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Superblock tax break will cost $48 million, Stokes says

Councilman says PILOT tax break would be three times more than estimate of Baltimore Development Corp. Deal approved by Board of Estimates.

Superblock buildings Howard St

Vacant city-owned buildings on North Howard St., site of the long-stalled Superblock project.

Photo by: Mark Reutter

Last night Carl Stokes, chairman of the City Council’s taxation and finance committee, placed the cost of the tax break proposed for the Superblock retail and apartment project on Baltimore’s Westside at $48 million.

His estimate, first reported in The Maryland Daily Record, is nearly three times more than the estimate given by the Baltimore Development Corp. (BDC), which is championing the project on the city-owned block anchored by Howard and Lexington streets.

The BDC has said that, based on current assessments, the 20-year tax break would be worth $17.6 million.

This estimate followed an article in The Brew that placed the Superblock tax break at $35 million. Prior to the Brew article, the BDC had said it could not reliably estimate the tax loss from the PILOT, or payment in lieu of taxes, it had proposed for the developer, Lexington Square Partners.

Yesterday, the Board of Estimates approved the PILOT agreement, with Mayor Stephanie Rawlings-Blake and City Comptroller Joan Pratt voting in favor, and City Council President Bernard C. “Jack” Young abstaining.

Second to Marriott’s Tax Break

The tax break would make the Superblock project the second highest beneficiary of the city’s controversial PILOT program.

The largest PILOT break was given to a development group headed by bakery magnate John Paterakis to build the Baltimore Marriott Waterfront Hotel.

That PILOT, approved in 1997 by then-Mayor Kurt Schmoke, reduced property taxes on the 752-room Marriott to $1 a year for 25 years.

This has resulted in a reduction of $61.5 million in property tax revenues over the life of the PILOT.

Like other city hotels, Marriott does pay parking, hotel, energy and other taxes to the city, which totaled $3.5 million in 2011.

Won’t Get Built Otherwise

M.J. “Jay” Brodie, ongoing president of the BDC, said that tax breaks were the only way the Superblock project can get underway.

If the break was not offered, the $150 million project would not be built, Brodie has argued, and the city would not receive any tax revenues from the properties, which are currently owned by the city in anticipation of redevelopment.

The developer did not request a PILOT tax break until early this year, or five years after it won exclusive rights from the city to build on the site.

In addition to the proposed PILOT, Superblock is eligible for Enterprise Zone (EZ) tax credits from the state.

The credits would entitle project developers Lexington Square Partners to a 50% property tax reduction for five years – and potentially save the group another $6-7 million.

Delayed for Years

The Westside project has been stalled for nearly a decade as the city purchased all of the buildings bounded by Lexington, Howard and Fayette streets and Park Avenue and evicted the tenants.

Protesters call for the preservation of the former Read's Drug Store on Superblock last February. The developer has pledged to retain the building's outer facade. (Photo by Mark Reutter)

Protesters call for the preservation of the former Read’s Drug Store on Superblock last February. The developer has pledged to retain the building’s outer facade. (Photo by Mark Reutter)

Lexington Square Partners, headed by the Chera, Feil, Goodman and Nakash families of New York and the Dawson Group of Atlanta, have been given four extensions by the Rawlings-Blake administration to get the project underway.

The group entered an exclusive land disposition agreement with the city in January 2007, but the project has been beset by legal challenges and community protests over the preservation of historic buildings and the proposed commemoration of a pioneering civil rights sit-in at the former Read’s Drug Store.

The Rawlings-Blake administration has rejected suggestions that the property be opened up to other developers, and has insisted that Lexington Square’s “big-box” retail development – with an apartment tower and possible hotel – is the best use of the Superblock site.

At a hearing before Stokes’ committee last night, Harry Dawson Jr. pledged to hire local residents once construction gets underway in 2013.

He said his company is drafting an agreement for hiring minorities with Associated Black Charities, the Maryland Minority Contractors Association and other groups.

Council-Approved PILOTS

While Stokes has expressed misgivings over PILOT tax breaks, it is likely that the City Council will approve the Superblock PILOT.

The City Council has never vetoed a PILOT advanced by the mayor’s office.

Currently, there are 13 PILOTs in place for commercial building projects, nearly all of them located on or near the Inner Harbor, and the majority directed at new construction by the Paterakis development group

These include PILOTs for the Legg Mason Office Tower at 100 International Drive, Spinnaker Bay Apartments at 707 President St. and Laureate Office Building at 650 South Exeter St., all in Paterakis’ Harbor East enclave.

((BREW’S Tax Profile of PILOT Development Projects))

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  • Guest

    No one who lives near there cares whether or not the city will get taxes from the completed buildings, they are just sick of living next to HUGE vacant buildings. Hurry up with the construction already!

    • Bmorepanic

      I’m not sure why people who live near there are more entitled to have their area re-developed than people who live in other parts of the city with significant vacant buildings.  Big money has been going to the West side of downtown for a long time and other areas get nothing because of it but people in the other areas are paying for the westside redevelopment.  

      I’m pretty convinced our politicians have no business sense at all.   I think they figured out that the entire west-side redevelopment so far has brought into that area 7-10 thousand people.  I haven’t seen published numbers on the sources of those people – how many are transplanting from within the city vs. out of the city, but even saying its all from outside of the city…  How much has already been spent per person by the city and the state?  Does anyone know?

      Example of things that might be more deserving are unfortunately legion, but picking one – I’d rather they do a much smaller seed money enticement for ten-twelve blocks of Central Ave stretching up from the gold coast.   Stage it so benefits go to smaller developers and prioritize local employment.  

