Tax incentive targets tenant


Baltimore is poised to give a $3.5 million tax break to the developers building a huge, mixed-use project in Harbor East, now one of the city's healthiest and most expensive neighborhoods. But unlike the other breaks Harbor East has garnered, this one, city officials say, was designed not to get a project built but to hold on to a trophy company that was threatening to leave town. The developers of 800 Aliceanna St., a $201 million project that will include offices, hotels, condos and a movie theater, have promised to use the subsidy to lower rents for their anchor office tenant, Laureate Education Inc.

Though city development officials say the cost is well worth retaining one of the few publicly traded companies still based in Baltimore, critics question giving more assistance to an already-thriving part of town and wonder whether Laureate - which threatened to leave town once before and got money to stay - was ever serious about leaving.

As City Council members today begin considering the PILOT (payment in lieu of taxes) package, M.J. "Jay" Brodie, president of Baltimore Development Corp., the city's development arm, will try to convince them the deal is not only sound, but critical.

"It's exactly the kind of company we want to hang on to," Brodie said of Laureate, formerly known as Sylvan Learning Systems. "It is not that we are helping [Laureate] pay the freight for the most expensive office building in town. It's not."

H&S; Properties Development Corp., the company owned by Baltimore bakery magnate John Paterakis, is teaming with Struever Brothers, Eccles & Rouse to develop the 27-story building at 800 Aliceanna. Though the building will have many components, the 15-year PILOT would apply only to the 205,000 square feet of office space, 20 live/work units and a 665-space parking garage.

As Paterakis developed Harbor East through the past decade, he has benefited from tax breaks on nearly every phase of the project, once an industrial no man's land and now one of Baltimore's trendiest areas, with an organic grocery store, expensive boutiques and even pricier apartments and condos.

The last PILOT the city approved was a $13.6 million break in 2004 for Paterakis' Spinnaker Bay apartments in Harbor East.

Years earlier, the developer won $20 million in subsidies to build the Marriott Waterfront hotel there.

He also wanted tax breaks for the building that houses a Whole Foods market and a Courtyard by Marriott, but the city refused.

Now H&S; and Streuver are talking with the BDC about incentives for their sprawling Harbor Point development just approved to rise next to Harbor East on the former Allied Signal site. The developers haven't asked for help to build the Harbor East Four Seasons hotel, but Lawrence J. White, Struever's development director, said that, too, would be a reasonable request.

White has little patience with questions about why Harbor East, with all its success, still needs help. He says that the development gives Baltimore much more than it gets from the city.

"The idea that we're somehow taking money away - the money wouldn't be there at all if we weren't developing," White said. "Harbor East will pay millions and millions in taxes - even with this."

The site is also eligible for tax credits under Maryland's Enterprise Zones program.

Brodie said the BDC carefully vetted the deal to make sure the agency wasn't "unduly enriching the developer."

He said that while the city would be forgiving $3.5 million in property taxes over 15 years, the development would be paying the city more than that in other fees - $3.1 million over the first 10 years.

Officials with Smart Growth America, a national coalition concerned with development issues, say incentives are intended to revive struggling urban areas. And then, said the organization's spokesman, David Goldberg, they shouldn't target one tenant, unless that company brings "big, incredibly lucrative jobs" or "something that benefits the entire community."

Laureate employs about 450 people, a third of whom are city residents earning an average of $40,000 a year. Company officials have told the BDC they expect to double their employees as they double their office space in the 800 Aliceanna building.

Because the deal would be between the city and the developers, Laureate is not required to add employees.

In 2000, when city and state officials offered then-Sylvan incentives to stay in Baltimore - the company had said it was considering a move to technology-rich Northern Virginia - a condition of the deal was that Sylvan would add several thousand employees. When that didn't happen, it had to repay some of the money.

In 1996, Sylvan moved to the then-nascent Harbor East from Howard County. The company was the site's first tenant.

On CEO Douglas L. Becker's first visit to the site, the developer lifted him in a bucket crane to show him what a view from an office there might be like.

"It took a lot of courage - no, courage isn't the right word. It took a lot of vision to see the area could become the success it has," Becker said, adding that he believes city incentives rightly recognize his company's risk and commitment.

"The city should help, and we're grateful that they are."

Greg LeRoy, founder of Good Jobs First, a Washington-based organization that has questioned government's use of economic development incentives, recently wrote the book The Great American Jobscam, detailing how companies play into local governments' fear of losing jobs in order to win tax breaks.

LeRoy's organization studied Baltimore's incentives program in 2002 and found "high costs, low benefits and a lack of safeguards" for the city. He said he's skeptical about this latest PILOT.

"The fact that they're already in the neighborhood suggests they're where they want to be. Did they really make a credible threat to move?" he asked. "The BDC's doing this is likely to trigger similar requests from other companies. Why wouldn't another tenant go to the BDC and say we want $5 off as well? It's a slippery slope."

Becker said he absolutely considered moving the company, though "we never took it to the level of an auction" between Baltimore and another site. He said Laureate has no need to be in Baltimore other than the fact that he enjoys being in his native city.

"In terms of being flexible and free to go and doing our business anywhere, we certainly are," he said. "We could be located anywhere - any country, any city."

Laureate wants to rent 138,000 square feet in 800 Aliceanna. The PILOT would reduce the rent there to about $30 per square foot.

According to MacKenzie Commercial Real Estate Services, rents like that would put 800 Aliceanna among the city's most expensive office space, rivaling the current most expensive rents at 500 E. Pratt: $34.50 per square foot.

The PILOT appears poised to sail through the city approval process. Baltimore's Planning Commission recently approved it unanimously, and City Council members seem to think it's a good deal.

"It keeps jobs here. It keeps Laureate here, an international learning system here - and I think that's essential to us," Councilman James B. Kraft said.

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