City tax breaks to build offices?

Study recommends offering deals similar to those granted hotels

Office space

June 03, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Baltimore should consider subsidizing new downtown office buildings in much the same way it is assisting development of hotels such as the $134 million Wyndham International Inner Harbor East, according to a consultant's study conducted for the city.

The study, by Bolan Smart Associates of Washington, contends that, because the downtown has "generally limited growth in net demand," subsidies or property tax breaks should be provided to spur construction of new Class A office space.

Specifically, the city's economic development agency should consider "payment-in-lieu-of-taxes" programs to stimulate new development, or risk losing key businesses. In the case of the Wyndham, a proposed payment-in-lieu-of-taxes deal would save the 750-room hotel $75 million in taxes over the next 25 years.

"Any measures that help enhance the economics of a new building should be given serious consideration," says the Bolan Smart report. "Incentives or other stimulus for new private office development may be necessary over the near term to stem the possible loss of one or more tenants because of the lack of available, suitable space."

The Baltimore Development Corp., the city's economic development agency, retained the consulting firm after Piper & Marbury's decision to move to Mount Washington. Piper, the state's largest law firm, also is one of downtown's largest employers, with 500 attorneys and staff.

A Bolan Smart survey of 26 commercial real estate professionals and business leaders downtown recommends that the city back a 200,000-square-foot to 300,000-square-foot, Class A building, with a Pratt Street or harbor orientation and containing parking.

Class A offices are defined as buildings less than 25 years old that contain on-site parking and amenities such as state-of-the-art wiring and high-speed elevators.

Bolan Smart, which was paid $15,000 for its six-week study, contends that there is a "strong need to get at least one high quality new building under way."

There is only one Class A building with more than 100,000 square feet of contiguous office space available in downtown Baltimore.

To bridge the gap between what tenants are willing to pay for downtown space vs. rent rates in the suburbs and the cost of development, the city should offer incentives, the study says.

But critics of tax breaks argue that additional subsidies would further erode the city's declining tax base and set a bad precedent for future development.

"There's a case to be made for tax incentives, but there's a line between what's an incentive and what's more than that," said John C. Murphy, an attorney represent- ing a group fighting the Wyndham's tax breaks. "And I can't believe that that line isn't being crossed."

The City Council is considering offering a tax break to a planned $120 million, 35-story mixed-use project at 1 Light St.

Office space is being proposed at the Inner Harbor on the site of the Chart House restaurant, at the former Procter & Gamble Co. factory, adjacent to a proposed Ritz-Carlton Hotel in Federal Hill and at the Baltimore City Community College's Pratt Street campus.

The proposed 10-story, 200,000-square-foot BCCC project, is being developed by a partnership led by Kravco Co. The Pennsylvania-based company has requested a tax break for the project.

"One question for us, after we've finished analyzing this, is is there a role for us to assist in the development of office space?," said M. J. "Jay" Brodie, president of Baltimore Development Corp. "Because that's never been done before."

Brodie acknowledged that the decision to develop new office space is driven more by the private sector than the public sector.

Pub Date: 6/03/99

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