Turning around a troubled building Contrarians double the Candler's value

November 07, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Like so many older downtown office buildings, the 12-story Candler Building appeared to be doomed in the winter of 1996.

An affiliate of the giant General Electric Co. had put the city's largest office building on the market, content to walk away from 10 years of ownership and a $60 million investment.

The move by GE came as little wonder, though. Frustrated by the continued deterioration of the city's office market, even deep-pocketed owners like GE were bailing out. A third of the 86-year-old Candler Building remained empty, thanks in part to a languishing leasing effort and the city's stalled economy.

And few believed Candler's future was anything but hopeless. Local real estate gurus labeled the project -- a converted Coca-Cola Co. warehouse with no on-site parking, in a questionable location near the public housing badlands east of downtown -- a bricks and mortar gamble.

Enter Meridian Group Inc., a contrarian Washington real estate investment company started four years ago by two former Riggs National Bank executives. Meridian bought Candler for a fire sale price of $21.8 million in July 1996.

Sixteen months, some aggressive deal-making and hands-on management and a solid local economic recovery later, the 535,000-square-foot Candler Building is nearly full and its value has nearly tripled, according to some estimates.

"We felt at the time things were turning around for Baltimore," said G. David Cheek, Meridian's 46-year-old president. "We saw it as a spectacular building, and all we had to do was reposition it and market it more effectively."

"We knew in our hearts it was a good deal, a good building," said Bruce S. Lane, Meridian's executive vice president and Cheek's 37-year-old partner. "But it's exceeded our wildest expectations."

Candler's fortunes have improved markedly just in the past month, after a Baltimore Gas and Electric Co. subsidiary and a military health-care provider from Nevada committed to one-fifth of the 111 Market Place property.

The two businesses -- including BGE's new power marketing subsidiary -- will bring more than 500 jobs downtown.

"They've done an excellent job in procuring tenants and improving the building and really that whole part of town," said Bill Michael, a commercial real estate agent with the local office of CB Commercial Real Estate Group Inc. "I have a high regard for the new ownership."

Since taking over from GE, Meridian has persuaded existing businesses -- from the Johns Hopkins University to the Christopher Columbus Center to the National Aquarium in Baltimore -- to stay at Candler through 2008.

"It's close to downtown, to hotels, and because a lot of our people use public transportation that's right near there, it's convenient," said Herb Hansen, senior associate dean at the Johns Hopkins School of Hygiene and Public Health, Candler's largest tenant. "And Candler offered the best deal."

Candler is likely to stay full, thanks to a combination of its location, a lack of other available space and a bevy of tourist attractions, such as the Columbus Center, Metropolis at the Power Plant and the planned Port Discovery children's museum in the derelict Fishmarket.

"When we moved in, the building was 25 percent occupied. Now it's nearly full," said Stan Heuisler, president and chief executive of the Columbus Center. "That's what happens when you invest $150 million across the street. And it's a beautiful building."

"Their success there can be attributed to a combination of factors, such as: it was the last building with large blocks of space available, and Meridian is a flexible owner," said David J. Downey, a vice president and partner at Colliers Pinkard, the Baltimore real estate firm Meridian hired to lease Candler. "But their timing was definitely a big part of the equation."

Meridian's timing with Candler is no fluke, however. Locally, Meridian garnered a $14 million profit in April 1995 when it sold the Dulaney Center office project to a San Francisco pension fund consultant -- 16 months after buying the two-building Towson project.

"Dulaney was simply another case of a building needing a little TLC," Lane said.

In all, Meridian's tender loving care has reaped roughly $40 million in profits from buying, fixing and selling seven troubled office buildings from Florida to Maryland, most in areas in which others -- such as GE -- had quit.

"We do our homework, then we put the best team for the project together and get to work," Cheek said. "And we provide a high level of attention to each building we buy."

Meridian's ability to read the market tea leaves -- and collect huge profits for speculating correctly -- has many local analysts wondering just how long it will be before the company sells Candler. Cheek and Lane, however, said they aren't considering any offers yet and may simply refinance the project in the coming year.

If a Meridian sale does take place soon, Candler would likely fetch close to $45 million, analysts predict.

So what would Meridian say to GE now about the decision to sell?

"Thanks for the opportunity," Cheek said.

Pub Date: 11/07/97

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