Baltimore Mayor Kurt L. Schmoke plans to appoint a task force to study converting Class B office buildings to residential use, hoping to spur downtown living while using some of the city's empty office space in the face of weak prospects for an economic recovery.
"It's in the embryonic stages right now," said Honora Freeman, president of Baltimore Development Corp., the quasi-public agency that guides the city's economic development. "We would like not to be in a reactive mode. We'd like to have some options in place."
Ms. Freeman said Class B buildings, older buildings predating the city's 1980s office building boom, are getting squeezed increasingly hard by competition from newer buildings.
Before the recession, Class B buildings had a market niche because they were much less expensive than newer buildings. But recession-induced price cuts on Class A space are wiping out Class B's advantage. Baltimore's 80 Class B buildings have a vacancy rate of 23 percent.
The city is determined to find something to do with the buildings if they can't compete as offices, Ms. Freeman said. "Demolition would really affect the fabric of our city."
Ms. Freeman said the new residential use probably would be as apartments. But she cautioned, "That's not a given yet."
The proposal drew praise but also skepticism from the private sector. Owners of Class B buildings and owners of apartment buildings that have been remodeled from warehouses and other uses said federal tax incentives, which made earlier renovations such as the Sail Cloth Factory downtown and Canton's Tindeco Wharf apartments viable, no longer exist.
The city or the state would have to come up with comparable incentives to make the idea work, they said.
"It's a great theory; downtown is in desperate need of more rental housing," said Joe Fonte, president of Signature Management Inc., which owns the Sail Cloth Factory and the GreeneHouse apartments near the University Center district of downtown. "But it isn't going to work."
"We would be interested," said Robert Morrow, president of New York-based Kenilworth Equities, which owns a dozen Class B buildings in Baltimore and has renovated two former industrial buildings into apartments near the University of Maryland at Baltimore campus.
"If you had to do it on a straight basis, with no [tax] incentives or [public] financing, it couldn't be done," Mr. Morrow said. "You would need some kind of tax abatement; you would need some kind of concession on fire protection, which is very expensive. It's just not feasible to make them work" under modern fire codes that require sprinklers, he said.
Mr. Fonte said federal tax incentives for historic preservation attracted about half the money it took to renovate Signature projects such as GreeneHouse and Harbor Hill in Federal Hill.
Those incentives were repealed in the 1986 tax-reform law.
"The experience is not duplicable today," Mr. Fonte said. "The equity we raised we raised by selling the tax benefits. The investors got no cash returns other than the tax savings they realized."
The city and state would have to come up with big incentives to replace the tax breaks, he said. "If I were on the task force, the first question I would ask is, 'Will the building have to pay real estate taxes?' If the answer is yes, you're wasting your time."
Ms. Freeman said part of the task force's job will be to study the incentives the city can offer, possibly including easing building and fire codes and helping with financing. Incentives might also be offered to foster the conversion of industrial spaces outside the downtown area, she said.
She did not rule out asking the state for help, saying the mayor wants the study to begin soon enough that he would know whether state help is needed before the next session of the General Assembly.
"That's why we're trying to do the work now, but it's not a given that that will be the case," she said.
Ms. Freeman said she expects the task force to be named next month.