For months, Baltimore economic development officials had been wrestling with the question of where to put a downtown parking garage.
In January, they finally came up with an answer: In the middle of the 100 block of Water St., a location that would spare from demolition a vacant but historic building at Redwood and Calvert streets.
Once a decision on the site was made, they moved quickly. They committed to buy 117 Water St. and began working to condemn several adjacent properties, envisioning a garage groundbreaking by the first of the year and plaudits from businesses and preservationists alike.
"I thought I would be a hero," said Andrew B. Frank, executive vice president of the Baltimore Development Corp., the city's economic development agency, who was in charge of the project.
But today few are prepared to pin medals on the chest of Frank or his agency.
The City Council quashed the plan in late June because 117 Water St. tenants protested the notion of a forced relocation.
By that time, however, Mayor Kurt L. Schmoke had directed BDC to buy the building anyway for $2 million, because he felt 117 Water St.'s owners had been economically harmed by disclosure of the plan. The purchase was completed May 12.
The city's ethics commission has been asked to investigate the city's purchase because the building's previous owner, Milton H. "Mickey" Miller Jr., is a member of a mayoral Parking Advisory Board and because he and a partner had bought 117 Water St. for $1.1 million 56 days after the city's purchase.
Instead of a parking garage, the city got a controversy.
Recent interviews with city officials and real estate experts and the release of relevant documents promise to do little to quell the debate: Instead, they raise fresh questions about the wisdom of the deal.
The appraisal that the city relied on in negotiating the $2 million purchase price was completed in July 1998 -- 10 months before the city bought the building from Miller. Experts say that appraisals more than six months old generally should not be used.
"Appraisers start looking and thinking about changes to a market in a six-month period -- that's the rule of thumb," said Kendall Thurston of the Chicago-based Appraisal Institute. "A prudent person or investor would want to update as much information as possible."
The theory of "constructive condemnation" that the mayor cited in directing that the city buy the building -- because the owner was hurt by the disclosure of the garage plan -- is almost never successfully argued, because it applies only when a government's actions render a property economically useless, according to several industry authorities.
Although continuing to defend their overall approach as "reasonable," Frank and his boss, BDC President M. J. "Jay" Brodie, acknowledge for the first time that missteps were made by the agency in its effort to address the business community's demand for action.
Those include misstating the city's plans for 117 Water St. in a letter to tenants in early February, failing to ask Miller and his business partner during negotiations what they had paid for the property, and rushing to get the building's purchase approved before the City Council approved the condemnation of several other Water Street properties needed for the proposed garage.
Meanwhile, Iowa-based Principal Mutual Life Insurance Co., in its first public comments on the deal, said it felt it got a fair price when it sold the building for $1.1 million to Miller and his partner Ira Miller in mid-March.
And the future of the entire block is more muddled than ever.
The city has put 117 Water St. up for sale and has gotten some interest in the building -- but it could retain the property and try again to develop a parking garage in the middle of the block.
One developer has approached the city about putting up a huge garage that would take up the entire block.
Another has a contract to buy the historic buildings at the corner of Calvert and Redwood streets, once the headquarters of USF&G; Corp.
Meisel & Cohen Properties, which holds the contract, wants to tear down the two structures and put up a parking garage using private money.
And the nonprofit Abell Foundation has expressed interest in buying the old USF&G; headquarters building at 131 E. Redwood St. and preserving it for offices or apartments.
"It's not the outcome I wanted," said Frank. "The business community is very anxious to see a garage under construction. It didn't work."
Former financial district
The focus of all this attention is a cobblestone street two blocks from the Inner Harbor, part of a six-square-block area of narrow alleys and oddly shaped buildings that at one time made up the heart of downtown's financial district.
117 Water St. in particular has a rich past. Built shortly after the Great Baltimore Fire of 1904, the building has housed a tannery and various print shops. It was once a chocolate factory.
After World War II, USF&G; used the 48,000-square-foot building as a computer center because the building was just around the block from its old headquarters.
It is a block Milton Miller and Ira Miller know well.
The men, who are not related, formed a real estate company eight years ago and began leasing downtown commercial buildings.
Milton Miller is the grandson of J. Jefferson Miller, a key figure in the Charles Center-Inner Harbor redevelopment effort in the late 1950s and early 1960s that sparked a downtown renaissance.
Three years ago, Milton and Ira Miller broadened their business, buying older, neglected properties whose previous owners had fallen into financial trouble.
Their first purchase was a nearly vacant 90-plus-year-old building at Water and Light streets for $571,000, which they renovated and leased as offices. In addition to a CVS Pharmacy on the ground floor, 31 Light St. is Miller Corporate Real Estate Services LLC's headquarters.
Last year, they paid $787,500 for Water Street Mews, a five-building collection of offices, retail stores and night spots built in the early 1900s.
Though the Millers declined several requests, including a letter, to be interviewed for this article, they have said they believed their purchases made good business sense.
"We believe downtown is coming back, and there are a number of exciting projects being prepared," Milton Miller said in an interview with The Sun a year ago. "And we believe in downtown from a property-appreciation standpoint as well."
