Feedback

“Superblock” tax break will amount to about $35 million

Mayor moves ahead with PILOT tax plan, asserting the need for economic development.

superblock demolishing greyhound

View this afternoon of the vacant storefronts on West Fayette Street, part of the Superblock site.

Photo by: Mark Reutter

In legislation submitted to the City Council this evening, the Stephanie Rawlings-Blake administration proposes to give the developers of “Superblock” roughly $30 million in property tax breaks over 15 years, then another $5 million over five more years, The Brew has determined.

The tax breaks will come in the form of a 20-year PILOT (payment in lieu of taxes) for two critical parts of the long-stalled project on Baltimore’s Westside – a 296-unit apartment high-rise and a 650-space parking garage.

At the same time, the administration is requesting another extension – from May 1 to December 31, 2012 – to complete the sale of the city-owned property to the developer.

The request, which is expected to be approved by the Board of Estimate on Wednesday, would delay the start of construction of the derelict block anchored at Lexington and Howard streets until mid-2013, at the earliest.

Tax Rebates

Under the administration’s plan, Lexington Square Partners, a group of New York and Atlanta developers, would be rebated 95% of the assessed value of the improved parcels for 15 years. Taxes would then increase until the rebate program terminated in the 21st year.

The Superblock PILOT is the first submitted by the administration since the chair of the City Council’s taxation committee, Carl Stokes, called for a moratorium on PILOTs last November.

This followed intense criticism during last year’s mayoral election – and in more recent demonstrations by citizen groups – that the program gave unfair advantages to politically influential developers. Stokes and other members of the City Council did not comment on tonight’s bill, which was introduced in the first reader and will be acted upon in the future.

The Brew disclosed in February that the Baltimore Development Corp. (BDC) had recommended the break to Mayor Rawlings-Blake and her chief deputy, Kaliope Parthemos, but the exact dollar amount of the tax break has been a tightly-guarded secret.  The Baltimore Business Journal reported on the mayor’s proposed legislation last Friday.

While the administration won’t give a number, the amount can be estimated by comparing the deal to the Legg Mason Office Tower, whose PILOT structure closely resembles the Superblock plan.

In fiscal 2011, the Legg Mason Tower was rebated $3,998,160 in city taxes. The overall Superblock project is expected to cost roughly the same as the Mason building (about $150 million). The apartment-and-parking-garage components of Superblock would cost about half that amount, or about $75 million.

On that basis, the developers would receive about $2 million a year in property tax relief for the first 15 years, or $30 million in all. Over the next five years, the tax relief would average about $1 million a year.

M.J. "Jay" Brodie. (Photo by Mark Reutter)

M.J. “Jay” Brodie. (Photo by Mark Reutter)

Not the Only Tax Break

This is not the only tax break for the project.

Lexington Square Partners are eligible for “EZ” (Enterprise Zone) tax credits from the state.

A business is eligible for EZ credits if it makes a capital investment in an economically depressed area or hires at least one new employee in an Enterprize Zone.

(Currently, 22,000 acres in Baltimore are EZ zones. The include the Westside, most of East Baltimore, South Baltimore and the Liberty Heights and Reisterstown Road corridors.)

The credits would entitle Lexington Square Partners to a 50% reduction in property taxes for five years, with 10% incremental increases for the next five years.

Such breaks could potentially save the developers at least $6-$7 million over 10 years. (The state partially reimburses Baltimore for the loss in tax revenues.)

Tax Breaks Needed to Spur Development

The Rawlings-Blake administration has defended the tax breaks as essential to get Superblock and other city development projects underway.

Superblock will add hundreds of construction and retail jobs in the city, kickstart development of the Westside, add to sales taxes and encourage population growth in the city, according to M.J. “Jay” Brodie, president of the BDC.

Without the tax breaks, Brodie told The Brew, “the private-sector economics won’t work.”

Negotiating with Prospective Tenants

In a report to the city disclosed this evening, Lexington Square Partners said they have made “material progress” in moving the long-stalled Westside project forward.

They said they have engaged KNLB, of Baltimore, as their retail broker and begun “aggressive marketing of the retail space within Lexington Square.”

While not yet signing a lease with a major tenant, “We have executed a Letter of Intent (LOI) and are currently negotiating a lease on the anchor tenant space,” according to the report.

