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City Council set to approve $22M in tax breaks for Superblock

PILOT agreement requires $5 million minimum investment in the first phase of Superblock, with only $250,000 to be put up by the developer itself.

superblock greyhound teardown

This empty lot on Fayette Street, the former Greyhound Bus Station, was demolished by the city to make way for the long-stalled Superblock.

Photo by: Mark Reutter

The City Council is poised to approve $22.1 million worth of property tax breaks for the Superblock project aimed at revitalizing a derelict square block of city-owned properties in the heart of Baltimore’s old retail district.

After moving out of the Council’s taxation committee on Friday during a five-minute voting session, the PILOT (payment in lieu of taxes) measure is expected to be ratified at tonight’s Council meeting.

Final third-reader passage will follow on Thursday, according to Council insiders.

The agreement is then expected to go before the Board of Estimates for approval and a signature by Mayor Stephanie Rawlings-Blake before December 31.

Redevelopment Still Far Off

Despite the rapid-fire progress of the measure (Council Bill 12-0066), don’t expect construction on the West Side to start anytime soon.

Councilman Carl Stokes presided over the voting session of the taxation committee that approved the Superblock tax break on Friday. (photo by Mark Reutter)

Councilman Carl Stokes presided over Friday’s voting session. (Photo by Mark Reutter)

That’s because the developer, Lexington Square Partners, has not yet lined up private financing or received solid commitments from retailers for its proposed mixed use development.

The group has told the Council’s taxation committee that it will seek a $99 million construction loan after the PILOT break is approved by the city.

But the PILOT agreement suggests that large-scale building at the site – or the 650 construction jobs promised by the city – will be stretched out over many years.

Small Investment Required by Developer

That’s because the 13-page agreement – a copy of which was obtained by The Brew – lets the developer build the project in phases, with the initial phase requiring just $5 million in capital.

The agreement further gives the developer three years – on top of an 18-month start-up period – to complete the first phase. This timetable would require completion of the first phase by year 2017.

The PILOT agreement covers the building of a 500-space parking garage and a 300-unit apartment high-rise on West Fayette Street. This involves the site of the former Greyhound Bus Station, which the city demolished earlier this year.

The city’s investment in the demolition alone – $1.23 million paid to Potts & Callahan – outstrips by five times the amount of equity investment ($250,000) the city will require from Lexington Square for the first phase of construction.

The language of the agreement says this: “The Developer shall, prior to the PILOT Commencement Date, certify to the City that the private capital being invested in the Initial Phase includes an equity investment [of] at least $250,000.”

The developer can then proceed in additional phases, “and upon the completion of each phase will receive a Certificate of Completion thereunder evidencing the substantial completion of such phase.”

Similar to Other PILOTs

The agreement was negotiated by the Baltimore Development Corporation (BDC), which recommended the PILOT tax break to Mayor Rawlings-Blake last February.

The tax break was justified on the grounds that Lexington Square Partners would not be able to secure private financing based on the projected cash flow of the project without a city subsidy.

The 20-year PILOT before the City Council tonight is comparable to the PILOTs approved by the city since 2005 for the Centerpoint Apartments on the West Side, Spinnaker Bay at Harbor East and The Fitzgerald in Midtown/Belvedere.

The tax break run five years longer than the 15-year PILOTs awarded to Camden Court Apartments, Zenith Apartments and St. James Place Apartments on the West Side.

Four Families from New York

Lexington Square Partners consists of four real estate families from New York – Goldman, Chera, Feil and Nakash – and the Dawson Co. of Atlanta.

Each partner has 20% ownership interest. Only two partners, BLDG Associates (Goldman family) and ICS Baltimore (Chera family), are set to sign the PILOT agreement on behalf of the group.

In addition to the parking garage and the apartment high-rise, the developers propose to create 217,444 square feet of retail space, demolishing all but the facades of existing buildings, including the ex-Read’s Drug Store.

Additional Tax Credits

The retail portion of the project is not presently covered by a PILOT, but the developer plans to apply for $15.8 million in federal New Market and Historic Tax Credits.

The New Market Tax Credit was established by Congress to spur revitalization of low-income neighborhoods, while Historic Tax Credits offer rebates to developers restoring old buildings. If Lexington Square Partners secures these tax credits, they will greatly lower the costs of rehabbing the facade of Read’s and other historic buildings on the site.

What’s more, Superblock is located in a state “EZ” (Enterprise Zone), which will rebate 80% of Baltimore City property taxes back to the developer for the first five years, with decreasing rebates for years six through 10.

The state of Maryland reimburses Baltimore for half of the lost property taxes on this phase of the project.

Low “Base” Assessment

Another aspect of the agreement involves base property tax assessments.

The developer will be responsible for paying property taxes on the existing land before improvements are made.

