Underdog wins city contract Warren/Svatos team is chosen by BDC to manage properties

April 01, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The city's economic development agency has awarded a lucrative contract to manage 65 diverse city-owned properties to a team led by a politically connected real estate owner with little experience overseeing commercial projects.

The Baltimore Development Corp.'s decision, confirmed yesterday, to tap a joint venture between Otis Warren & Co. and the Svatos Co., generated criticism from competitors who questioned the selection based on the team's track record.

Warren, a firm with close ties to the Schmoke administration, primarily manages apartments in the city, while Svatos oversees 1.5 million square feet of office and industrial buildings in Howard and Anne Arundel counties, said David Paulson, a Svatos vice president.

Neither Warren nor Svatos, a Hanover-based developer, has any experience managing so-called "mixed-use" urban projects such as the Fishmarket or Brokerage. Warren does, however, manage the 11-story City Crescent federal office building it owns on Howard Street.

"What we saw was a really strong and diverse mix of leasing and management people who had skills in office, industrial and life-sciences projects," said M. J. "Jay" Brodie, BDC's president.

"They knew the market, had solid marketing and understood the developer's view of the world, more than just a property manager's view. And minority participation was important, and they met that criteria as well. On balance, we felt there were enough people with individual experience on their team that we felt comfortable."

Otis Warren Jr., president of the firm bearing his name, dismissed the criticism about lack of experience.

"That's the least thing we're concerned with," he said. "Every time we've stepped up to do what we said, we've validated it and done it. How many times do you have to prove yourself in this town?"

VTC "I think they selected the best team for the job," added Warren, who intends to personally oversee the city portfolio. "And this also allows an African-American firm to participate in a segment of the market that it's not represented in now."

While Warren has little experience, his firm has benefited from its ties to City Hall. In December 1994, for instance, BDC chose a Warren-led team to purchase the 71-room Harrison's Pier Five hotel downtown for $5.5 million, roughly a third of its construction costs.

The city also gave Warren a $60 million lease guarantee and pledged that its pension fund would provide permanent financing so that he could begin developing City Crescent in early 1992, after lenders caught with an abundance of soured commercial real estate loans balked at the project.

Warren's inexperience contrasts with two other local firms who were vying for the property management assignment but were passed over in a final BDC analysis and board vote. Colliers Pinkard and Casey & Associates Inc. both currently operate and maintain city buildings and were considered front-runners to win the assignment.

In all, seven firms and the city's real estate department submitted proposals to a BDC request in October.

"We're perplexed as to why the BDC chose a firm that is not a proven force in the downtown office and industrial market," said Walter D. Pinkard Jr., president of Colliers Pinkard.

"I think they selected a qualified group," said Robert A. Manekin, Casey's president. "They're just not the most qualified group, from a technical point of view."

Warren/Svatos Real Estate Resources Inc. is expected to receive more than $500,000 over five years to manage the 65 properties, which include Waverly Inc.'s former headquarters on East Preston St., a 20-story office tower at 7 E. Redwood, the Seton, Raleigh, Park Circle, Holabird and South Harbor business hubs, the vacant Mayfair Theatre and the Power Plant.

The Warren/Svatos team also is expected to reap tens of thousands of dollars in commissions from leasing several of the vacant or nearly vacant projects and selling others. As part of its proposal, the team will receive commissions in the first year of the contract of 6 percent of the lease value, double the market rate. In subsequent years, its commission will be 4 percent, Brodie said.

The contract, for rent collection, janitorial services, security and other functions, is scheduled to go before the city's Board of Estimates within a month.

"I think they're a strong player and will bring some fresh blood to these properties," said David Rhodes, president of Heritage Properties Inc., a Towson development firm, and a member of a BDC panel that selected the Warren/Svatos team. "They're approaching the job with enthusiasm and commitment."

Pub Date: 4/01/97

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