      In my blue heaven – do something interesting in the public realm like re-open the canal or channel all of the traffic into the smallest possible area, open up the rest of the ground for a long, lean, tree filled park-like space with “outdoor dining” supported by one of them special taxing areas.

      • Gerald Neily

        Bmorepanic, I’m with you on Central Avenue. It’s part of my new blog story on 8 projects to tide us over until we come to our senses on a sane Red Line plan.  
        http://baltimoreinnerspace.blogspot.com/2012/07/red-line-to-harbor-point.html

        Central Avenue has real strategic potential because it is an underutilized and impressively wide street which extends almost perfectly from the prosperous and highly visible (Harbor East and Harbor Point) to the neglected (Old Town). I’m not sure about exposing the storm drain, but I’m sure some talented designers could come up with a great solution. And make room for a surface Red Line that works, not on blind faith in the MTA that if we spend several billion in one impossible swoop “they will come” and magically transform the corridor, but as part of a manageable program that builds incrementally upon itself.

        The bottom line: City investment and tax policies just need to be intelligent, as many astute Brew readers (Rebecca most recently) have constantly told us. It’s not just a matter of whether the Superblock is a better way to “spend” $48M or some other hypothetical sum. 

  • Jed Weeks

    The tenants there previously didn’t get any special breaks from the city, and they were doing fine before they were evicted.

    Also, Southern Management manages to profitably maintain the Superblock east of this project and a building west of this project, with no special breaks from the city. 
    It’s sad that at this point I just want them to get their shady little deal through so something happens over there.

  • jfruh

    I can’t believe I’m sticking up for Baltimore’s notoriously corrupt city-developer relationship, but saying that it will “cost the city $48 million” is not really true?  The city will be foregoing $48M in potential taxes — but, in theory anyway, those would be taxes on a development that would never happen if not for the PILOT process.  It’s not like the city is writing anyone a $48M check, and it’s not like the city would be able collect $48M in taxes on the crumbling, mostly vacant buildings sitting on the site now.

    You could proably make an argument that if the PILOT project didn’t exist maybe someone would get off their butt and just develop that site, rather than drawing things out and wheedling and negotiating for more tax breaks like they are now.  No idea if that’s true or not.  I just think it’s important to keep straight what the point of the program is: the city is giving up theoretical tax revenue because their bet is that doing so is the only way to make that theoretical real estate from which they theoretically would get the revenue come into actual existance.

  • Westside Resident

    While not a fan of this project something needs to happen there. If tax breaks are what it takes then so be it.

    Unfortunately our city government likes to play developer and we all must bear the burden of their costly decisions. Until we have a city government that understands that small and medium sized businesses actually know what is best for their businesses I fear that we will keep doling out incentives to connected insiders. It seems like the only thing the city doesn’t do for business is reduce/simplify tax rates and administrative burdens on doing business in the city. Having lived and worked in “developing countries” I find Baltimore’s regulations more burdensome than many of those I found outside the country. The city has excellent (though in need of some repair) infrastructure, tremendous human and institutional capital, and many natural competitive advantages that cannot be replicated in other cities. If our city government were business savvy (looking at you Ms. Parthemos) Charm City could easily become a beacon for entrepreneurs on the east coast.

    Jed – both of those SMC properties received (and continue to receive) several tax credits including one for historical preservation.

  • Jed Weeks

    @cdc398e6f29a63963329122778620839:disqus , good to know. The BBJ must have taken the letter about those properties at face value, because the articles when it was sent imply no breaks were given on those properties.

    • Westside Resident

      From the Sun’s recent article on Historic Tax Break misapplication – “Two downtown apartment buildings, the Atrium at Market Center and The
      Munsey, together have been underbilled for property taxes by more than
      $1 million because of the errors, state officials confirmed after being
      presented with The Sun’s findings.” http://www.baltimoresun.com/news/maryland/bs-md-historic-tax-credit-20120623,0,488738.story

      Atrium is run by Southern Management while the Munsey is run by Buzzuto. The President of Southern Management goes on to say in the article that they shouldn’t pay any taxes at all since the superblock has been so slow in coming. I hope that was just his sense of humor. 

  • Sabina Pade

    Reports of incomplete numbers don’t help us much.  Useful would be to know all the various taxes that will be incumbent upon the superblock area, and in relation to the theoretical tax break, to know how the estimation of the tax break has been calculated.  

  • Kim Trueheart

    This project could reflect a creative new development model for BMore, but Deputy Parthemos and Mr. Brody have NOT demonstrated an ounce of creativity, “but for” giving away our money!!!

    • Walter

      Hi Kim, We should just have John Paterakis move the old Reads Drug Store down to one of his classy waterfront locations, he could turn the historic lunch counter into a combination Starbucks and Civil Rights Museum and make everybody happy! Just think of the extra tax breaks and free grant money the museum will bring to him!

      Dr. Walter

  • Rebecca

    If they lowered property taxes for the rest of us, they wouldn’t have to worry about vacant buildings.  There would be an influx of homeowners.  The developers would want to cash in on that.  More tax base.  Problem solved. 

    • PattersonParkResident

      It’s not that simple. Patterson Park has seen a 19% increase in population a huge increase in per capita income, and the commercial development in that area is non-existant. Sure, residential developers have eliminated the vacant houses, but as someone who has seen the development take place in Patterson Park, it takes more than houses filled with working people for businesses to open. 

      If these tax breaks bring commercial enterprise to a largely barren West Side, then I’m all about it. I just want something other than blight awaiting me when I go shopping downtown.

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