In addition, “we have explored design revisions to accommodate a large-format anchor tenant.” In previous disclosures, the developers have said they were looking for “big-box” tenants for the block, such as Bed, Bath & Beyond.

Last week, John Smallwood, a spokesman for the group, told The Brew that the closing of the Best Buy store in the Inner Harbor “should not be viewed as a barometer for retailing in downtown Baltimore” and “the development of Lexington Square with 250,000 square feet of retail will provide Baltimore residents and office workers a true retail destination.”

Regarding the controversy over a suitable way to commemorate the 1955 civil rights sit-in at the former Read’s Drug Store building at Lexington and Howard Streets, the developer said:

“We have studied the feasibility of a number of commemoration concepts, including integration with the architecture of the Lexington Square project of a permanent feature to both depict visually and explain narratively the events that led through the Civil Rights Movement to the end of segregation in Baltimore’s commercial center.”

A panel has proposed to Mayor Rawlings-Blake installing a sculptural horizontal band, or frieze, on the wall of the Read’s building to commemorate the sit-in. The mayor has not yet publicly announced her plans for the site, which has inspired intense public interest.

If granted an extension through December, Lexington Square Partners said it intends to “secure all LOIs for the retail leases necessary to secure financing for the project, continue design development and engage with a general contractor for the construction of the project.”

By that time, demolition of the former Greyhound bus station on West Fayette Street should be completed. The city recently awarded the $1.2 million demolition contract to Potts & Callahan, with Brodie saying the vacant building was a public nuisance inhabited by homeless people.

Lexington Square Partners is headed by the Chera, Feil, Goodman and Nakash families. The first three families are active in Manhattan and Brooklyn real estate, while the Nakash family owns the clothing company Jordache.

They are joined by the Dawson Co., a black-owned company in Atlanta. The progress report was prepared by Bailey Pope, of the Dawson firm, and signed by Isaac Chera.

Be sure to check our full comment policy before leaving a comment.

  • http://twitter.com/MairZdoatz Mair

    Funny….I invested in Baltimore. I had to secure my own financing AND pay taxes. And I had to make the ‘economics’ work.

  • Westside Resident

    Hey here is a bright idea – how about lowering tax rates overall and ending PILOTS. Of course this would mean that developers would have to compete in a real market based on products and services and not for favorable tax treatment from city counsel members.

  • I Am The 10,000

     
    “Superblock will add hundreds of construction and retail jobs in the city, kickstart development of the Westside, add to sales taxes and ENCOURAGE POPULATION GROWTH  in the city, according to M.J. “Jay” Brodie, president of the BDC.”

    In all my years, I’ve never seen a family looking to move to a new place based on the availability of shopping over the presence of a good school district.  If the city would only fund schools like they bend over for shopping schemes, SRB would actually make her “10,000 families” goal a reality.  What the city, officers, and BDC don’t realize is that there is a huge difference between DEVELOPMENT and GROWTH…this “super block” is seeking growth without understanding long lasting development. Development means attacking problems from all sides and not putting all our solutions in one scheme. I hope they learn soon, or else Baltimore will lose one more family.

    • UpperFells

      Baltimore City schools have the fourth highest per pupil funding level of any county in the state.  More is spent on students in Baltimore City than on students in Howard, Baltimore or Anne Arundel Counties. A lack of funding isn’t the problem. 
      http://parentscoalitionmc.blogspot.com/2010/10/mcps-2nd-in-per-pupil-spending-in.html

      Westside Resident has the right answer here.  The reason these projects require tax breaks, PILOTS and other special financing is because the city’s tax rate is too high to justify making these capital investments without a huge tax break. 

  • Unellu

    SAY WHAAAT?

