

In 1988, at the tail end of the bull market, Rouse earned more than $26 million from vigorous land sales in Columbia; in 1989 it earned about $12 million. The company has not reported complete financial results for 1990, but through the first three-quarters of the year, it had earned a mere $1.7 million from land sales.

"These days, no one is buying anything," says Mr. Manekin, senior vice president of Manekin Corp. The Baltimore-based firm has developed about three dozen buildings in Columbia.

Homebuilding has fallen off -- people worried about keeping their jobs aren't about to shop for a new home. Single-family home sales in Columbia have fallen for three straight years. To spark development, county officials recently revoked a year-old cap on residential building permits.

Meanwhile, retailers aren't in a mood for expansion. And commercial developers, who have watched vacancy rates creep to 19 percent, aren't eager to add more office space to the glut.

No wonder Rouse's recent financial statements look so grim. Net earnings fell from $20 million in 1988 to $9.7 million last year. Over the first three quarters of 1990, Rouse lost $3.3 million.

Caution and moderation have settled over the company. Rouse executives have long institutional memories -- most have been with the company for more than a decade -- and they recall the harsh lessons of a previous recession.

In the mid-1970s, Rouse was on the brink of bankruptcy. To survive, company execs had to scramble. They laid off half the workers at the Columbia headquarters, wrote off $30 million in bad investments and liquidated some unprofitable subsidiaries. They also called on the good graces of their partner, insurance giant Connecticut General, to restructure financing arrangements.

To raise cash, they even sold to Giant Food the development rights to the Owen Brown Village shopping center -- the only crack in Rouse's monopoly at the centers. "When you're up against it, you'll sell some things you don't want to sell," says Mr. Liparini, the developer and former Rouse employee.

There's been little scrambling in the current recession -- so far. Rouse has laid off fewer than 1 percent of its 5,000 employees and no far-reaching restructurings have been announced.

But the air of caution is very real. Rouse has been increasing its cash reserves to weather the recession. It has no major projects under development nationwide. And it has delayed naming a replacement for President Michael Spear, who died in a plane crash last August. Chairman Mathias DeVito has added the title of president to his resume.

In Columbia, Rouse is moving ahead only with low-risk projects. The Hickory Ridge Village Center, for example, is a 91,300-square-foot shopping center that will serve a residential area almost completely built. That's a noticeable departure from Rouse's earliest village centers, which were built before homes and were designed to attract residents to new neighborhoods.

Along Route 175, near the I-95 interchange, Rouse also is building a small retail center that will include restaurants and stores. Nearby residents, who criticized the project as a glorified truck stop, failed to stop it with a court challenge.

Meanwhile, Rouse has held up construction of two buildings at the Gateway office park. It has continued downtown development, but only after securing Ryland as a tenant for two-thirds of the 165,000-square-foot building.

Rouse is out of the speculative building market this year, says Mr. McGregor, who heads the company's development division. Today, he has buildings ready to go in Owings Mills and Hunt Valley, as well as Columbia Gateway. All that's missing: major tenants.

Rouse's nationwide mall holdings, which provide a steady stream of rental income, reduce the pressures to continue developing in a slow market, he adds. During the first three quarters of 1990, earnings from office and retail properties increased by more than 10 percent, despite the recession. "We have not done development for the sake of development," Mr. McGregor says.

MA Can Rouse maintain the strict controls and construction stand

ards it has imposed on Columbia over the past 25 years? Or will it be forced to raise cash by selling off land at bargain prices -- assuming buyers can be found -- or by squeezing retailers and other tenants?

Some merchants at Rouse-owned village shopping centers already are upset about the company's plan to offset expenses by taking some of the money retailers have pooled to advertise and promote the centers. That follows last year's abortive merchant protest over Rouse's new plans for security at the centers -- a proposal some merchants saw as an attempt to disarm the guards.

"Because Rouse says it, [tenants] let it go. . . . I wonder sometimes why the merchants tolerate it," says Helen Groomes, who owns the Total Concept hair salon in the Long Reach Village Center.

Some developers grumble that Rouse loosened its land sales policy and allowed too much development at Columbia Gateway, despite a long-held corporate policy of avoiding boom-and-bust cycles.

Mr. McGregor rejects that criticism. "There were a lot of people who wanted to buy [at Columbia Gateway] that we didn't sell to. . . . We're not throwing land sales on a roulette wheel. If you came in off a plane, took a taxi here, opened your checkbook and said, 'I want to buy land from you,' we would not sell it to you."

Mr. Troutman, the developer and former Rouse employee, says the company could have made a lot more money by exploiting the red-hot real estate market in the 1980s. "When land prices rose quickly, they didn't just sell to the highest bidder. . . . They didn't allow a bidding war," he says.

Some of the sniping comes naturally with Columbia's growth, Mr. McGregor says. The pioneer spirit that united Rouse with Columbia's residents, merchants and developers in the early days has gradually faded. Today, he says, "It's more like a city and less like the Conestoga wagons arriving with a shared spirit."

In the future, Rouse hopes to wring more long-term benefits from Columbia's dirt, by developing more non-residential land itself and selling less to others. That would reverse a corporate policy that once brought commercial developers flocking to Columbia.

In Columbia's early days, land along I-95 in the Baltimore-Washington corridor was cheap enough for warehouses and industry. Rouse wasn't too excited about building warehouses and factories, though, because there wasn't much room for profits. It focused its attention on Columbia's downtown, where the high density brought high rents.

As Baltimore and Washington gradually merged into a single, sprawling metropolis -- with Columbia smack in the middle -- land prices rose dramatically. Much of the commercial acreage, too expensive for warehouses, began to attract sleek office buildings for banks, engineering firms and high-tech companies.

That got Rouse's attention, because it offered the chance for more profits. So, Rouse the land broker became Rouse the developer, as well -- a strategic move that fit the company's ambitious, nationwide development plans. Projects such as Columbia Gateway resulted.

Columbia's residential areas should be completely built out by 2000; commercial land will take another 25 years to develop.

As Douglas McGregor says, "There's enough in the market for all of us."

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