Competing For Tenants

June 02, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

After every celebration, someone is left with a mess to clean up. Beginning this week, it's Bernard Manekin's turn.

Mr. Manekin is chairman of Manekin Corp., which controls the building left behind as Alex. Brown Inc. plans to consolidate its headquarters and much of its operations at Commerce Place.

Hundreds of traders, investment bankers and administrative personnel are expected to vacate the old Bank of Baltimore building in the move, and Manekin's job of remarketing the 90,000 square feet of space will test the skills of one of Maryland's most experienced development firms.

"If the Alex. Brown deal is consummated . . . then we will actively proceed to lease the space," Mr. Manekin said. "We have almost two years in which to replace Alex. Brown as a tenant" before the investment bank moves, which is scheduled to happen by March 1997.

But Manekin's task is more complicated than it looks for several reasons that go beyond the bare fact of downtown's stagnant office market.

First, Alex. Brown's move would come on top of the loss of First Fidelity Bancorp., which just last weekend completed moving out of three floors of the tower as part of the bank's consolidation of Baltimore Bancorp, which it acquired last year. If Alex. Brown vacates, that will leave five more floors empty in the 25-story building.

Second, because the building did not go broke during the early 1990s real estate bust, its debt was not restructured, and it still has mortgages with a face value of about $50 million. The debt could limit Manekin's ability to compete with downtown rents that have fallen sharply since the former Bank of Baltimore building, at Baltimore and Calvert streets, opened in 1989.

Third, the building will not be the only one among downtown's newer towers with a big block of space to fill. The USF&G tower at the Inner Harbor will have 17 floors available by the time the insurance company finishes moving its headquarters to its Mount Washington corporate campus.

Brokers who work the downtown market say Manekin's job is tough but not impossible. And they predict that ultimately the Manekin-organized partnership that owns the building will have to cut a deal with its principal lender, New York-based Teachers Insurance & Annuity Association, to reduce the building's debt.

"They're going to have to backfill the space, and once they do that they're going to have to deal with the lender," said Joseph Casey, president of Casey & Associates, a Baltimore property management and brokerage firm.

Bo Cashman, a broker at CB Commercial Real Estate Group Inc. in Baltimore, said the floors Alex. Brown and First Fidelity leased in the old Bank of Baltimore building virtually equal the amount of newer, Class A space leased in all of Baltimore last year. "There's not a lot of action," he said.

But Mr. Cashman said getting tenants willing to pay rents that will easily sustain the building's mortgages will be even harder. Annual rents, measured in dollars per square foot of space, are much lower than when the building opened in 1989.

"When they were doing deals in the late 1980s, rents were in the mid to high 20s," Mr. Cashman said, meaning about $25 per square foot annually. "The market today is about $19. . . . Manekin obviously knows where the market is, but they structured debt in the 1980s based on rents in the 1980s."

The state has already reduced the property's valuation to $44 million, according to state tax assessment records, down from an estimate of more than $50 million in 1991, because of the weaker market. Manekin executives argue that the situation is not so dire. Mr. Manekin said First Fidelity moved out before its lease expired, so it will continue to pay rent until the lease expires in 2000. The bank plans to sublease the space.

Manekin Senior Vice President Andrew J. A. Chriss added that even in a poor overall market, individual buildings can do well by luring tenants from other buildings.

Manekin and outsiders agree that the old Bank of Baltimore building will have distinct advantages -- and disadvantages -- in competing with the USF&G building for the major tenants.

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