Mayor Kurt L. Schmoke plans to appoint a task force to study converting Class B office buildings to residential use, hoping to spur downtown living while using some of Baltimore's empty office space in the face of weak prospects for an economic recovery.
"It's in the embryonic stages right now," says Honora Freeman, president of Baltimore Development Corp., the quasi-public agency that guides the city's economic development. "We would like not to be in a reactive mode. We'd like to have some options in place."
Ms. Freeman says Class B buildings, older ones predating the city's 1980s office building boom, are getting squeezed increasingly hard by competition from newer buildings.
Before the recession, Class B buildings had a market niche because they were much less expensive than newer buildings. But recession-induced price cuts on Class A space are wiping out Class B's advantage. Baltimore's 80 Class B buildings have a vacancy rate of 23 percent.
The city is determined to find something to do with the buildings if they can't compete as offices, Ms. Freeman says. She says residential use probably would be as apartments.
The proposal draws praise but also skepticism from the private sector. Owners of Class B buildings and owners of apartment buildings that have been remodeled from warehouses and other uses say federal tax incentives that helped the renovation of the Sail Cloth Factory downtown and Canton's Tindeco Wharf apartments no longer exist.
The city or the state would have to come up with comparable incentives to make the idea work, they say.
"It's a great theory; downtown is in desperate need of more rental housing," says Joe Fonte, president of Signature Management Inc., which owns the Sail Cloth Factory and the GreeneHouse apartments near the University Center district of downtown. "But it isn't going to work."
"We would be interested," says Robert Morrow, president of New York's Kenilworth Equities, which owns a dozen Class B buildings in Baltimore and has renovated two former industrial buildings downtown.
"If you had to do it on a straight basis, with no [tax] incentives or [public] financing, it couldn't be done," he says. "You would need some kind of tax abatement; you would need some kind of concession on fire protection. . . . It's just not feasible to make them work" under modern fire codes that require sprinklers, he says.
Mr. Fonte says federal tax incentives for historic preservation attracted about half the money it took to renovate Signature projects such as GreeneHouse and Harbor Hill in Federal Hill. Those incentives were repealed in the 1986 tax-reform law.
"The experience is not duplicable today," Mr. Fonte says. "The equity we raised we raised by selling the tax benefits. The investors got no cash returns other than the tax savings they realized."
The city and state would have to come up with big incentives to replace the tax breaks, he says. "If I were on the task force, the first question I would ask is, 'Will the building have to pay real estate taxes?' If the answer is yes, you're wasting your time."