Baltimore developer Edwin F. Hale Sr. will vacate his penthouse at 1st Mariner Tower at the end of the year after selling the Canton Crossing office building that had been under foreclosure proceedings to Columbia-based Corporate Office Properties Trust.
Randall M. Griffin, COPT president and CEO, said in an interview Wednesday that the office developer acquired Hale's 17-story tower, a parking lot, a utility distribution center and land slated for a large waterfront development of offices, shops, a hotel and a marina in a deal that closed Tuesday. Financial terms are expected to be released during a conference call today.
Griffin said the development rights that COPT now owns are separate from Hale's partnership with Owings Mills-based retail developer Greenberg Gibbons to develop a major shopping center that would be anchored by Target, grocer Harris Teeter and a third large retailer.
The sale of Hale's tower represents the first large office building transaction in Baltimore this year. Among the recent big office towers to sell was the Sun Trust Bank Building, a 25-story office tower at 20 E. Baltimore St. in downtown Baltimore, which sold for $62.75 million in June 2007.
COPT's acquisition of the 1st Mariner Tower "reflects what we foresee happening in the market for 2010 and 2011, where you have a distress situation forcing a transaction," said Bo Cashman, a senior vice president in Investment Properties Capital Markets Group at CB Richard Ellis in Baltimore.
The Canton Crossing building and adjacent land were slated for auction last week before the Paris-based lender Natixis SA withdrew its foreclosure action the day before the scheduled sale. Hale had defaulted on an $84 million loan on the office tower in September, one of the latest setbacks for the developer and banker.
Hale was unsuccessful in refinancing the loan as the commercial lending market dried up amid the recession. And Hale's 1st Mariner Bank, which has its headquarters in the tower, is operating under intense federal scrutiny to improve its capital and deal with problem real estate loans. Hale did not return a phone call Wednesday seeking comment. It is unclear what the sale means for the bank.
COPT, which held a secondary loan worth roughly $25 million on Hale's tower, purchased the mortgage from Natixis last week and finalized negotiations with other parties, including Constellation Energy Group, which owned the utility distribution plant, Griffin said.
In July, Hale had sued Constellation over a dispute involving the plant that transmits power to the tower. Baltimore-based attorney Kenneth Frank of the Murphy Firm, who represented Hale in the lawsuit, said Wednesday that the lawsuit has been settled and declined to provide details. Constellation confirmed that all issues have been resolved in the lawsuit.
"When it's all said and done, it's win-win for everyone involved," Griffin said. "Constellation gets the lawsuit eliminated, Ed gets to strengthen his financial position ... and we end up with an excellent, high-quality property."
The deal includes four waterfront lots and development rights that are all part of the planned Canton Crossing development. The waterfront lots are approved for 500,000 square feet of office space, 150,000 square feet of shops, a 450-room hotel and a marina.
COPT could develop the land itself, sell the rights or engage a partner, a decision the company will make later, Griffin said.
"We're used to development opportunities increasingly in our large office parks," he said. "It makes projects more valuable. When you get to a certain size, you need important amenities."
The office tower is 91 percent leased, with CareFirst as the largest tenant. Griffin said COPT already has relationships with some tenants, which also occupy other buildings it owns, and that some have expressed interest in expanding their space at the Canton Crossing tower.
Hale was the tower's sole resident. Griffin said Hale has agreed to vacate the penthouse at the end of the year. The residential space will be converted into offices, Griffin said.
COPT, which made the tower's secondary loan to Hale in August 2008, has been negotiating with Hale for the past year as the credit market worsened, Griffin said.
"We're very fortunate that we have the financial capacity to pay cash for something like that, and it was obvious he was not being successful in the refinancing," Griffin said.
Sales of office properties have slowed significantly in the Baltimore area and had stopped altogether this year in the city. Office sales in the metro area have totaled $111 million this year, down from $500 million to $600 million in a typical year, according to commercial sales tracked by CB Richard Ellis in Baltimore.
Baltimore Sun reporter Lorraine Mirabella contributed to this article.