In Exhibit B (attached to the main agreement), the city says that because setting the base assessment “is difficult to determine with accuracy,” it will stipulate that “the assessment for the property as of July 1, 2012 shall be deemed to be $550,000 (the Base Assessment) and the Baltimore City taxes as of July 1, 2012 for the Property (meaning just the PILOT Project) shall be deemed to be $12,474.”

Translated, this means that Lexington Square Partners will pay $12,474 a year in base property taxes, plus 5% of the increased assessment from construction improvements – with 95% of the taxes on improvements rebated for the first 15 years.

Minimal Inclusionary Housing

The developer further agreed to share with the city any profits from the future sale of the property and to voluntarily make 12 of the 300 proposed apartment units “affordable housing.”

The other units will be market-rate because the Rawlings-Blake administration was unable to come up with funds to support the city’s inclusionary housing law.

The law requires 20% of new housing units in Baltimore to be leased to low-income renters if there is a “major public subsidy” awarded to the project.

But the Baltimore Department of Housing and Community Development (HCD) argued successfully that enforcing the law would place a burden of $9,449,059 on the Superblock project, which led to Lexington Square’s offer of 12 low-income units.

The 12 low-income units are not part of the PILOT agreement, but city officials say the arrangement will be honored because the developer promised to do so at an earlier Council hearing.

Chairman Carl Stokes and the two Council members who made a quorum – William H. Cole IV and Edward Reisinger – voted for the measure during a brief voting session on Friday of the Taxation, Finance and Economic Development Committee.

Committee members Bill Henry and Warren Branch were not present.

Also in attendance at Friday’s vote were Lexington Square’s lobbyists, Lisa Harris Jones, Sean R. Malone and Caitlin McDonough of Harris Jones & Malone, and their local counsel, Mark Pollak of Ballard Spahr.

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  • BmoreFree

    “Show me the money!” It is a catch phrase for a reason.

    Baltimore Brew – do you think we could get a city ordinance passed that would require basic tax and math lessons to our counsel members? It seems they are a bit lost with the whole concept of investment and return, allowing themselves to be lead around by numbers put together by these developers. Where are the questions from our counsel members about how the investments from the private company and tax breaks provided by the city all add up and how much this company is really putting at risk?

  • AuthorShereeseM

    This is typical of city leaders, who at best are the worst business people of this era. This developer is only required to pay 250,000.00 while enjoying millions in tax breaks. Meanwhile, back at the ranch, there’s no funding and no promise this land will ever be completed. Way to go Mayor! I’ve got some swamp land I’m planning to develop maybe one day in Baltimore if I can find someone who maybe want to think about financing my fantasy project. Can I get some tax breaks too? Unbelievable!

  • RickFromBmore

    There are so many things wrong here it’s hard to know where to start. But two things come immediately to mind. First, what’s wrong with a retail district made up of small shopkeepers who cater to low and moderate income Baltimoreans? That’s what we’ve had on the West Side for 40 years and I can’t see why that needs to change. Sure, the area has its “grungy” parts, but I bet that small business loans and facade enhancement grants would do more to improve things than multi-million dollar PILOTS for out of town developers. Second, if SRB wants more families in Baltimore, she needs to explain to those of us who already own homes here why we carry the property tax burden while corporations from out of state get mammoth tax breaks. It’s not fair and I have yet to see how all of these tax-free downtown projects make life in my neighborhood one bit better.

  • bmorepanic

    This seems to be another spiffy deal for the developers.  We give them 22 mil, the state gives them 5 years without paying most of the property tax.  The feds give them 15 mil in tax credits.  

    We give them 3 years to show due progress before we can kick them out when they don’t. But we only expect them to complete 5 mil of stuff on a 100 mil project in that time.  As if that wasn’t enough, we exempt them from the law requiring affordable housing – likely just because we always do.  The developers have no tenants and no financing.

    In return,  the developers promise to invest $ 250k of their own money and promise to someday create 12 affordable rate apartments.  All the developers are outta-towners; we don’t even get to collect restaurant meal taxes from them.    

    We’re doing this because a group made up of real estate developers claim to be unable to finance the project any other way.

    Srsly?

  • peter matchette

    Is there anyone in Baltimore political circles actively opposing this horrible sort of development? 

  • peter matchette

    I’m with Rick.  How do we translate this into some sort of political action?  I know there are quite a few of of us who are frustrated with this stuff, but perhaps it’s my fault, but I’m not aware of any organizations actively agitating for different development models.

  • cwals99

    What Baltimore’s pols are doing as well with this deal is sealing all other development ideas for this site to this  Lexington Square Developer.  Citizens of Baltimore must be aware that these mid/long-term commitments being made now will preclude future decisions on development direction.

