The state as landlord

August 25, 1993

That old dilemma facing new families and many single adults -- buy or rent? -- doesn't trouble state officials much these days. At least in the Baltimore metropolitan area, with its relatively high rents in a generally depressed market for office space, the answer is to buy.

Recently, the state bought another office building at a price that will save taxpayers a bundle over the years. For $3.5 million and some renovation costs, it acquired the Shillman Building on Calvert Street. Moving a state agency into the building will save some $1.2 million a year in rent and earn just as much from a tenant.

Deals like this are not hard to find these days because there is so much unrented office space in the metropolitan area, especially downtown. Buying office buildings at distressed prices may not do much for the real estate business, but it can cut drastically the state's expenses at a time when every dollar counts. Even the threat of moving an agency into a state-owned building can save money by inducing landlords to reduce lease payments. This might constitute unpleasant hardball tactics on the state's part, but that is no more than what private businesses do in a depressed market.

There are some drawbacks to the state's program. Buying large office buildings like 6 St. Paul Centre earlier this year takes vacant space off the market, but it creates other vacancies when state agencies move to their new homes. Sales at bargain -- read, distressed -- prices tend to reduce the market values of other, comparable buildings. And the buildings are taken off the city's property rolls, reducing the city tax base.

Still, the state's program is a net gain for the metropolitan area. In many cases state employees will move from shabby quarters to more appropriate environments. Conspicuous white elephants like St. Paul Centre will be filled at last. Agencies will be consolidated into single locations, increasing efficiency. Agencies that must be close to the people they serve will remain near their clientele, but about half ofthe more that 2 million square feet of space the state occupies in the metropolitan area is suitable for consolidation.

When Gov. William Donald Schaefer first proposed buying instead of renting office buildings, the General Assembly balked. Since then it has seen the wisdom of the governor's plan, and prices have dropped further. In the long run, everyone -- including the owners of other office properties -- will be better off.

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