A Virginia company will likely become the first developer to tackle converting a derelict downtown office building to apartments beginning early next year, when it acquires the former Hecht Co. department store on Howard Street.
Southern Management Corp. plans to spend $20 million to turn the eight-story building into 160 loft-like apartments. The effort comes three years after Mayor Kurt L. Schmoke and other city economic development leaders began pushing the idea of modifying largely vacant, older office buildings to housing.
Such conversions have been slow to materialize because developers contend that downtown rental rates are too low to justify the millions of dollars required to redevelop obsolete offices.
In the past year, with Schmoke pushing to increase the number of downtown residents to 30,000, the city and several economic development agencies have ponied up nearly $9 million to offset the cost of converting aging office buildings, called Class B office space, more than one-fifth of which are vacant citywide. City leaders hope to create 1,000 rental units downtown within three years.
State lawmakers passed three bills earlier this year that enable developers to take advantage of new tax credits intended to bridge the gap between the cost of development and rents.
In Southern Management's case, the company isn't planning to tap into public money to complete the project at 118 N. Howard St.
"We're not asking the city or the state for any money, and we wouldn't take any if offered," said Cheryl Hillman Romanick, the company's director of advertising.
To help offset the redevelopment cost, Southern Management has applied to the federal government for historic status for the 72-year-old building. If that status -- given to buildings at least 50 years old -- is granted, Southern Management would receive thousands of dollars annually in federal tax credits.
The redevelopment costs also will be mitigated by rent paid by Rite Aid Corp., which operates a drug store on the ground floor of the 225,000-square-foot building.
But while city leaders have been trying to convert offices to dwellings for years, the Hecht's building hasn't been a very visible target. It has been passed over in favor of such prospects as the Munsey Building at 7 N. Calvert St. and the 300 N. Charles St. building.
"Our initial recommendation was to cluster residential development on the west side of the city and in Mount Vernon," said Laurie Schwartz, president of the Downtown Partnership of Baltimore Inc., a quasi-private economic development agency that advocates residential conversions. "But we see this as helping to bridge the gap between those two areas."
Southern Management is buying the Hecht's building from Merchant Equity Financial Group, which bought it from Rite Aid in December for about $3 million. Merchant Equity, a New York firm, had considered turning the building into lab space before selling it to Southern Management.
Southern Management's plans for the Hecht's building also may be aided by the company's local market knowledge. The 32-year-old company has invested about $38 million to acquire five downtown apartment buildings, including the Horizon House, the Marlboro and Classic buildings, and Charles Towers. It also is working to rehabilitate the empty 21-story Gallery Towers at Park and Centre streets.
With the Hecht's building, Southern Management will control 1,054 apartment units downtown.
Southern Management hopes to complete work on the Hecht's building -- its first office conversion -- in about 18 months. The company has not decided how much rent it will charge for the units, Romanick said.
"They are the master of the rehab project and the turnaround," said Robert F. Freeze Jr., a first vice president at CB Commercial Real Estate Group Inc. who specializes in apartment sales. "They work hard and they work the numbers, and their management skills are unbelievable."
Pub Date: 6/09/98