    So as we work to vote all incumbents out of office, we need to think about the urgency of stopping these commitments.  One approach will be to take to court all of the business tax breaks in which the developers fail to meet agreements regarding hiring and staffing as per contracts….which is just about all of them.  These illegal actions can and will negate contracts and enable new approaches to development.

  • cwals99

    Regarding political action outside of my first comment, what we have in Baltimore is a capture of development by Hopkins and those in the city with the making Baltimore a global city….the New Economy.  What we need to do is petition to referendum the right of citizens to recall all politicians and to enact Term Limits that are retroactive in service requirements meaning that the term would include time already served.  We want to do this with the next elections in three years.  It is very easy to do.

    Maryland is the wealthiest in the nation so there is no money deficits.  We simply need people in office that return the city coffers to a normal revenue stream.  We need everyone to encourage community members to run for all these offices to challenge incumbents.  We don’t need a lot of money if we have a communication network.  Create newletters and blogs for your communities for example.

    We really need to step up to activism or these global bullies will take us to the cleaners!!!

    • Day_Star

      Here here on your criticism of Hopkins!  I wish they’d take their 25,000 Baltimore City-based jobs, 2nd place world ranking, and billions of dollars to the economy and shove it!  You hear those rumors from 1930s?  Unbelievable!  Not only that,  X-ray technicians only make $70K while doctors make over twice that.  Highway robbery!  They can take their exploitation of our city and shove it!

  • Arabella_Woodhope

    $250,000 seems pretty bargain basement as a “first payment” for such a major project. They’ve probably spent more than that in architects’ fees alone. As the article states, Lexington Square hasn’t secured financing, and worse, they have yet to sign a single retailer to fill the box stores they have yet to build.

    To those hopeful activists who cry out for political justice, I have no advice. The Superblock project has been attacked repeatedly in the courts and by activists at the Department of Planning. It seems this Leviathan cannot be stopped.

  • RickFromBmore

    I’d also like to know what kind of big box retailers will be interested in this part of downtown. With the failure of Best Buy on Pratt Street and the expansion of national retailers over in Harbor East, which businesses, exactly, would be targeted for inclusion in this project? And how would they NOT negatively impact the small businesses already existing in Lexington Market and the surrounding streets. But I have to be honest – I bet this project breeds nothing more than cheap surface parking lots. Think of the wasteland that is the Old Town Mall site, and you have some idea of the likely future for the “Superblock”.

  • Gerald Neily

    The City has shot its wad. When they give the maximum tax breaks to the city’s most valuable and attractive properties (Harbor Point and Exelon), there’s really not much more they can do for everywhere else.

  • baltimorebrew

    Yes, The Times is doing a series on this issue.

    See: http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html

  • Closedbusinessowner

    This is just another slap in the face! I am a small business contractor who is currently closing my business due to the Bankruptcy of RG Steel/Ira Rennert. They owe me over $300,000.00 plus. I started my business 2 years ago with my credit, 401K and putting up my home for my SBA loan. I didn’t get any tax breaks and was told I couldn’t get minority status. (Women in business) If I don’t pay my SBA loan that is tied to my home, I will lose it! My property taxes for my home are over $5,000.00. I paid all of my employees wages, health and welfare, workman’s comp and company insurances. I still owe $200,000.00 on my line of credit. All of the back money that RG Steel owed my company from 2011 was paid in 2012. Now all of the contractors are receiving demand letters from the bankruptcy for the preference period. I can’t pay this years taxes since RG Steel/Ira Rennert owes me so much money and my business is closing. Why don’t Maryland officials help the contractors and business that are here in Maryland that employed Baltimore residents and are losing everything they have worked for their entire lives? I can’t even write off the money that I will never receive from RG Steel/Ira Rennert. By the way, Ira Rennert is from New York and look what he did to Maryland. He owes 5 million to BGE and about the same to the Water company. He owes back property taxes for RG Steel. He owes 1 billion to businesses and vendors and the banks. Who do you think will be paying those bills? I don’t even have the strength to finish this letter! My husband and I have lived and worked here our entire life. We have worked since we were 13 and 14 years old. We pay our taxes, give to the community and we are law abiding citizens. Billionaires can get all the tax breaks, borrow money not attach to their personal property and then claim bankruptcy. Ira Rennert still lives in the largest house in the US and flys his helicopter everyday. Hundreds of companies get stiffed and 2000 Steelworkers lose their jobs! Maryland should file criminal charges against him to recoup some of that money! Where is our tax break? Come on Maryland Officials respond to this one! I don’t need to put all my business out there but I feel it is important for the truth to be known. You can do everything right in business and still get taken out by the big guys. Maryland Officials please send donations to help me save my home! Mark from the Brew has my email address! Happy Holidays.
     
     
     

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