While the Millers were looking at Water Street as a way to make money, the city was eyeing the street as a potential site for a parking garage.
Because of rising complaints from downtown businesses, downtown parking had become in the past couple of years a key economic development priority of the Schmoke administration, which felt it needed more spaces to attract and retain companies.
The city had been approached as far back as 1996 by the current owner of the old USF&G; headquarters building at 131 E. Redwood St., Orion Construction Co. of Laurel, about buying that building and another nearby for a parking garage. But Orion was asking far more money than the city was willing to pay.
"We were so far apart in what the buildings were worth," said Brodie, BDC's president, adding that the gap was in "seven figures."
'Limited' appraisals
To aid it in its deliberations, BDC commissioned in July 1998 an appraisal of several properties along Water, Redwood and South Calvert streets that could be used as a site for a parking garage at the middle or the end of a block.
The appraisal by G. Gordon Gilbert valued 117 Water St. at $2.1 million. It also evaluated five other properties that would be required for the 440-space garage.
But the appraisal, a copy of which The Sun obtained under state public information laws, also noted that it was a "limited" appraisal based only on an exterior inspection of the property and on sales of supposedly comparable downtown properties, including Water Street Mews and a building blocks away at 1300 N. Charles St.
"Please regard these preliminary value indications as highly rebuttable presumptions," Gilbert wrote the BDC. "Interior conditions, roof and mechanical conditions, leases, etc. must be delved into before a really responsible estimate of value can be developed."
Three times during the next several months, the BDC's Frank and Brodie broached the subject of where to put the parking garage before a regular gathering of city officials involved in development issues.
Although no official pronouncements were made about the discussions, Frank said it was "fairly common knowledge that the city was looking at alternatives" to Water and Redwood streets as a site for a garage.
In the midst of the discussions, Schmoke named a seven-person Parking Advisory Board in October to help the city address its problems. The board consisted of four city officials and three representatives of the business community recommended by the Department of Public Works, which is responsible for parking under the city charter.
As representatives, Public Works Director George G. Balog chose David Kornblatt, whom he described as a "parking czar;" Wayne Gioioso, who handles real estate issues for attorney and Baltimore Orioles majority owner Peter G. Angelos; and Milton Miller, who he said approached the city "time after time asking for parking for his tenants."
"They all showed an interest in developing the city through parking," said Balog. "It seemed logical to put them on the board."
By early January, BDC had rejected Orion Construction's proposal to tear down the old USF&G; building. The agency announced its decision at a Jan. 7 meeting of the parking board attended by Milton Miller, where it also said it had hired a consultant to study alternate sites in the area.
On Jan. 25, Milton and Ira Miller set up a company, 117 Water Street LLC, to "acquire, own, hold, lease, operate, develop, manage and/or sell real property and improvements located at 117 Water Street," state records show.
Two days later, the consultant, Desman Associates, submitted a report that showed the building as part of a potential site.
On Feb. 4, BDC sent a letter to the owners of six parcels -- including Principal Mutual Life -- stating that the city was "interested in acquiring" properties for a parking garage. A separate letter to tenants of the building at 117 Water St. said the city "will be acquiring" the properties.
The next day, the Millers signed a contract to buy 117 Water St. from Principal Mutual Life for $1.1 million.
In a July 14 letter to The Sun sent in response to a request for an interview, Ira and Milton Miller said their negotiations with Principal "are confidential by nature."
They also reiterated comments made last month that they had been interested in the building for 2 1/2 years before they settled on a sale price and added that "our intent was to acquire the building for purposes of renovation and lease-up."
Seeking buyer for building
Brodie said he was told by Ira Miller days after The Sun published a series of stories in late June and earlier this month detailing the controversial BDC purchase that Principal wanted to "unload" 117 Water St. and was looking for someone to "take it off their hands."
Principal, which had taken control of the building in a 1993 foreclosure, confirmed in its first public comments on the property that the Millers had expressed interest in 117 Water St. as far back as 1996, but denied that it was looking to dump the property.
Kathleen A. Bean, a company spokeswoman, said Principal had decided to sell the building this year as part of a corporate strategy to concentrate on its portfolio of suburban warehouses and office buildings.
Although she said the company was going to limit its comments on the property because it no longer owned the building, Bean acknowledged that Principal did not have a formal appraisal done on the building and did not list it with a broker.
Bean said Principal was "absolutely not" unloading 117 Water St. at a cut-rate price in its haste to sell the building.
"We felt we were given a fair market price for the building," she said.
Frank, who began negotiating a purchase price for 117 Water St. and five other properties even as a ordinance condemning them was introduced in the City Council, said he was surprised to learn in a letter from Principal that there was a contract to sell the building.
As part of the negotiations, Frank said, he walked through the building and asked the Millers for income information, which they provided even as they protested that they wanted to lease the building, not sell it.
But he said he never asked them what they had agreed to pay for the building, an oversight he and Brodie now acknowledge was a mistake. "In hindsight, we should have asked the Millers what they paid," Brodie said.
Frank did know that Miller was a member of the parking board, but that raised no red flags as far as he was concerned.
"I thought it was OK," he said. "The parking task force was not the decision-making body. It didn't occur to me we were doing anything wrong."