    The rich know how to get richer,
    they take their dough off shore,
    they stash it in vaults
    where no one will go looking–

    they constantly threaten–
    they’ll move their businesses
    elsewhere–to friendlier places–
    or they do–
    where their taxes are zero–
    where pollution is unchecked,
    and capitalists are heroes

    fiddling like Nero–
    the rich know how to twist arms,
    they say they can grow cities–
    they can erase blight–
    they can make stores out of holes–
    they can make mansions out of rubble,
    they can crook their fingers–
    rewrite history–
    buy the visions of artists–
    make new out of old–
    out of brambles and bushes,
    out of wildernesses–
    they can spin gold–

    the rich say without them
    we’ll have unemployment–
    we’ll have stagnation–
    we’ll have loss of primacy–
    of pride–we’ll fall behind–
    other nations–
    we won’t have innovations–
    we won’t– have markets–
    banks–small firms–
    large firms–win competitions–
    we won’t have wealth creating wealth–
    and if you say this makes no sense–
    because we have much of that already and worse–

    the rich will say they have the solutions–
    to our slumps and bumps–
    and politicians will jump– pass legislation–
    of the rich–by the rich–for the rich–

    if you say this makes no sense–
    the rich are buying out–laying off–
    for years they’ve been outsourcing–
    outmaneuvering their minions–
    if you ask,
    “Wasn’t the system set up to be of the people–
    by the people–for the people?”
    the rich will say they’re people too–
    more people than mere people–
    they’re important people–

    sitting on a mound of tax breaks–
    the rich will self aggrandize–
    raise their glasses to malls–
    big box retails–office spaces–
    parking garages–spas–
    and if you say this makes no sense–
    you want better schools,
    recreation centers–more trees–
    bike lanes–parks–
    the rich will say, “Huh?”
    and the politicians
    from their echo chambers will call,
    “Say whaaaaat?”

    Usha Nellore

     

  • Tom Kiefaber

    The racially divisive “Superblock” gentrification project is “M.J. Brodie’s big-box folly”. Ramming through his outmoded, decade-old misfire, infuriating preservationists, including the late William Donald Shaefer, is ossified BDC president Brodie’s obsession. 
    He’s refused to permit a preservationist on the BDC Board for 15 years & Brodie’s old-school “Superblock” intransigence has cost the taxpayers millions in the courts. ”The Wire” documented the corruption surrounding this project, which has become lame-duck Brodie’s desperate last hurrah. Hopefully this shameless scam to fleece the taxpayers will implode, & not become a sad monument to a discredited, big-box approach to urban redevelopment.  

  • PCCP

     I don’t know about you guys, but I would like to see things that improve the city. this development will be an improvement. the west side could be a very attractive place in a few years.

    everyone is bent out of shape about the commercial aspect, but the prize imo is the 300 apartment units.  if that area becomes safe it could totally revitalize downtown. there are already a number of attractions there and frankly it could be a fun place to live.

    on the other hand, there are no shortage of goons in that area. I don’t know how you guys feel, but I get tired of people asking me for money. crackheads are too unpredictable.

    and it makes me laugh that people just KNOW that the taxbreaks are a huge gift and not a necessity.  talk about shooting from the hip. its OK to be skeptical, but without evidence you are guessing.

    • Westside Resident

      PCCP – I agree that the area needs to be developed. My concern is the city counsel’s (and BDC’s) large role in nearly every development project in this city. If every single project needs tax breaks to be competitive that tells me that the tax rate is too high.  In my view the role City Counsel and BDC should be to set the foundations for growth – simple and low tax system, quality schools, simple zoning, and police/fire protection. Financing and tax incentives might be acceptable from time to time, but their use with every project signals an underlying issue in the business climate/atmosphere in the city.

  • http://twitter.com/jedweeks Jed Weeks

    The African American, Vietnamese, and Korean merchants that were thriving in that area before getting kicked out for this project might have something to say about that area not being economically viable without massive subsidy fromt the government.

  • Richard

     Jed’s point is a good one. What was wrong with Lexington Market before the Superblock project? I worked in the area back in the 1990s and it was always packed! Businesses were bustling, people were out shopping with their families. It was a thriving commercial district. I can’t help but think that race was a factor in why the City felt the need to change things. The clientele then – as now – was mostly black and lower income. Most of the businesses were not run by large multinational corporations (like Best Buy or Bed, Bath & Beyond) but were mom & pop stores run by Koreans, Chinese, Black or Jewish business people who lived above their stores or within a short drive from downtown. It’s sick that City Hall and their corporate buddies can’t handle that sort of racially diverse, organic, small-scale business community. If it isn’t suffering from Gigantism, then city government isn’t interested. Of course, SRB and most of the people who run our city don’t shop here and many (like Kaliope Parthemos) don’t even live here. So, why should they care?

