Building may stay virtually empty


August 04, 1993|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

One Charles Center is the ultimate proof of the old saw about banks: If you owe the bank $1,000 and you don't have it, you have a problem. But if you owe one, say, $19.6 million, and you don't have it, the bank has a problem.

But the problems that the 22-story office building at 100 N. Charles St. is likely to cause Metropolitan Life Insurance Co. only begin with the fact that the owner, First Capital Financial Corp. of Chicago, cannot repay a $19.6 million mortgage on the building that it took from Met Life in 1988.

Met Life last week set an Aug. 17 auction of the 300,000-square-foot building, and most downtown real estate brokers think that Met Life itself will buy the building. After the auction, One Charles Center's prospects in a market still trying to climb out of the real estate depression are grim.

The building is expected to be virtually empty by 1995 as tenant CSX Corp. moves out. It needs renovations to compete with newer buildings. And its sale, especially if Met Life resells One Charles Center after the auction, may set a new floor for the values of downtown office buildings even as vacancy rates seem to have peaked and begun to fall.

"I think in the $30-$35-a-square-foot range is probably not far off," said L. Bruce Matthai, a broker at W.C. Pinkard & Co. downtown.

Even 6 St. Paul Centre, which did so poorly in eight years on the rental market that its owners never bothered to finish the interior, sold to the state of Maryland earlier this year for about $40 a square foot. And Redwood Tower, the other major downtown building that went to foreclosure, sold for $52 a square foot last year.

On the face of it, One Charles Center should be much more valuable. It was the first office development in the city's early 1960s Charles Center redevelopment, and the first new multiuser office building in Baltimore in decades. It was designed by Ludwig Mies van der Rohe, the world-renowned architect whose design was a direct knockoff of his acclaimed Seagram Building in Manhattan.

But Redwood Tower was 75 percent leased when it sold, and the state will use 6 St. Paul Centre itself, sparing officials from the task Met Life faces with One Charles Center -- trying to lease 300,000 square feet of space in a city where David E. Johnson, who manages a competing building at 201 N. Charles St., said the average tenant wants to lease about 6,000 square feet.

One Charles Center has problems -- it's too far north of the Pratt Street corridor that has become Baltimore's premier business district, parts of the building show age, and its floors are smaller than in newer buildings -- that ordinarily would be nothing sharp discounting couldn't overcome.

But competitors are now pricing so aggressively that price isn't the easy answer it might have been in a stronger market.

"We can be more competitive than just about anybody in the market," said William Finger, vice president of Peter D. Liebowits Co., which controls the Inner Harbor Center at 400 E. Pratt St. Mr. Liebowits bought out the mortgage on his building earlier this year at a reported 80 percent discount.

Bo Cashman, a broker with CB Commercial Real Estate Services Inc., said First Capital had done smart things already, having begun a million-dollar-plus renovation and cutting rents -- but without success -- since CSX said it would move.

Met Life's regional manager, Andy Behymer, said the company won't talk about its plans until after the auction. But there's a rough consensus on what Met Life should do.

The strategy that outsiders urge is to play for touchdowns. (Leasing the building a little bit at a time will take too long, brokers say.) And, if possible, try to sell the building to a company or government agency that can use the building itself, so it doesn't have to worry about finding tenants.

Indeed, only three buildings in town -- One Charles Center, Commerce Place and perhaps Inner Harbor Center -- have enough space to compete for big tenants, like the major law firms Whiteford, Taylor & Preston or Miles & Stockbridge, or companies like the publisher Waverly Inc. All are considering moves.

Mr. Johnson added that because the state is looking to buy more offices, he would consider trying to sell One Charles Center to the state. Charles Weinstein, a vice president at South Charles Realty Corp., said that offering big corporate tenants an ownership stake might help.

But it's not clear that either strategy would work. One Charles Center was beaten out for the city's most recent big tenant, American Credit Indemnity Co., by 100 E. Pratt Street this spring. Miles & Stockbridge isn't interested in owning real estate, said its managing partner, James R. Eyler.

State officials were cool to the idea of buying One Charles Center as well.

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