City approves tax break to fill empty downtown building

Gaithersburg developer to get 80% off his property taxes for 10 years.

114 E Lexington looking up

The ornate, but now vacant, former Provident Bank Building is to be converted to apartments and limited retail.

Photo by: Mark Reutter

As part of an effort to increase the number of rental units and residents downtown, Mayor Stephanie Rawlings-Blake and the Board of Estimates today approved a tax write-off to a developer promising to convert an empty bank building into high-end apartments.

An agreement was signed with Baybridge Property Group to redevelop 114 East Lexington Street, located opposite the Clarence M. Mitchell Jr. Courthouse, into 102 apartments with ground-level retail.

The Beaux-Arts mid-rise, featuring intricate masonry work and oversized vault doors, originally housed the Federal Reserve Bank’s Baltimore branch. The building has stood mostly vacant since 2008 when M&T Bank moved employees out of the building after it acquired Provident Savings Bank.

Headed by Gaithersburg developer Brett Griffith, Baybridge would receive an 80% reduction in property taxes for 10 years after completing the apartment conversion. There would be a 50% abatement between years 11 and 15, with declining reductions through year 20.

The agreement – likely to cut $3 million to $4 million in taxes over the life of the contract – comes as part of the city’s residential conversion PILOT program, which gives tax abatements to developers who convert vacant or underutilized commercial properties to rental housing.

The Griffith group will still be required to pay taxes on the “base value” of the 11-story building and land. Today’s agreement sets that base value at $4.65 million, or $150,000 less than the current assessment of $4.8 million.

These tax costs, however, are expected to be offset by historic tax credits available to the developer as well as “EZ” (Enterprise Zone) state tax credits. Griffith estimates the overall project to cost $19 million.

The building at Calvert and Lexington streets is listed on the National Register of Historic Places. (Photo by Mark Reutter)

The building at Calvert and Lexington streets is listed on the National Register of Historic Places. (Photo by Mark Reutter)

Apartment conversions have the strong backing of the Downtown Partnership and other business groups, who have expressed concern about the high vacancy rate in the historic downtown near City Hall and the Mitchell Courthouse.

Empty space is most prevalent in older office buildings that haven’t been upgraded with Internet services and open-space floor plans.

Influential Lawyer

The local attorney representing Baybridge in today’s agreement was Mark P. Keener, a partner at Gallagher, Evelius & Jones.

Keener was cited in The Brew yesterday for his involvement in the selection of Brenda McKenzie, the newly named president of the Baltimore Development Corp. The BDC advises the mayor on downtown development and approved the PILOT abatement for Baybridge.

As a matter of policy, the BDC does not disclose the expected dollar tax savings from PILOT agreements, saying such disclosures could reveal commercial secrets and inhibit transactions with developers.

As a result, the mayor and spending board today approved the Baybridge contract based on a schedule of abatement percentages without any hard numbers as to the anticipated tax loss to the city.

The BDC and Mayor Rawlings-Blake have argued that the cost of PILOT tax abatements is more than matched by the personal income taxes paid by renters and the increased economic activity generated by new residents downtown.

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  • trueheart4life

    The city’s residential conversion PILOT program has the strong backing of the Downtown Partnership which promotes inequitable downtown development.  Kirby Fowler of the Downtown Partnership should be asked how many of his employees will be able to live in these new apartments?

  • cwals99

    We are watching as the decades-old tax agreements from when O’Malley was Mayor are now being turned into separate but equal agreements in that they are fencing in the revenues that do meet an end to these tax breaks.  So, as these developments are made to pay 50% of taxes after ten years, that tax is fenced into services and maintenance of areas surrounding its own blocks.  Also, as decades of development pass and decades come, all new developers will demand equal tax conditions and will win in court if such distinctions are made.  This practice will lead to a tax situation in which all of these luxury developments will contribute nothing to the overall general fund and therefor all nothing to service and maintenance outside the city center.  Mind you, it is your tax money and high property taxes over decades that paid to develop these places all built and financed by investment vehicles backed by investment firms with more money than God and who will make hundreds of millions doing it.

    As the city adds credit bonds to this list of leveraging for development, one can see that it will be the greater Baltimore population that will finance through their taxes the building of this city center project.  If allowed to follow suit, the plan will take us to a Manhattan-style world-class city where no one can afford to live and barely afford to visit.

    O’Malley and Rawlings-Blake are setting in stone the subsidization of this city core by the tax base of the greater city residents at great profit to those developing it.

  • Aaron

    to cwals99. 

    playing the devils advocate here……but a tax break for development like this has the definite possibility of generating profit for the city in the long run. If this is the case, the tax break may be a good investment for the city. City residents paying for it now will get it back later. I see this as a potential, and a likely reality.

    My problem with the situation is this: the development company knows the city is desperate for development, therefore they can negotiate more of a tax break, and make more profit. The city will always agree if it means they will increase the tax base, to at least more than it is now.

