Economy may curb development

Real estate experts call area's industry good, but vulnerable

Panel expounds on report

April 12, 2001|By Meredith Cohn | Meredith Cohn,SUN STAFF

The Baltimore area commercial real estate market is generally healthy, but it is so closely tied to the economy that the latest downturn is likely to make developing and marketing new hotels, shops and offices more difficult this year, a panel of experts said yesterday.

The experts were convened by the Johns Hopkins University and the Urban Land Institute, and they expanded on a report released recently by the university's Allan L. Berman Real Estate Institute. For the third year, the report has documented both the industry's hard numbers on vacancies and other measures and gauged attitudes of the professionals involved.

For example, Baltimore got credit for becoming more business-friendly, but parking and crime remain hurdles to development. Owings Mills is in danger of becoming overbuilt with offices, but the Baltimore-Washington corridor and Harford County are solid industrial markets. Shopping centers anchored by grocery stores around the region are in demand, while new malls are not.

For projects in general, banks and insurance companies will provide the bulk of the financing, but the money will be tougher to get. The new administration in Washington will have little impact on real estate, but anti-growth initiatives, traffic and scarcity of skilled labor are going to be challenges.

Because interviews with about 150 experts were conducted in November and December, before the stock market dive and consumer jitters were recorded, the report's results might even be a bit optimistic, said Lewis Bolan, the Johns Hopkins faculty member who directed the report.

"The words to use here are `cautious optimism,'" said Bolan, who is also a commercial real estate consultant. "We're less bullish and enthusiastic on 2001 than we were on 2000."

The consensus of the experts was that the Baltimore real estate cycle had peaked, meaning that all projects in the immediate future will have a tougher time finding willing lenders, borrowing as much, and luring tenants and buyers.

The report said:

In the office sector, Columbia was the "unstoppable juggernaut" because of its appeal to companies that want proximity to Baltimore and Washington. The experts, however, did not expect development and leasing to continue at the same pace anywhere in the region.

Waterfront development and renewed interest in urban living could bolster downtown Baltimore, but experts were concerned about the pace and number of buildings proposed.

Too much construction could lead to a crash similar to the one in 1989 that left many buildings in foreclosure and bankruptcy, the experts said.

"There are folks out there that are getting financing that shouldn't," said David Fick, a managing director at Legg Mason Wood Walker Inc. "There's no justification for a new Class A building downtown in Baltimore in the next three to five years."

Developers including the Cordish Co., Lockwood Associates and Willard Hackerman have said they plan to break ground on office towers this year in the central business district.

In the industrial sector, the Baltimore-Washington corridor is the strongest, followed by Harford County. Warehouse and distribution spaces are likely to remain in demand because the area is a natural hub for the East Coast, the report said.

Lack of proper zoning is a problem, as is the increasing cost of land.

In the retail sector, the experts said that the current stable of stores and centers could do well, but that there is little room for more. Big box stores abandoned by Caldor, Hechinger and Montgomery Ward have left large vacancies that are not easily converted by others.

Further, recently opened Arundel Mills probably will hurt other shopping malls and become the region's last mall developed for years.

Grocery-anchored shopping centers will be the retail stars this year, said Thomas H. Maddux IV, president of KLNB Inc. and a retail expert.

The slumping economy will affect the hotel sector faster than other sectors of real estate because businesses immediately cut back on travel. That will first affect the high-end hotels as travelers - and businesses - get cost-conscious.

Financing for new hotels will get even tougher this year and possibly stall those planned downtown - although respondents said existing hotels would do fine. Hotels planned or being explored include a Ritz-Carlton at the foot of Federal Hill, a Marriott Residence Inn in the central business district and a hotel by Peter Angelos on Light Street.

In the multifamily sector, Baltimore is booming among those large complexes tracked. A back-to-the-city mentality among affluent empty-nesters and professionals has helped propel apartment living in Baltimore.

Business growth in the suburbs also is propelling apartment markets in Columbia and Anne Arundel County.

And never mind thatthere is an economic slowdown that could hamper the whole real estate industry, the report said tenants want apartments with amenities such as high-speed Internet access, clubhouses and gyms.

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