Seven months after the Baltimore City Council gave the green light to borrowing $160 million for the planned Westport development, investors have shown no interest in the bonds, leading some city officials to fear that the ambitious project will be delayed.
But a new federal stimulus program could provide a lifeline for the project, which, if it goes forward, would drastically change the face of one of the city's poorest areas, bringing a high-rise office building, thousands of homes and retail stores to a 43-acre strip of land along the Middle Branch.
Late last year, the developer, Patrick Turner, successfully lobbied the city to issue bonds for Westport's infrastructure in a method commonly used around the country and known as tax increment financing, or TIF.
Under that plan, the city issues TIF bonds that are paid back with property taxes as the development begins generating revenue. Even though the city issues the bonds, the developer must repay them if the project fails.
But since last year's financial meltdown, the market for such noninvestment-grade bonds has virtually disappeared.
"The only TIF bonds that have been done since [the] Lehman [Brothers] default have been TIF bonds for already developed projects," said Nathan S. Betnun, the managing director for public finance at Stone and Youngberg, an Annapolis-based firm that specialized in TIF bonds. "To my knowledge, there have been no TIF bonds done for projects that are undeveloped."
Without those bonds, Turner would have no obvious way of financing sewers, streets and water lines for his $1.4 billion development, according to city officials.
"Infrastructure has to precede building buildings," said M.J. "Jay" Brodie, the president of the Baltimore Development Corp. "So it would mean a delay in the project until the market for TIF bonds improves sufficiently or some other source or sources of funds were found."
First Deputy Mayor Andrew Frank was more blunt: "I think the entire project is at stake if we cannot sell the TIF bonds."
For the time being, Turner only needs to borrow $25 million for the first phase of the project, and city officials are optimistic one portion of the federal stimulus package could provide a solution.
Under a recently announced federal program, the city could issue Recovery Zone Economic Development bonds for the infrastructure, a generous new arrangement where the federal government pays 45 percent of the interest on the bonds, making them more secure.
"I know that these alternatives are viable," Frank said. "It is in our interest for the project to move forward sooner rather than later. I'm excited about the possibilities."
The goal of the federal program is to increase infrastructure building so more development can be done, explained Jason L. George, a Columbus, Ohio-based bond attorney with the firm Benesch. He called the new bonds among the "most exciting things we've seen," explaining that bond laws have not changed much in the past two decades.
Nationally, the federal government will allow $10 billion worth of bonds under this program, and it has allocated $20.5 million of that for Baltimore. So far, city officials are considering using the bonds only for Westport but ultimately extending them to other projects.
"It is a good tool," said Turner, the developer. "You know that famous word[s], 'shovel ready'? That is what we are." He estimates that the initial phase infrastructure work would employ 300 people and start by the end of the year.
Turner has finished knocking down buildings on the site and done some environmental remediation work. The property is now valued at $4.2 million, but after the first phase, when infrastructure is built, along with 438 homes and 300,000 square feet of office space, the value of the property is projected to grow to $140 million, said Kennan Rice, the president of MuniCap Inc., a public financing firm that is advising the city.
But some conditions must be met before using the recovery zone bonds. The city might need to pass legislation declaring Turner's development an area "with significant unemployment, poverty, home foreclosures or general distress," according to a presentation given to city officials by the law firm Ballard Spahr Andrews & Ingersoll.
Brainstorming about how to handle that designation at a recent meeting with other city officials, Deputy Transportation Director Jamie Kendrick suggested introducing City Council legislation that defines the entire city as a recovery zone.
The idea surprised Kelly Briscuso, a mayoral intern at the table. "Is there a negative connotation to that?" he asked. "If you designate the entire city as economically distressed? From a marketing perspective?"
Some nodded their heads, wondering if the City Council would be willing to sign off on such a designation, but Kendrick explained that it could be the swiftest way to ensure that the city can take advantage of the federal program.
City officials expect to decide how to use the bonds in the coming weeks.
Even without the federal help, Turner said in an interview that there are "a lot" of other potential funding sources for the infrastructure at his project.
"You know how tenacious I am," said Turner, whose other developments include the upscale apartment complex at Silo Point in Locust Point.
The project already benefits from a separate state designation - it is one of five areas called a BRAC zone where officials hope to spur development to house an expected influx of military workers.
Despite the current lack of market for TIFs, the city is still optimistic that investors will return. Frank said plans are in the works to send legislation to the City Council to authorize a TIF for Harbor Point, a planned 27-acre project along South Caroline Street backed by John Paterakis.