When TidePoint Corp., an Internet connection provider, went bankrupt earlier this year, it abandoned its office building in the trendy new Tide Point office complex. But the landlord has not missed receiving a rent payment in the last three months - thanks to Maryland taxpayers who have been writing the checks.
The state will continue to pay up to $1 million in rent over the next year as long as the office remains empty.
The lease payments were guaranteed by the state under an insurance program that was created more than 30 years ago, mainly to help manufacturers buy equipment by backing their bank loans.
With the rise of technology and biotechnology companies in Maryland, though, state officials five years ago began guaranteeing lease payments to help companies that landlords consider too risky.
"We saw a need in the marketplace. The program had not been used for tech companies before," said Robert C. Brennan, assistant secretary of finance for the Maryland Department of Business and Economic Development, which administers the program.
Six tech companies now have state-backed leases. Combined, that commits taxpayers to pay up to $5.1 million, although the obligation decreases each year that the businesses stay afloat. Some of those companies have had troubles and laid off workers, but TidePoint Corp. is the first to cost taxpayers.
Brennan said tech companies are often start-ups, without profitability or traditional sources of financing.
While some landlords were clamoring for the next big growth dot-com, many more were hesitant to rent to them.
And they are even more unsure now that many in the industry have drastically scaled back operations or gone bankrupt.
The state program means landlords do not take all the risk, Brennan said. At the same time, the state hopes to build a cadre of tech and biotech companies that will grow and employ high-paid workers.
The Tide Point office complex, for example, was the first major office development on Locust Point's industrial waterfront.
Tenants and landlords laud the lease guarantee program as a valuable economic development tool that brings more jobs and taxes to the state. Combined, the five companies still in business employ 750 to 1,000 in the state.
The program insures a portion of a tenant's rent, generally for the term of the lease, but in decreasing amounts. Specifics are worked out on a case by case basis, but the state so far has committed to pay no more than a year's rent for each tenant, up to $1 million.
The state plans to consider more tech companies for the rent guarantees.
In TidePoint Corp.'s case, the state will pay up to $1 million to developer Struever Brothers Eccles & Rouse, or about 7 percent of the 10-year lease's value, according to a state document.
Actual rent payments are not made public, but space at Tide Point goes for $19 to $24 a square foot, according to Costar Group, a real estate information company.
That rent, along with existing tenants, means Tide Point was more than 90 percent leased - a success in real estate terms - when the complex held its grand opening May 23.
TidePoint Corp. rented a building that made up 20 percent of the complex's total space; that space has not been re-leased.
Two other companies in the Tide Point complex have guaranteed lease payments: Advertising.com Inc. and Gray Kirk/VanSant Advertising Inc.
Gray Kirk is not a tech company, but was forced out of the state-owned World Trade Center office building and in need of the lease guarantee to find a new home, Brennan said. It laid off about 20 percent of its work force this year.
Advertising.com, which formed in December 1998, was the kind of company the program was targeting. It had 30 employees and rapid growth in revenue each month, but little else to assuage a new landlord, said Chief Financial Officer Mike Woosley.
State-guaranteed rent helped it to become Tide Point's first tenant in October 1999. It leased three floors of a building and grew to 295 workers.
But the company is now seeking to sublet two of those three floors after laying off about 95 employees in January. The company is on solid financial footing and intends to continue paying rent, Woosley said.
If it can't, the state will.
"It's a good program," Woosley said. "It's helping companies that are not credit quality. You're going to have some wins and some losses."
The first to benefit from the program was a biotechnology business, Osiris Therapeutics Inc., which moved to Aliceanna Street in Fells Point more than five years ago. The guarantee was used to back leases on a lab and equipment, but not the actual floor space. The state's obligation ends this year.
Two other Maryland companies have been approved for the lease guarantees.
Aether Systems Inc., an Owings Mills wireless communications company, got state backing to move to UMBC's new tech park in Catonsville. The company has yet to decide if it will move. Its landlord would be privately held Grosvenor Atlantic Ltd. of London.