  • Bmorepanic

    The Superblock project MAY add some permanent employment jobs but there’s no telling how many of the employees would be city residents.    I’m thinking that a parking garage and an apartment building will not employ very many people full time – like 12 each at most?

    From what I’ve seen in the past, the contractors and their employees mostly come in from other parts of Maryland.  I would love to see a study on the long term economic effects of temporary construction employment in the city when it seems like most of those employees live in another jurisdiction.  Hopefully one that was purchased by someone without a vested interest in the results – not because I believe BDC lies as much as they seem to “Keep the sunny side up” when it comes to statistics and wrap their results in the fluffy cotton wool of nebulous language meant to cushion them from critique while implying that everything is just swell.  

    I know the renters will also bring economic benefit, but again wonder if anyone has any idea how much.  I’m having difficulty seeing that  economic activity being worth transferring $35 million or so over 21 years to the  already substantially wealthy people who own the companies involved.  

    I’m pretty sure that another 300 apartments will not make much of a dent in downtown crime.   I agree with others suggesting that improving schools and reducing crime are more important than subsidizing the rich.

  • ThisIsWhyILiveInTheCounty

    “Without the tax breaks, Brodie told The Brew, ‘the private-sector economics won’t work.’”
     
    When there is quasi-governmental centralized control of economic development, calling it “private-sector” is a stretch.  It’s not “private-sector” if you need kiss the ring of the BDC to get anything done under reasonable terms in the city.
     
    The BDC is a failure.  They, or their predecessors, have been responsible for economic development in Baltimore since 1959.  How has that worked out?
     
    Clearly the solution is to lower taxes for everyone, and let the private sector go to work on the entire city.  But that would require that we cut spending, and the folks on the BDC really wants to give their buddies a half billion dollars to expand our half-empty convention center.
     
    1 block down, 1000 more to go.
     

    • Dsthomas4007

      Enjoy your Applebee’s.

  • http://profiles.google.com/jamiehunt344 James Hunt

    Richard wrote, “… What was wrong with Lexington Market before the Superblock project? I worked in the area back in the 1990s and it was always packed! Businesses were bustling, people were out shopping with their families. It was a thriving commercial district …”

    +++++++++++++++++++++++++++

    Sure, it was “thriving” on the first level of many of the buildings. Above that, nothing. Entire floors, block after block: empty. And you could count on one hand the number of buildings that had gotten any sort of capital investment in the preceding decade. You know what happens to old buildings that aren’t maintained? They collapse — as Schenk’s (Mencken’s father’s cigar factory) on Baltimore Street did, taking its beautiful cast iron facade with it. Or, they catch fire — sometimes as a result of arson, but just as frequently a result of out-of-date electrical wiring.

    • Richard

      So why not deal with the problem of upper floor vacancies? Why toss out dozens of local businesses and wreck historic buildings? The city’s solution is like performing surgery with a hatchet instead of a scalpel.

      • http://profiles.google.com/jamiehunt344 James Hunt

        Your solution is … ?

        • Marc

          …to take a look at reforming the various building/zoning/FAR/parking codes and taxation schemes that might be discouraging the occupation and upkeep of those upper floors. (There are even federal FHA regulations that discourage banks from lending money for adaptive reuse and urban mixed-use; single-use greenfield construction is still prioritized, as if we’re still in the 1950s.) The ‘vibrant first floor vs. vacant upper floors’ phenomenon is a really common problem in many US cities, and B’more has it even worse by suffering from the ‘vacant first floor’ problem too.

          Actually, I don’t really know if *local* regulations and codes are an impediment here or not. In some cities the adaptive reuse of old multistory buildings is relatively easy because such buildings are “grandfathered in” and don’t have to meet unrealistically-rigid zoning, parking, and building codes. In other cities these codes are imposed uniformly on older buildings (i.e. they have to be brought up to gold-plated standards if someone is interested in reusing them), and so most developers deem renovation too costly in comparison to cheaper and simpler greenfield development. So these urban buildings continue to sit vacant. (If you have to add additional stairways, elevators, and mandatory off-street parking to a narrow, vertical urban building – thereby gobbling up most of the available floor/lot space and hence your ability to make a future profit – why bother renovating?) I can understand the need to enforce fire safety codes, but everything else should be left up to the developer.

