Commerce Place loses key tenant Major law firm decides against leasing space.

October 25, 1991|By Kevin Thomas | Kevin Thomas,Evening Sun Staff

The law firm of Shapiro and Olander is backing out of plans to move its offices to Commerce Place, the 30-story high-rise currently under construction in downtown Baltimore.

Managing partner Christopher Olander said that the firm had abandoned its plan to occupy 42,000 square feet at Commerce Place when the building is completed in late 1992.

A year ago, Shapiro and Olander signed a "non-binding expression of intent" to lease space at the 450,000-square-foot skyscraper, Olander said. Economic pressures, however, forced the company to recently revise those plans.

"We're not laying people off," Olander said. "We're just not anticipating any growth."

A law firm of considerable influence, two attorneys at Shapiro and Olander -- Ronald M. Shapiro and Larry S. Gibson -- are close political allies of Mayor Kurt L. Schmoke.

The law firm's decision is considered a blow to the Commerce Place project, but one from which its developers appear likely to recover.

"No loss prospect in today's market can be taken lightly," said Robert T. Kleinpaste, president of the Legg Mason Realty Group, which tracks Maryland real estate.

Kleinpaste added, however, that because the project has wealthy backers -- including the Kajima Development Corp., an arm of Japan's largest construction company -- it can afford to wait out a bad market.

"The bottom line is that [Commerce Place] is better funded than many others, so they can be patient," he said.

Kevin McAndrews, managing director of Commerce Place, said yesterday that his company will continue to pursue Shapiro and Olander as a tenant. He would not characterize the impact of the law firm's withdrawal on the Commerce Place project, but he conceded that the economy was a factor.

"Developing a building, especially the way we're doing it, is such a long-term proposition," McAndrews said. "From the time you start it until you complete it, you really don't know what the market conditions are going to be."

Only one firm, RTKL Associates Inc., has signed a lease at the new building. The lease calls for the city's largest architectural firm to occupy 100,000 square feet, making it the anchor tenant at Commerce Place. RTKL is also one of the architects of the project.

But officials at the firm consider the lease a hardship, especially in light of its other financial problems. RTKL recently laid off approximately 75 employees locally and close to 100 from its worldwide offices.

"We certainly don't have the need for the quantity of space we're

committed to," said George Pillorge, RTKL vice chairman. "We certainly wish we didn't have to lease all the space that we have."

RTKL officials said they may attempt to sublet part of the square footage they are required to assume.

But the sentiments expressed by RTKL and Shapiro and Olander point up the problems inherent in a large-scale development project being mounted during a recession.

On the one hand, the project has considerable backing. Besides Kajima, the Harlan Co. Inc., a New York real estate investment banking firm, is a partner in the venture.

At the same time, from the moment of groundbreaking questions have loomed about the viability of an essentially speculative office project during a recession that has cut deepest into the commercial real estate market.

Currently vacancy rates among commercial and industrial office buildings in the region hover around 18 percent, and analysts say it will be several years before the market rebounds.

Still, Commerce Place remains the only new "class-A" structure that is largely unspoken for in the Baltimore region.

"We have the best real estate property in town," said McAndrews. "For any high-end user, if they're interested in high-quality, extremely efficient space with amenities, we're it."

At the same time, McAndrews said, he is taking no chances. Firms that may have leases expiring soon are being actively pursued.

"Instead of waiting for leases to be up, we're taking a more pro-active approach in talking to people," he said.

And Olander said he did not expect his firm's withdrawal to effect the project.

"It's a wonderful building," he said. "It appears likely to be the only new game in town for quite a while."

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