The head of the parking board, Michael Rice, was not so sure. Concerned about the situation, he had contacted the city solicitor's office, which he said told him Miller could avoid a conflict of interest by excluding himself from any conversations involving 117 Water St.
Miller did not show up for the two meetings of the board between the time he signed the contract to buy 117 Water St. on Feb. 5 and the time he bought the building March 17, according to minutes of the meetings.
Frank and Brodie said BDC was guided in its negotiations with the Millers by the appraisal it had received in July 1998.
"We had the appraisal, reviewed it and felt it was reasonable," Frank said.
But national and local experts said the shelf life of an appraisal is at most six months. Gilbert, who did the appraisal of 117 Water St. for the city, agreed that generally speaking, an appraisal's viability wanes after a half-year.
"Usually, banks or other institutions will seek a reappraisal after six months, but in a dynamic market an appraisal may not be good a month after it's done," said David Brooks, a partner in Lipman, Frizzell & Mitchell, a top local firm.
When Frank agreed with the Millers to buy 117 Water St. for $2 million, he said he felt good about the deal because it was $100,000 below the appraised price. But he could not reach agreement with the owners of the other properties needed for the garage.
On the last day of March, BDC took the deal for 117 Water St. to Baltimore's Board of Estimates, which is made up of the city's top elected and appointed officials and is charged with approving all major city contracts. The board approved the deal with no discussion. A week later, the Planning Commission weighed in in favor of the plan.
But those easy approvals masked a storm of protest by tenants of 117 Water St. over the city's plan to demolish their building for a parking garage, a storm precipitated by BDC's Feb. 4 letter.
"The tenants were livid," said Karen Williamson, president of Williamson, Neal & Amato, a legal search firm and longtime tenant of the building. "No one could understand why there were two empty buildings they weren't going to use."
Their anger erupted at an April 15 public hearing before the City Council's Taxation & Finance Committee. After the hearing, the chairman of the committee, Northeast Councilman Martin O'Malley, recommended that other sites be considered.
Two months later, O'Malley effectively killed the mid-block garage plan by blocking the condemnation of the building and referring the city's purchase of 117 Water St. to the city's ethics commission.
Errors acknowledged
Frank and Brodie now acknowledge they erred in not qualifying in their notification letter to tenants that governmental approval was needed before BDC could proceed with its plan.
And Frank said the agency, in its haste to move ahead with a parking garage, erred again in attempting to seal the deal with the Board of Estimates before the City Council had acted.
"In retrospect, we would wait for the council, then we would begin our negotiations," he said.
In part because they did neither, the Millers were able to argue more persuasively that they were harmed by the city's actions in their efforts to get new tenants for 117 Water St.
When Brodie and Frank relayed their complaint to Schmoke after the council's April 15 hearing, the mayor was sympathetic. He told them to go ahead and buy the building, arguing that BDC had "constructively condemned" the property by its actions and saying the city could find a use for the property. The city bought the property May 12.
"The information presented to me was that we had done economic harm and in buying the building, here was a way to remedy that," Schmoke said recently. "I asked Jay [Brodie] if there was a need for the building? Did we have a use for it if we bought it, and the answer was yes."
Schmoke acknowledged, however, that he was concerned with the $900,000 the Millers made in a relatively short period of time.
"I didn't know how much they paid until the first story appeared in the paper" in late June, Schmoke said.
Several legal and real estate experts question Schmoke's rationale. They say the concept he cited, usually called "inverse condemnation," is applicable in cases where government restricts development, thereby restricting the use and so the value of a property.
Audrey McFarland, an assistant professor at the University of Baltimore School of Law and a specialist in property and local government law, said she had never heard the theory applied to a case like that of 117 Water St.
"Were they legally obligated to purchase the property? Probably not," she said.
"Cases of inverse condemnation are very rare," added Kurt Fisher, a partner and real estate attorney at Piper & Marbury, the state's largest law firm. "In fact, I'm not sure damages have ever been awarded in the history of the state of Maryland in a case involving inverse condemnation."
Still to be resolved is the question of the future of 117 Water St. -- and a parking garage in the old financial district.
Anthony J. Ambridge, the city's real estate officer, said he has received one offer for the property that is more than the purchase price, but with conditions that make the sale unacceptable.
"I'm hoping to get several bids," he said.
If Meisel & Cohen goes ahead with its plans to buy the old USF&G; headquarters and build a garage there with private money, 117 Water St. will remain an office building.
But if the Abell Foundation succeeds in getting control of the old USF&G; building and preserving it, then a garage would have to be built in the middle of the block -- or yet another site would have to be found.
"We're interested in that we don't want the building to be torn down," said Robert C. Embry Jr., Abell's president. "We think it's architecturally significant."
For BDC, after more than a year of discussions, it's back to square one in deciding where to put more parking downtown.
"This is a bump in the road," Frank acknowledged about the flap over 117 Water St.
Then he added, in something of an understatement, "It's been very difficult to site a garage in this city without controversy.
Sun staff writer Greg Schneider and researcher Andrea Wilson contributed to this article.
Pub Date: 7/25/99