2 downtown towers sold

Mercantile, W.R. Grace buildings go for $78.9 million, netting owner $11 million in less than three years

May 08, 2007|By Lorraine Mirabella | Lorraine Mirabella,Sun reporter

Two office towers in the heart of downtown Baltimore's business district have been sold for $78.9 million, handing a Norfolk, Va., investment group an $11 million profit in less than three years.

Harbor Group International LLC said yesterday that it sold the Mercantile Bank and Trust Building, a 21-story tower at 2 Hopkins Plaza, and the 16-story W. R. Grace Building, at 10 E. Baltimore St., to USA Realty Fund.

Harbor Group International bought the buildings, just a block apart, in 2004, paying $67.6 million - $51.2 million for the Mercantile building and $16.4 million for the W.R. Grace building at Baltimore and Charles streets.

"We think that we got a good price," said Jordan E. Slone, chairman of Harbor Group International. "We were able to achieve our investment objectives in a shorter period than expected" thanks to a strong commercial real estate market and the demand for well-located buildings with a solid roster of tenants.

"Baltimore is a city that most investors are still very much interested in investing in property in the downtown. It's considered a good market. ... You can buy some good quality properties in Baltimore for less than half the price" of comparable properties in Washington.

The acquisitions are part of a resurgence of interest in the older buildings of downtown's central office district, including some that spearheaded the downtown business district comeback of the mid-1960s.

Just last month, a nearby, landmark Baltimore office tower at 1 N. Charles St. built in 1963 by oil magnate Jacob Blaustein, was purchased by the Buccini/Pollin Group, of Wilmington, Del., which said it saw growth in the downtown market.

Though the purchase price was not disclosed, the developer said it would spend more than $30 million, including the acquisition cost and nearly $10 million in renovations for the 25-story tower and outside plaza.

While newer office buildings have cropped up around the Inner Harbor and large companies have been drawn to the emerging office waterfront spots of Harbor East and Canton, investors are rediscovering the business district where older office buildings have been converted to apartments or hotels.

The Mercantile and Grace buildings have been attractive to investors because of their tenants, said David W. Baird, senior managing director of Cushman & Wakefield in Baltimore.

The 404,000-square-foot Mercantile building, which includes a tower and three-story pavilion and parking garage, was built in 1970. It is completely leased, with more than half the space occupied by Mercantile Bank and Trust.

Mercantile Bank, which had used the tower as its headquarters, was acquired by PNC Financial Group for $6 billion in a transaction that closed in March, and PNC has taken over the lease. Another 140,649 square feet is leased to law firm Venable LLP.

The Grace building, with 168,668 square feet, was built in 1973 and is 97 percent leased to a mix of state government, engineering and real estate tenants.

The purchase price, which equates to nearly $138 per square foot for both buildings, is considered a high price, if not a record, for a Class B building, or one without the amenities of brand new office space, Baird said. But because the sale price of each individual building was not disclosed, it was unclear what each sold for on a per square foot basis.

"That's a good price blended across the two buildings," Baird said. "And knowing that Mercantile building sold for roughly $50 million [in 2004], the upside for Harbor Group was nice; it wasn't extravagant but a good return on their investment. This helps to bring a good institutional presence to that part of downtown."

By comparison, Harbor Group International bought the Mercantile building 2 1/2 years ago for $126 per square foot.

Representatives of the buyer, USA Realty Fund, could not be reached for comment yesterday. USA Realty Fund is a commingled real estate equity investment account of the Union Labor Life Insurance Co.

Slone said Harbor Group International has no plans to sell another of its downtown holdings, the 25-story Wachovia Bank tower at 7 St. Paul St., where Baltimore law firm Whiteford, Taylor & Preston LLP occupies nearly 90,000 square feet.

"We're very happy with that building," he said. "It's doing well. For now, we plan on keeping that building."


Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.