State Farm Insurance Cos. has taken control of three Columbia office buildings owned by the Manekin Corp., the third time since 1992 that the life insurance giant has seized assets belonging to the Baltimore development firm for not maintaining mortgage payments.
State Farm's action regarding the four-story General Physics Building and two adjacent two-story office buildings, however, represents an aberration in an otherwise healthy office market, analysts said.
"We got an 'A' for effort in that the buildings are almost fully occupied, but a 'D' because the market couldn't support the necessary rents," said Donald Manekin, a Manekin senior vice president.
At year's end, for instance, Howard County's office vacancy rate stood at 5.4 percent, the lowest level in the metropolitan area, according to statistics compiled by commercial real estate firm Casey & Associates Inc.
With the low vacancy rate -- Baltimore stands at 21 percent, by comparison -- several developers are proposing new projects in response to demand.
"As fate would have it, the market began improving dramatically last August, but by that time, it was too late," said Bill Holmes, a Draper & Kramer official retained by State Farm to manage the properties.
And unlike four years ago, when foreclosures touched off a wave of lender "take backs" involving more than a third of all the office space in Columbia, State Farm's move on the three Gateway Crossing 95 buildings should have little effect on the office market as a whole.
Manekin's experience with Gateway 95 also illustrates how some 1980s-inspired projects continue to haunt real estate developers. Conceived at a time when rents were soaring, over-capitalized buildings are still unable to generate rents sufficient to cover debt service.
"The market rents there today are still 20 percent less than they were when we constructed the buildings," said Richard M. Alter, Manekin's president and chief executive. "So it comes down to a function of the debt level and the cost of debt."
Manekin completed the General Physics Building and the two others -- occupied by TRW Corp. and, interestingly, State Farm -- in 1987, together with joint venture partner Copley Real Estate Advisors Inc.
The $18 million project, totaling 144,000 square feet, was one of several developed by the Manekin/Copley team beginning in 1981.
In 1992 and 1993, State Farm took control of Manekin/Copley's five-building Woods at Broken Land project and three buildings in its Rivers Center property after the developer was unable to meet mortgage obligations there. The complexes, both in Colombia, covered 200,000 square feet and were $13.6 million in debt, according to Howard County records.
When State Farm assumed control of the Gateway Crossing buildings on Jan. 1, $11.3 million remained outstanding on its mortgage, Manekin said. Representatives of the life insurer could not be reached for comment.
The project has been teetering since June 1995, when General Physics elected to leave its headquarters for less expensive space in Columbia. Manekin persuaded them to stay at 6700 Alexander Graham Bell Drive two months later, but not before slashing its rent by a third, saving the nuclear and environmental engineering firm nearly $1 million a year.
Pub Date: 1/14/97
