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Baking mogul's firms get millions in breaks City board votes incentives to build Harbor East project


Baltimore's top officials agreed yesterday to give financial breaks and payment deferrals worth several million dollars to baking magnate and businessman John Paterakis, after being told they were needed so that the first phase of the Inner Harbor East development near Little Italy can go forward.

The Board of Estimates voted unanimously to provide two Paterakis development companies with $1.85 million in financial breaks, allowing them to forgo $850,000 in contributions to public improvements and $750,000 in payments for operating a marina.

The city also promised to pay $250,000 for additional public improvements made necessary by a change in the site plan.

In another break, the board agreed to let the Paterakis companies postpone payments on two city-owned parcels of land worth $6.5 million. Payment for one was delayed five years, and the other for 20 years -- a deferral worth $6.5 million.

The $32 million first phase of the development includes a 90-unit apartment house, a parking garage and a seven-story office building that will be the new headquarters of Sylvan Learning Systems Inc., a Columbia-based tutoring company.

"In order to get this project moving, there had to be a number of incentives," said Michele L. Whelley, executive vice president of the Baltimore Development Corp., the city's economic development agency, which negotiated the breaks.

To help entice Sylvan to relocate from its Howard County headquarters in Columbia, the Paterakis companies had to offer a lease that would be below the $18 per square foot charged in prime office buildings downtown, said Ms. Whelley and Michael S. Beatty of the private Inner Harbor East development company.

To obtain financing based on income from those lowered rates, the Paterakis companies had to increase their investment, they said, with money from the breaks and deferrals.

Mr. Paterakis, the head of H & S Bakery Inc., put up a quarter of the $32 million himself, Ms. Whelley told the board.

The agreement with the city makes public a split between Mr. Paterakis and Gilbane Properties, Inc., a Rhode Island-based developer that was a long-time partner in the project.

Once the first phase of the development is completed, Ms. Whelley told the board yesterday, the city will get $350,000 in annual property taxes and the benefit of spending by 300 Sylvan workers. She also said she hoped it would spur further development in Inner Harbor East.

Inner Harbor East, a 20-acre parcel eventually slated for $350 million worth of development, is in the city's empowerment zone and is frequently mentioned as a possible site for a casino if the General Assembly gives the go-ahead to casino gambling.

City Council President Mary Pat Clarke questioned Ms. Whelley about the breaks, but joined the other four board members in voting to amend the 1990 land deal with the developer.

"It's worth it if it produces a development of substance in that area," Mrs. Clarke said. "What we want in return is a tax base and a finished product."

Mayor Kurt L. Schmoke, who controls three of the five votes on the board, said afterward that the alternative to granting the breaks and deferrals was to have the property sit vacant for several more years.

"If it was going to produce results in 1996, we had to do it," the mayor said.

Mr. Beatty, who is overseeing the development of Inner Harbor East, said that without the breaks Mr. Paterakis would not have received private financing for the project.

"There needed to be so much equity to get a mortgage," he said.

Mr. Beatty said the Paterakis companies -- Inner Harbor View Associates Limited Partnership and Harbor East Limited Partnership -- have a letter of intent for a $10 million mortgage from First National Bank.

The project is also being financed with a $1.4 million federal grant and a $2.8 million second mortgage backed by the state.

Construction of the 110,000-square-foot office building is to begin this week, according to Mr. Beatty. The building will be ready for occupancy by Sylvan, which will fill most of the space, by next October, he said.

He declined to specify the terms of Sylvan's lease, but said its rent would be "substantially below downtown Baltimore market rates."

Baltimore has paid about $16 million for site improvements to Inner Harbor East, and the state has chipped in another $3.1 million, according to interviews and documents.

Payments from the Paterakis companies to the city for the two parcels of land were supposed to reimburse the city in part for the improvements, according to documents.

The first parcel was to have been paid off this past August and the second parcel in August 2000, according to the original deal negotiated in 1990. The parcels are identified as D and G in the site plan.

But under the new plan, the $3.82 million for the first parcel will not have to be paid until August 2000 and the $2.67 million for the second parcel will not have to be paid until August 2020.

The $850,000 reduction in payments for public improvements approved yesterday reduces the developer's contribution to $2.15 million -- an amount that has already been paid.

Initially, the developer was to have paid $4 million for public improvements. But last year, the board agreed to reduce those payments to $3 million. The $750,000 in payments for the marina will help finance a 220-space parking garage, officials said.


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