When Martin W. Walsh Jr. became the first head of Maryland's Department of the Environment in 1987, one of the first things he did was help the fledgling agency move out of its headquarters in the state office complex on Preston Street to rented space in Dundalk. And it struck him as odd.
"Why would we move from state-owned to rented?" he said.
But now the shoe is on the other foot; indeed, Marty Walsh is Bigfoot in the real estate game locally. As the secretary of the state Department of General Services, Mr. Walsh is presiding over the state's shift from leasing office space to buying it. Mr. Walsh has spent $15.7 million to buy two downtown office buildings this year, totaling about 375,000 square feet, buildings whose 1991 tax assessments totaled $38 million, and he's looking for more.
The West Point graduate and four-time Bronze Star recipient turned career bureaucrat is one of the few buyers of office buildings in town, unless you count lenders snapping up their depleted collateral at foreclosure sales.
While using the slow market to buy buildings cheaply, he's also using the state government's leverage to drive down rents at the other 117 offices the state leases in Baltimore and Baltimore County. And there are two ways to look at that.
The industry might be healthier if the state continued to lease, rather than buy, offices, says Patrick Creaney, a developer whose Point Breeze Business Center on Broening Highway is the home of the Maryland Department of the Environment. He calls Mr. Walsh bright and articulate, but adds, "We agree to disagree sometimes."
Mr. Walsh isn't shy about the leverage he holds, thanks to a real estate depression that has driven the value of even one-time signature buildings such as 6 St. Paul Centre down within reach of buyers like the state. In fact, he is growing increasingly bold in talking about it in public.
"I'm not trying to hurt anybody. I'm trying to get the best deal for the state," he said.
He said decisions about which agencies move into the new space will depend on which of the state's landlords are most willing to cut the rent to hang onto their tenant.
"The criteria will be, in at least a few cases, how successful we were in renegotiating," he said.
The next few weeks will decide which agencies are going to go tothe new state buildings, the former Merritt Commercial Savings & Loan tower at 6 St. Paul St. and the Shillman Building at 500 N. Calvert St., he said. The state will choose from agencies that lease 81 offices totaling 1.67 million square feet in Baltimore and another 375,000 square feet in 36 offices in Baltimore County.
Most likely to move
The agencies most likely to move are back-office administrative operations, agencies that now occupy 1 million square feet. They are easy to move because they usually don't have contact with the public. The Public Service Commission, People's Counsel's office and Juvenile Services Administration are already ticketed for 6 St. Paul, and the Baltimore Office of Support Enforcement will be the first state tenant at the Shillman Building.
The more expensive the lease, the harder Mr. Walsh said he is looking at moving those agencies to the state's new buildings.
He said talks with David Kornblatt, developer of the St. Paul Plaza complex that houses the state attorney general's office, dTC and Thomas F. Mullan, landlord of the Office of Administrative Hearings at Greenspring Station on Falls Road in Lutherville, will be resolved about the time the state knows what it will have to spend to finish the interior of 6 St. Paul.
Those are the two most expensive state leases in the city and county. St. Paul Plaza's lease calls for $25.37 a square foot in annual rent, or almost $2.5 million. The Greenspring Station office leases for $23.79 a square foot, or $1.2 million.
Contractor proposals for the 6 St. Paul job came in Thursday but because of the complexity of the bidding process the state won't know until as late as Sept. 29 which company will do the work or exactly how much it will cost, DGS spokesman Dave Humphrey said.
Poker with landlords
Mr. Walsh hopes the poker game with the landlords will add to the savings the state expected when it decided to buy the two buildings. Originally, the state talked most about moving agencies out of old, often dilapidated space and saving money because buying space limits costs while rent goes on forever.
For those agencies, buildings such as 6 St. Paul will be a major improvement in their quarters. But Mr. Walsh said the building will never be finished up to the Class A standards the corporate clients who once filled about a third of the building demanded.