          Suburban Nation also argues that suburban-style FAR (floor area
          ratio) codes “…privilege large-lot development. Two
          5,000-square-foot lots are inferior to a single 10,000-square-foot lot
          in terms of their resulting FAR capacity, which discourages the
          involvement of small-scale developers downtown. This scenario leads
          cities to become dependent upon a few large speculative developers
          rather than on a diversity of local property owners (177).”

          I think this is exactly why cities respond with the TIF and PILOT goodie-bags: to lure in big-time developers that can combine smaller plots and work with huge parcels. Maybe sometimes this strategy works, but often it just results in vast swathes of land sitting vacant for decades at a time: every time you ratchet up the scale of redevelopment, it’s that much harder to overcome NIMBY opposition, to secure retail leases on strict occupancy schedules, and to acquire capital. What sensible bank is going to loan money for what could be an experimental, overscaled boondoggle (because if these things fail, they fail BIG time), which is why cities desperately step in with their own mortgage-the-city financing schemes.

          I think PILOTs and TIF are also intended to overcome absurd property tax schemes. If Baltimore had a simpler land tax (no taxation on buildings at all; only the taxation of land based on its value in relation to its proximity to the conveniences of downtown) then it might be easier for small-time developers to renovate the city on a finer grain. They wouldn’t be financially punished for the “gentrification” (much-needed improvement) of residential and commercial buildings. Right now, every time you improve your building, you raise your property taxes. IMO this just incentivizes the “strip mining” of decaying buildings for diminishing rents until their inevitable abandonment.

          In short, the city doesn’t have to outlaw megadevelopments; it just has to make it simpler, cheaper, and easier for smaller developers to work with smaller parcels again. Hopefully the new zoning code will strive to do just that. And if not already possible, how about at least starting with a one-stop shop where you have ONE brief application + fee for obtaining everything for a development – permits, zoning requirements, environmental legalese, straightforward (i.e. not subject to contradictory personal moods and tastes) CHAP and UDARP recommendations, etc., etc.

          Vertical urban buildings aren’t necessarily sitting vacant because no developers want to work with them; they sit vacant because a vast bureaucratic BLOB out there (at all levels – local, state, federal) discourages (makes onerous) adaptive reuse and infill in built-up areas in favor of “leapfrog” greenfield development.

        • Gerald Neily

          Jamie Hunt, are you trying to defend the hatchet job? The solution is for every area of the city to avoid contrived force-fed transformations, and instead emphasize inherent strengths and comparative advantages, which at Howard/Lexington is definitely the historic buildings. And let the private sector do as much heavy lifting as possible. WalMart knows big box-onomics better than the city does, and if they think Howard/25th is a better location for them, that means a lot.

  • Ktrueheart

    Our Mayor Stephanie Rawlings-Blake has asked US repeatedly to embrace the recommendations from the numerous non-representative Task Forces she’s commissioned like her Rec Center Task Force), however she FLAT OUT REJECTED the recommendations from the City Council Task Force on TIFs and PiLoTs which offered several improvements to enhance the effectiveness of these economic development tools … Too TWISTED!

  • Gerald Neily

    Bravo to Richard for the very compelling case for the “scalpel” over the “hatchet”, and to Marc for the beautifully articulated details. My only qualm is that I believe that actual retail professionals should be capable of finding places somewhere in Baltimore for big box stores like Bed, Bath and Beyond… especially the “Beyond”.

  • http://profiles.google.com/jamiehunt344 James Hunt

    Gerry Neily wrote: “Jamie Hunt, are you trying to defend the hatchet job? The solution is for every area of the city to avoid contrived force-fed transformations, and instead emphasize inherent strengths and comparative advantages, which at Howard/Lexington is definitely the historic buildings. And let the private sector do as much heavy lifting as possible. WalMart knows big box-onomics better than the city does, and if they think Howard/25th is a better location for them, that means a lot.”

