Ruled out

The Baltimore Sun

Walking through a blighted East Baltimore neighborhood on a recent snowy morning, Del. Talmadge Branch pointed at an empty, boarded-up warehouse on Biddle Street and shook his head.

The building should be a multimillion-dollar gym called Hoop City, he said. Children from the neighborhood and members of nearby Israel Baptist Church should be dancing and practicing karate in its studios and kicking soccer balls on indoor courts.

That was the vision Branch sold to his pastor at Israel Baptist and the pitch he delivered to colleagues in Annapolis seven years ago.

It seemed like a good idea then, and state lawmakers secured $800,000 in two state bond bills to pay for the gym. The administration of then-Mayor Martin O'Malley got on board, buying the building for $200,000 in taxpayer dollars in 2002, selecting Ronald H. Lipscomb as the developer. Over time the city spent an additional $411,000 - including $75,000 in state money - for studies and architectural drawings.

But nothing was ever constructed, or even demolished. Instead, neighborhood youths hang out in clumps on street corners and residents continue to scowl at a hulking brick eyesore surrounded by a rusted fence and filled with trash.

"This thing has been a nightmare," Branch said amid the snowflakes. Over and over he has asked: "What makes this project so un-doable?"

The answer is complicated, but it should serve as a cautionary tale to those navigating city bureaucracy and trying to pull public money into a private enterprise.

Looking back, city officials acknowledge that the idea of building a private, for-profit gym at 2101 E. Biddle St. using taxpayer money was ill-conceived.

Over time, construction estimates ballooned, making financing flaws even more clear. Yet the city continued to pump money and time into the project, until credit markets became tight.

In September, Lipscomb, who is part of a wide-ranging investigation by state prosecutors looking into this project and others, left the venture.

Baltimore Housing Commissioner Paul T. Graziano, in an interview this month, said he would be "very leery" of entering a similar deal again.

For the foreseeable future, it seems that the city-owned property will stay vacant. The exit of Lipscomb leaves the city out hundreds of thousands of dollars and the influential pastor of the nearby church fearful that the community will have little input on the ultimate fate of the building.

It also leaves a prominent city lawmaker embarrassed because a pet project that he believes is sorely needed in his community has failed.

"Those kids," Branch said, gesturing toward a group of young adults wearing black puffy jackets gathered near shuttered corner stores, "they don't have a place to go."

In 2001, when Branch secured an initial $500,000 chunk of state money, the project was one of many development ideas percolating around the Broadway East and Collington Square neighborhoods.

Hundreds of rowhouses were slated for destruction as part of the East Baltimore redevelopment project a few blocks away, and it seemed feasible that residents moving there would want to join a new gym.

The Rev. H. Walden Wilson II, the Israel Baptist pastor who built a reputation in the 1990s confronting drug dealers in the neighborhood, thought a gym would complement the social work his church was doing by providing a way for an underserved population to become healthier.

The pastor also had plans for a new 2,000-seat sanctuary and was eyeing a paved lot on the east portion of the 2101 E. Biddle St. property. With the new church built, he still is.

"We would love to use some of that land for off-street parking," he said.

With the first installment of state money on the table, the city in 2002 bought the building, using its assessed value as part of the matching funds required by state lawmakers and then adding the balance.

The deal was approved by O'Malley and the City Council, led by then-President Sheila Dixon, who is now mayor.

In May 2004, the city asked for proposals from real estate developers to turn the site into a gym.

But the request included a twist that officials said was not typical and made it difficult to meet conditions for using state bond funds: Instead of the city controlling the land, the property at 2101 E. Biddle St. would be "conveyed at a nominal cost to the developer selected."

The city's offer, outlined in the formal request, included the promise that state and city grants were available for the project but also said that private money would have to be used.

Lambda Development, a firm controlled by Lipscomb and former City Councilman Anthony J. Ambridge, was the only bidder and won the development rights for Hoop City. In their proposal, Lipscomb and Ambridge praised the public-private partnership, saying it would "set an example across the city and state as one to be emulated for the betterment of all."

But the arrangement proved exceedingly difficult to honor as staff from City Hall and the city's housing department began to understand the rules tied to state funds and how adversely they affected the developer's needs.

The city could not simply turn over the property to a private developer and expect the state money for the project without amending the original state bond-bill legislation to reflect that change. And the state did not look kindly on giving public grants to a private developer.

