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Flawed agreement with developer will cost city $1.2 million

Above: Part of the disputed lot, at Warner and Bayard streets, with M&T Bank Stadium in the background.

The city is expected to agree tomorrow to pay $1.2 million to a development group, which includes an ownership stake by Baltimore Ravens linebacker Ray Lewis, to back off from legal action over a site now targeted for Baltimore’s casino.

The payment to Cormony Development LLC and Gateway South LLC – scheduled for approval by the city Board of Estimates – stems from an “unusual” and “unfortunately ambiguous” agreement signed by the Baltimore Development Corp. (BDC) on behalf of the city, according to a report by the city Department of Law.

The 2007 agreement allowed Cormony developer Samuel Polakoff, of Rockville, Md., to be reimbursed for a range of costs if the city terminated the contract, City Solicitor George Nilson said in an interview today.

This included a sizable developer’s fee to Polakoff, Nilson said, and costs associated with engineering, site surveys, soil boring, environmental analysis and other matters.

According to the original contract, signed on March 16, 2007, the Polakoff group paid the city $20,000 to enter an Exclusive Negotiating Privilege Agreement for the 11-acre site south of M&T Bank Stadium along Warner St., parts of Russell St and extending east to the Middle Branch.

Now the city wants the site back to house a 3,750-slot-machine casino, and the Polakoff group claimed it was owed millions of dollars in development fees and wrongful termination, Nilson said.

With bids expected next month for the long-delayed casino, the dispute threatened to disrupt the process. “We decided we needed to resolve this issue sooner rather than later,” Nilson said.

The Polakoff group’s original claim – for more than $4 million – was whittled down to a cash settlement of $1.2 million, Nilson said.

Mayor Hails Settlement

Late today, the office of Mayor Stephanie Rawlings-Blake issued a press release praising the deal, saying it will “help clear the way for a new Video Lottery Terminal (VLT) facility in South Baltimore” and will add to “the city’s efforts in attracting a world-class VLT facility.”

The release quoted developer Polakoff saying, “We commend Mayor Rawlings-Blake for having the vision and determination to advance a project with such a large potential economic impact for Baltimore.” Polakoff did not return a phone call from The Brew seeking further comment.

The BDC will pay $650,000 of the settlement. The other $550,000 will come from the city’s suits and judgments fund, which pays claims against the city and its employees, under the plan submitted to the Board of Estimates.

M.J. “Jay” Brodie, president of BDC, said today he did not have anything to add to the termination agreement, saying it was in the hands of the law department.

Asked if he shared Nilson’s opinion that BDC’s original agreement with Polakoff was flawed, Brodie replied, “That’s what makes for good lawyers. He has one view, and we have our own.”

Nilson said he was not privy to Ray Lewis’ involvement in the legal tussle or whether he will receive any of the settlement fees. “Whether this economically impacts Ray Lewis, I simply don’t know,” he said.

The Baltimore Ravens were apparently unable to speak for Lewis because of the union dispute and lockout. The person answering the phone at the Owings Mills training facility said “because of the special situation involving the lockout we will not be able to have any comment for the players at this time.”

Big Plans Stall

The Gateway South project began with great fanfare four years ago when then-Mayor Sheila Dixon announced that the waterfront project would include a large office tower, 100,000 square feet of retail space and a 100,000 square-foot sports and recreation complex “unlike anything else in Baltimore.”

The centerpiece of the project would be “The Ray of Hope Center,” Ray Lewis’ educational and mentoring center designed to “help motivate and teach children citywide, while leveraging connections to both business and sports,” according to a press release. The Gateway South project will “bring hope to the lives of thousands of children,” Dixon said.

The project was slated to cost $200 million.

But almost from the start, the project ran into difficulties. Lawrence P. Hillman, the largest remaining property owner on the site, challenged the city’s right to condemn his properties through eminent domain. Eventually, the city settled with Hillman’s Warner Street Inc. by paying $7.8 million for his mostly vacant properties.

The Ravens Ray Lewis was an equity partner of the Gateway South development group, which will receive $1.2 million.

The Ravens Ray Lewis was an equity partner of the Gateway South group, which will receive $1.2 million.

Then the project failed to attract tenants or financing.

In August 2009, the city gave its blessing to a deal by the Baltimore City Entertainment Group (BCEG) to buy out Gateway South’s obligations to the city and build a casino on the 11-acre parcel.

Land Reverts Back to Gateway South

But the plan was dependent on the Maryland Video Lottery Facility Location Commission approving BCEG’s application for a gambling issue. The state commission denied the application in December 2009.

This meant that the 11-acre parcel reverted back to the Polakoff group, which reasserted its exclusive rights to the property.

In its letter to the Board of Estimates, the city law department said the agreement between BCD and the Polakoff group was not only “unusual in that … it contained a relatively generous cost reimbursement provision favoring the would-be developer in the event the ENP [Exclusive Negotiating Privilege] was later allowed to expire or was later terminated by the city,” but “it was unfortunately ambiguous.”

Nilson explained today: “In the back and forth between BDC and the developer’s lawyer [listed as Benjamin Polakoff in the ENP], some language was inserted by the lawyer into the agreement that was far broader than normal reimbursements,” Nilson said. “It included all kinds of due diligence, including a developer’s fee” charged by Samuel Polakoff.

Nilson said the contract was negotiated on behalf of the city by Michael Pokorny, then a senior economic development officer at BDC. The document was approved by the BDC board and signed by BDC President Brodie.

Pokorny left BDC in 2008 and now works as an inclusionary housing compliance officer for the city Department of Housing and Community Development. Attempts to reach Pokorny at his HCD office and Baltimore home today were unsuccessful.

Southerly view of the 11-acre lot, looking across razed Maryland Chemical Co. plant toward ex-Second Chance buildings and Greyhound bus station. (Photo by Jessica Cottrell)

Southerly view of the 11-acre lot, looking across the razed Maryland Chemical Co. plant toward Second Chance, which is being relocated by the city, and Greyhound bus station. (Photo by Jessica Cottrell)

Environmental Hurdles Remain

In addition to legal issues, the South Baltimore site has major environmental challenges.

The BDC recently submitted a plan to clean up significant amounts of dangerous chemicals found at the former Maryland Chemical Co. plant bordered by Russell, Bayard, Warner and Worcester streets.

The city wants the casino developer to pay for some of the costs of removing the waste.

The Maryland Department of the Environment must approve a cleanup plan before any casino construction can begin. The approval process could well take a year to complete.

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