    +++++++++++++++++++++++++++++++++++++++++++

    No doubt Wal-Mart does. And – to the points others are making — would an “organic”, SoHo-type rehab of the West Side be preferable? Hells yeah! Unfortunately, we’re thirty, maybe forty years too late for that on the West Side. Back in the 60s and 70s, Harry Weinberg acquired a lot (and I mean, a lot!) of real estate in the neighborhood. When he died in 1990, most of his estate went to the Weinberg Foundation …

    http://www.nytimes.com/1990/11/06/obituaries/harry-weinberg-82-businessman-in-transit-and-real-estate-is-dead.html

    Not mentioned in that obit is that his will barred the Foundation from selling any of the property he acquired. Oy. Now, some might argue that the Foundation’s trustees should have gone ahead and rehabbed their properties individually for small businesses and apartments. And, in fact, they did a beautiful rehab of Stewarts, and Catholic Relief Services moved from another West Side building to take over the office space component of it. But they don’t have the staff to oversee a lot of little projects, and they probably would have lost money on it — money that would otherwise have gone to serve the poor in Baltimore (I’m sure we’ve all seen the many social service buildings bearing the Harry and Jeanette Weinberg name). Losing money is also a no-no for the trustees of any foundation — it’s a breach of their fiduciary duty. Unfortunately, the only way to break the impass and create a couple decent development parcels was for the city to use its authority to condemn and acquire. Thus we have Centerpoint, the Hippodrome/France Merrick Performing Arts Center, and, eventually, Superblock.

  • Baltimoreplaces

    Everytime I see these deals it frustrates me.  I believe the reduced tax programs and credits should be going to all new city homebuyers (owner occupants) in the form of a 10 year property tax phase-ins which will substaintially lower the taxes on new working and middle class residents, spur organic development, increase the tax base, boost community health throughout the city, create more sustainable employment, boost transfer tax revenue etc…

    These credits should be going to the potential new city residents, not the developers. 

  • http://profile.yahoo.com/UBB5DQH4Q7OHNZVKLHEAKTXKLY Matthew

    The city is kidding itself in the longterm to give these types of tax cuts. In 21 years, when they expire, at the tax rate that we have now, we are just building something that will no longer have any incentive for maintaining or improving the properties (resetting the blight/redevelopment cycle). Drastically reducing everyone’s tax rate and allowing for market conditions to exist (untampered with by city government) will do a favor for everyone in this city.

    Furthermore, we can’t even keep the box stores we have…Best Buy, Sams Club??? With high rates of downtown commerical vacancy, why would we want give any tax preference for businesses to move into a new commerical area?

  • Here’s a Thought

    Read this all
    the way through, understanding that there is a BUT at the end. 

    The BDC has a
    very tough job under less than ideal circumstances. On a project this risky,
    either BDC recommends a substantial tax break or the project simply won’t ever
    happen.  BDC is in the business of making
    things happen.  They didn’t invent PILOT’s
    – even cities with vastly better taxation often offer them to spur development
    due to the challenges in initial years to real estate development and the understanding
    of long-term investment.  I wish I had
    time to give a real estate finance tutorial to folks (ignorant, not to their
    own fault) who think all projects are a home run and would happen without a tax
    relief – moratoriums based on sentiment and not facts are dangerous.  Before demonizing BDC, remember, they don’t
    set the crippling City tax rate.  BDC
    asks for tax breaks from the Council on specific projects with economic
    development opportunity.  Jay Brodie
    can’t lower your taxes if he wanted to. 

    Now for the BUT.  There’s a distinction between lowering taxes
    and giving a PILOT to essentially giving a tax holiday for 15 years with no
    adjuster or acclimation in between.  The
    numbers don’t work after 10 years?  Not
    even 50% taxes at year 10?  This project is
    less make-or-break than it’s made out to be – there are no high skilled jobs or
    industry fostering.  I want something to happen
    and have voiced my opinion on that issue, but if a project needs juice that
    badly (no matter the depressing existing condition) then it’s too unstable. 

     
     

More of the Daily Drip »

Below the Fold

  • March 24, 2014

    • Last Thursday, I sent an email to the Mayor’s Office of Communications asking for some basic responsiveness: Please return our emailed queries and phone calls about stories. Please send us the same routine emails you send to other members of the media. Lately, more so than usual, they haven’t been. It’s a shame because, even [...]

Twitter

Facebook