Company acquires ex-youth facility

Constellation plans to link Cedar Knolls to business park

Commercial real estate

May 07, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Constellation Energy Group's real estate subsidiary finalized an acquisition of a former youth detention center in Anne Arundel County yesterday, where it plans to develop as much as $100 million worth of space for offices and other uses.

The $1.8 million purchase of the 106-acre Cedar Knolls detention center will allow Constellation to significantly expand the size of its National Business Park in Annapolis Junction, which contains six buildings totaling 560,000 square feet. Cedar Knolls is adjacent to the 175-acre park.

Despite its location, the Cedar Knolls purchase is an unusual move for Constellation, which has said it wants to dispose of, rather than buy, real estate.

In recent years, Constellation has lost money and been forced to take millions of dollars in write-downs, because the value of projects such as its 2,500-acre Piney Orchard development in Odenton has fallen.

But Constellation executives said its strategy has not changed, and that the Cedar Knolls deal is an isolated one intended to "accentuate existing holdings."

"Basically, this acquisition was made for the purpose of enhancing our position at National Business Park," said Steven S. Koren, Constellation Real Estate Inc.'s managing director.

"Let there be no mistake: Constellation's strategy is to exit real estate," Koren said. "But this was important for us to consolidate our holdings. If we didn't buy it, someone else would have, and then we would have been forced to accept their development program."

Constellation, which will raze 20 buildings at Cedar Knolls, said the land can accommodate as much as 1 million square feet of space for offices and other uses.

The company hopes to rezone the property to commercial status from its existing residential zoning and have the property ready for construction within the next year.

The District of Columbia had owned and operated Cedar Knolls since the late 1950s, but the minimal-security juvenile facility was shut down in 1993 because of poor conditions and inadequate programs.

"It took a lot of cutting through red tape to get here, but I think the people of Anne Arundel County will find it was worth the wait," said Democratic U.S. Rep. Steny H. Hoyer of the 5th District, who sponsored legislation to close Cedar Knolls and who helped negotiate the sale to Constellation. "This property will allow new businesses to come to the area, generating new tax revenue."

Although Constellation has been working to acquire Cedar Knolls for more than a decade, the pressure to buy it stems from the company's success at National Business Park, where the National Security Agency, defense contractors and others have snatched up space. Today, only 65 acres of the park remain undeveloped.

Koren said Constellation will have to spend "several million dollars" to demolish the Cedar Knolls buildings and install roads, sewer lines and electric infrastructure, which accounts for the relatively low purchase price of $17,000 per acre. Commercial land in Annapolis Junction typically sells for more than $125,000 per acre.

The purchase is "a smart move on [Constellation's] part," said Gregory E. Masi, a senior vice president at Transwestern Carey Winston, a commercial real estate services firm. "This allows them to control the site. National Business Park is an outstanding office complex, and it's absolutely logical that they would want to expand upon it."

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