Paul Georgiou, administrator of capital grants and loans for the state at the time, wrote in one e-mail: "If the new grantee is not a non-profit entity, then in all reality, they would probably not receive the grant."

Graziano said the city was in no position to take on the project alone without that state help, saying it was difficult enough for the city to "scrape up" matching funds for the state grants.

Meanwhile the developers needed millions in bank loans on their end. But the banks would not lend them money if they didn't control the land.

"Until we know we have a form of site control which will appease lenders, it is foolhardy to continued to spend our funds," Ambridge wrote in a May 2006 e-mail to City Hall and housing officials, explaining why no demolition had occurred at the site.

Further complicating matters, developers learned that additional buildings on the site were designated as historic, meaning additional renovation costs and restrictions. Just updating the windows would now cost an additional $200,000, Ambridge estimated. This new burden raised the cost of the project from $5.5 million to $9.4 million - requiring that the developers chase even more private money.

"Quite frankly, the strings attached to the state money has made this project more expensive than the grants themselves," Ambridge wrote in May 2006, referring to the historic preservation.

Nonetheless the developers pushed onward, wanting to get the work done and feeling pressure from politicians. In February 2007, Ambridge wrote to Deputy Mayor Andrew Frank asking for a progress report: "I'm sorry to be such a pain in the butt about this. ... Delegate Branch tells me he catches grief every time he goes to Church."

That month, Branch had a talk with Dixon, causing a flurry of staff-level e-mails from the mayor's office asking housing officials for a status report.

Even while politicians added pressure to move forward with the project, City Hall and housing department staff kept asking questions. At one point, Frank noted that the Hoop City business model seemed to rely on optimistic membership figures. "Your proforma depends on 4,200 [gym] memberships paying $3.8 million," Frank wrote in February 2007. "The Druid Hill YMCA is about the same size and has just over 2,000 memberships."

Then-Assistant Housing Commissioner Michael Bainum assessed progress on the project in February 2007 and wrote a memo to City Hall: "The City needs to be mindful that it is effectively subsidizing a private fitness club. There may be future policy implications as a result of this transaction."

City attorneys approved a deal that would give Lipscomb and Ambridge the property for $1, giving them the site control they needed to go to banks for loans. The deal included a provision that would not allow the title for the property to be transferred until predevelopment work was done using city and state funds, Graziano said.

On Nov. 14, 2007, the city's Board of Estimates approved the deal. Dixon, a member of the board, voted for the measure.

But it never closed. Two weeks after the vote, the state prosecutor's office searched Lipscomb's offices looking for documents related to a number of projects, including 2101 E. Biddle St.

In the affidavit for that search and seizure warrant, the state prosecutor wrote that in December 2003 Lipscomb gave Dixon a $2,000 gift certificate for a city furrier, which she used to purchase a Persian lamb coat. Dixon never listed the coat on her city ethics form, although as council president she was required to report gifts from people who do business before the city.

The two have said they had a brief personal relationship in late 2003 to 2004, and both have denied that the relationship on any bearing on their professional roles.

Gerard P. Martin, Lipscomb's attorney, said that there were no criminal misdeeds connected to the Biddle Street project - or any others - and that he has no idea why the state prosecutor's office is interested in his client.

Martin said the failure of the project was due to increasing costs and not related to the state prosecutor's investigation. Other former housing officials interviewed for this article agreed. But housing officials said that the developers' interest in the project waned around this time.

The developers formally pulled out almost a year later, writing on Sept. 10, 2008, that the project would be "better suited for a non-profit lead."

The tightening credit market was also a cause for leaving the project. "Banks are not knocking down our door to lend money in this poor but great community," Ambridge wrote in a July 2008 e-mail.

Graziano said that he has spoken with several groups about possible uses for the building, including a housing developer and representatives from the East Baltimore Development Inc., which has razed blocks near Johns Hopkins Hospital. But he wouldn't estimate how long 2101 E. Biddle will remain vacant. "We have a lot of things on our plate now," he said. "The economy is not great."

The housing commissioner holds out hope that the state might still reimburse the city for some of the $411,000. "I would like to get as much back from the state as possible," he said. "It was a state-conceived program."

Branch concurred, saying that he hopes state budget officials can work out some type of agreement with the city.

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