Growth slated around airport

2 counties would get new offices, housing

October 04, 2006|By Lorraine Mirabella | Lorraine Mirabella,Sun reporter

A Lutherville developer is planning $230 million worth of new warehouses, offices and apartments near Baltimore-Washington International Thurgood Marshall Airport and Arundel Mills mall that could serve employment growth expected from the nation's base realignment.

Preston Capital Management LLC expects to build 2 million square feet of commercial space over five years on four sites in the Baltimore-Washington corridor, said David P. Scheffenacker Jr., president and chief executive of Preston Partners Inc., a commercial brokerage and development firm that launched Preston Capital two years ago. The projects could eventually house agencies or firms employing some 5,500 workers, Scheffenacker said.

The real estate investment fund, formed to invest in and develop industrial and office projects in the high-growth corridor, acquired three of the sites over the past three months and expects to close on the fourth by month's end. The acquisitions are the largest at any one time for Preston, which started as a commercial brokerage firm in 1991, expanded into development in 1999 and now owns 4 million square feet of industrial space in the Baltimore area. Through the fund, the company is branching out into office and residential investment.

"The fund works under the premise that there is an ever-shrinking supply of quality land between the beltways" around Baltimore and Washington, "and over the next 10 years that will become more so," Scheffenacker said Monday.

At the same time, the base realignment and closure process, known as BRAC, is expected to add 10,000 military jobs to Central Maryland, most at Fort Meade in Anne Arundel County and Aberdeen Proving Ground in Harford County, and bring at least 30,000 additional jobs, economists say.

"There's a lot of demand that will be coming down the pipeline, and we're starting to see it right now," said Edward B. Harris III, first vice president of CB Richard Ellis in Baltimore. "We're starting to see some of the government subcontractors right now in the market poking around looking for space."

As of June, he said, both the warehouse and one-story office sectors in the Baltimore-Washington corridor showed healthy vacancy rates, of 8.6 percent for one-story office/flex space and 10.98 percent for industrial warehouse, though he believes that industrial rate is slightly inflated by some obsolete vacancies in the market.

The base realignment is expected to create demand for several million square feet of additional office space in Central Maryland as defense contractors open regional offices in the area, said Anirban Basu, an economist who is chairman and chief executive of Sage Policy Group Inc. in Baltimore.

"One of the keys is to be first to market," Basu said. "If you don't have product on the ground, it is difficult to line up tenants. It makes sense to develop space on a speculative basis, even in an increasingly uncertain environment."

But new commercial development will have its risks, he said, amid the uncertainty over the number of contractors the realignment will attract and a slowing state economy.

"Developers have to be careful," he said. "Folks who will come into this region will have plenty of choice."

Some 4 million square feet of industrial and single-story office space is currently planned for the Baltimore-Washington corridor, an area where 1.25 million square feet was leased in 2005, Harris, of CBRE, said.

Scheffenacker said he expects Preston Capital's first investments to attract tenants and weather any economic downturns because of their prime locations. Likely tenants would include government agencies, government contractors and distributors seeking access to the airport and major highways. Preston plans mostly speculative development - building before lining up tenants - and will offer buildings for lease or sale.

The four sites, three in Anne Arundel County and one in Baltimore County, were purchased with joint venture partners in each of the deals. Projects include:

Six service warehouses with 865,000 square feet of space, a $94 million project, on 51 acres on Hollins Ferry Road in Baltimore County, just south of the Beltway. Scheffenacker expects tenants in those warehouses could generate from 500 to 700 jobs. The project calls for demolishing two warehouses that had been used by a supermarket chain, renovating another two and building four new ones. Preston acquired the property from a private investment fund and negotiated a lease termination with the A&P chain.

Preston Gateway North, a $50 million project adjacent to an existing Preston development that will include eight bulk and service warehouses containing about 750,000 square feet on 80 acres east of the Baltimore-Washington Parkway near the airport in Anne Arundel County. Preston assembled eight parcels from six owners.

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