    So given this, I think the real question is:  Do the developers need the tax break? Would they turn a profit anyways without the tax break? Are they using the desperation of the city to negotiate more tax breaks aka a better deal?

    cwals99 i’m curious to hear your response to this. I’m not trying to shoot you down or anything I’m actually just curious.

    • trueheart4life

      Aaron:  Not one of the recipients of recent tax brakes from Baltimore City have promoted themselves as a socially responsible enterprise, so I think its safe to assume that ROI in terms of $$$ remains their bottom line. Let’s be clear that a business should seek opportunities to maximize their investment and if the BDC makes an offer that results in MORE PROFIT why should/would they turn it down???

      Conversely, as you’ve said the City is seeking any opportunity to increase the tax base, even ones that we feel are inequitable and if negotiated differently could possibly produce a better return for the citizens. 
      I think the real questions is:  Has the maximum benefit to citizens been negotiated in each of these deals we’ve been told are “BUT FOR” deals?

      I’m skeptical …

    • cwals99

       We need to look at this urban development phenom not in the vacuum of Baltimore, but as the intensely inequitable wealth distribution we have as a nation since the fall of Glass Steagall.  This isn’t about Baltimore development….it is about reinstating policy that will reverse this wealth inequity that 95% of Americans say is a priority.  So, these development policies of these few decades that allowed wealth unlimited benefits and propelled O’Malley into the national spotlight as he championed these policies are now openly viewed as the wrong path now that the path is seen as reversing wealth inequity.  This is the larger picture of what those of us working locally are trying to advance.  These development corps are enriched by what we all know to be massive fraud and the people want that money back and we want to vacuum sucking all community wealth shut off.

      So, these developments that benefited from these few decades of inequity are now in a position of make it or break it in downtown development.  Are they really going to give up all they invested because the policy now swings towards what is good for the people rather than that distorted policy benefiting the few at the top?  I dare say not.  If we allow these pols of the past decades continue these policies rather than voting them out of office, we abdicate our mission of reversing wealth inequity.  These guys are rolling in money and they need places to invest.  There is a master plan developed in the 1980s that has urban areas across the nation gentrified so this drive will not go away because of our push to make development and development costs fair and equitable.  Don’t let these guys continue with these sucker punches!

  • Gerald Neily

    The BDC tax break approach can look favorable on a select case-by-case basis, but not for the economic development of the city as a whole. They’re subsidizing the very best sites the city has to offer – attractive historic buildings in good locations and prime waterfront land (in the case of Harbor Point and UnderArmour) – which does not bode well for the vast rest of the city lacking such obvious marketable assets. If BDC has to “give away the store” to induce this kind of development, what deal can they offer everyone else? The BDC ad-hoc approach is essentially an admission that the city’s tax and investment climate is broken.

    Kim calls these “but for” deals. I interpret that to mean that BDC’s baseline is no development at all. That’s a profoundly low standard to live up to, which would only really apply if the land truly is worthless. It could indeed be argued that the city does have areas like that where nothing good can be expected to happen unless there is positive intervention. BDC needs a vision that focuses on these areas to add maximum value to the city as a whole.

    Franklin-Mulberry is indeed that kind of area. Buildings keep crumbling and vast lands lay fallow. The Red Line plan is a multi-billion dollar repeat of the kind of transit solution that had a far better chance of working at Howard/Lexington, Upton, State Center, etc. But it didn’t work. Time to try something else. Brenda McKenzie, your new home on Franklin Street is waiting.

  • Tom Gaines

     Just a couple of points…If the building is currently empty….and if it remains empty the value of the building will certainly drop and therefore the tax revenue for the City will certainly drop. The developer is making a reported investment of 19 million in an area that I would not exactly consder the gold coast of Baltimore. This is far from a slam dunk for any developer. Real Estate is very risky, this deal could easily go South on the developer. If the deal goes forth, and if the building is filled with people….it is a good thing for the City.

    • Gerald Neily

      Thank you, Mr. Gaines, for illustrating how this is the quintesential “BUT FOR” deal, as Kim describes it. In contrast to BDC giving away the store on the “gold coast” for Harbor Point, this is a good deal because BDC is giving away the store slightly away from the gold coast, where the null alternative is a beautiful historic building remaining empty ad infinitum. But as you say, there’s still no confidence that the deal won’t “go south”. This is the ultimate pessimistic “running scared” mindset. It’s why the only choice presented in Sandtrown-Winchester, further away from the gold coast and after many millions have already been spent, is between a drug-fueled murder epidemic and urban farming. And why the only choice presented in Franklin-Mulberry is between a “highway to nowhere” and the same highway with the proven-failure MTA’s multi-billion dollar Red Line in the median. And even in the Inner Harbor, the best scenario is Grand Prix clutter to prove we’re better than Detroit. Baltimore’s leaders now think anything better than Detroit is a victory.

  • Tom Gaines

    Mr. Neily…. I was not trying to be pessimistic about the project…..I was just trying to make the observation that real estate development is inherently risky and over the years many developers have struggled with residential deals….Developers are the ultimate gamblers…..We could easily make a list of many who have come and gone from the City over the last 30 years….

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