Banks control about 10% of office space in area New study concludes market is overbuilt

October 08, 1991|By Timothy J. Mullaney

A new study says lenders now control nearly 10 percent of metropolitan Baltimore's office space, reflecting the severe recession in the development industry and a market that is "overbuilt."

The study released yesterday by W. C. Pinkard & Co. said that lenders have taken control of 49 buildings since January 1990, including the city's biggest office tower and 27 percent of the office space in Howard County.

"This is a recent phenomenon, probably over the last 18 months," said Jeffrey B. Samet, the Pinkard vice president who wrote the study. "We hadn't tracked it before because it was never an issue."

Office buildings that banks have repossessed or put into receivership are concentrated in the downtown Baltimore and Howard County markets, the study said. Lenders own or run 26 buildings in Howard County, or 27 percent of all the office space in the county, while they have taken over nine downtown buildings that make up 8 percent of the downtown office market.

Lenders also control 16 percent of the suburban west market in Baltimore County, which includes Owings Mills and Security, but that market has less square footage than downtown. So even though banks control a higher percentage, they control less space.

The banks now own or control 3.3 million square feet of area office space, or 9.6 percent of the total regional market, the study said. The study area included Baltimore City, suburban north (Towson, Hunt Valley and White Marsh), suburban west, suburban south (the Baltimore-Washington International Airport area) and Howard County.

"The Baltimore office market is overbuilt," the study said.

"Many of the traditional sources of demand -- banks, insurance companies, area defense firms and business service firms such as accountants, ad agencies and law firms -- are reducing their need for space because of weak economic conditions."

Mr. Samet said that lenders have been offering very favorable terms in efforts to sell or lease buildings they have taken over, but he refused to blame banks for widespread price-cutting and free-rent giveaways that are plaguing the office space industry during this recession.

"The market is what the market is," Mr. Samet said. "The lender has to be competitive, as does any owner today."

Real estate brokers at two other firms said that foreclosures aren't having a major impact on their business, which has been slow anyway. Milton H. Miller Jr., a broker for Smithy Braedon & Co. in Baltimore, said that the downtown buildings taken over by their lenders were weak competitors in the first place.

The buildings taken over by lenders include the city's tallest office building, 6 St. Paul Centre, which Mr. Samet said is effectively being run by Chemical Banking Corp. of New York.

The action to take control of 6 St. Paul Centre had not been publicly announced, and officials of Chemical and the building's owner, S/A Associates of Garden City, N.Y., failed to return phone calls yesterday. S/A bought the building, which was built to serve as headquarters of the now-failed Merritt Commercial Savings & Loan, for $30.1 million in 1985.

Architecturally conservative Baltimore has looked askance at the tower since it was built, partly because of the copper-colored metal on the building's exterior and its tower of slender upper floors. Its leasing also suffered from the fact that its floors were smaller than those of competing buildings, and from corporate Baltimore's residual distaste for Merritt Chief Executive Gerald Klein, who was indicted on fraud charges after the 1985 collapse of the thrift, but was acquitted.

At the end of 1989, 6 St. Paul Centre alone accounted for 28 percent of the vacant Class A office space in downtown Baltimore. And that was before the building's biggest tenant, the accounting firm of Laventhol & Horwath, went out of business late last year.

Mr. Samet said that the biggest lender-controlled building in Howard County is the Equitable Bank Center in Columbia, whose developer has sought bankruptcy protection and has been fighting in court with the lender, Baltimore-based Mercantile Safe Deposit & Trust Co.

Local banks had little to say about the report. A spokesman for Maryland National Bank, the state's biggest, did not return calls.

First National Bank of Maryland, the second-biggest, doesn't own or control any area office buildings, a spokeswoman said. Mercantile declined to comment.

Mr. Samet said that most of the downtown projects in lenders' hands were financed by out-of-state institutions.

They include 6 St. Paul Centre, Redwood Center, taken over by Washington-based Riggs National Bank, and The Brokerage, which he said was financed by the Bank of America.

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