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City to sell Superblock for a fraction of its original value

In addition to $22 million in PILOT tax breaks, the developer will pay only $2.85 million for the city-owned site thanks to credits and a new appraisal.

mccrory’s on superblock

The former McCrory’s store on Howard Street is part of the 3.6-acre Superblock site.

Photo by: Mark Reutter

12/19 UPDATE – As expected, the Board of Estimates today ratified the pact described below. Without debate or comment, the panel approved the land sale and PILOT tax break. City Comptroller Joan Pratt abstained, while Mayor Stephanie Rawlings-Blake, City Council President Bernard C. “Jack” Young, City Solicitor George Nilson and Public Works Director Alfred Foxx approved.

The Board of Estimates is prepared to sell the 3.6-acre Superblock site for the bargain-basement price of $2.85 million.

That’s a fraction of the property’s $21.6 million appraised value when the city first entered into an agreement with the developer, Lexington Square Partners, in 2007.

The Brew earlier reported on a city-directed reappraisal that lowered the price of the land, which partly resulted in the dramatic discount revealed yesterday in the Board of Estimates agenda.

The markdown on the sales price comes at the same time that the Rawlings-Blake administration plans to approve a $22.1 million PILOT tax break for Lexington Square Partners at tomorrow’s Board of Estimates meeting.

The tax break agreement – which will go into effect after a $5 million initial investment by the developer on the planned $150 million mixed-used project – was ratified by the City Council earlier this month.

Derelict Buildings Lose Value

The low purchase price for the Superblock land is due to two factors. The value of the site has collapsed since 2007 because the city has evicted all of the tenants and the buildings lie vacant.

What’s more, it was disclosed yesterday, the city is applying two credits towards the purchase price.

A $6.9 million credit is for demolition and environmental remediation costs assumed by the developer.

New York developer Lloyd Goldman is one of the four New York families behind the Superblock project. (Brew photo library)

Lloyd Goldman is one of the four New York families set to buy Superblock. (Brew photo library)

In its 2007 agreement with Lexington Square Partners, the city said it might let the developer deduct up to $10 million for such expenses.

Last February, however, the city paid Potts & Callahan $1.2 million to level the former Greyhound bus terminal on Fayette Street. The city also recently completed a long-delayed effort to stabilize the roof of the ex-Read’s Drug Store building for $349,000.

Because of this and other city work, the $10 million credit was reduced to $6.9 million, according to the Board of Estimates’ agenda.

Getting a Lawsuit to Go Away

An additional $2.45 million credit will go towards a $2.7 million payment that Lexington Square is required to pay Carmel Realty Associates.

Back in 2004, Carmel sued the city’s development arm, the Baltimore Development Corporation (BDC), alleged that its bidding procedures violated state open meeting and record laws.

Carmel won the suit, which included a proviso that a lower court judge could order the city to seek new bids for Superblock.

To preclude that possibility, Lexington Square Partners, at the city’s direction, agreed to pay Carmel $2.7 million to drop the suit.

Fifth Extension Sought

The agreement before the Board of Estimates tomorrow will give Lexington Square Partners a fifth extension to secure private financing for the project.

The land sale agreement – set to expire on December 31 – will be extended through June 30, 2013.

The city said it will not sell the property until Lexington Square Partners “provides the city with satisfactory evidence of the existence of financing for the project,” according to the spending board.

In 2011, Lexington Square Partners – a consortium of four wealthy New York families and a real estate management firm in Atlanta – had assured the Rawlings-Blake administration that the project would receive private financing in the near future.

But at a BDC board meeting last February, it was disclosed that the developer would not be able to secure construction financing without a PILOT tax break from the city.

“Private-Sector Economics Won’t Work”

“The private-sector economics won’t work,” said then-BDC president M.J. “Jay” Brodie, justifying the tax break by saying the proposed project will bring many new jobs and residents to the Westside.

In addition to the PILOT tax credit, Lexington Square Partners are seeking an “EZ” (Enterprise Zone) tax credit from the state, which will further reduce the group’s property tax bill for the first 10 years after completion.

Tomorrow’s agreement before the Board of Estimates additionally includes a profit-sharing agreement between the city and developer.

But profit-sharing only will go into effect if the developer decides to sell the planned retail-apartment project down the road.

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  • http://twitter.com/MairZdoatz Mair

    “The private-sector economics won’t work”  Funny - Maybe because I kind of looked at it out of context. But the fact remains:  ’private-sector’ economics are expected to work for me.

  • asteroid_B612

    “The low purchase price for the Superblock land is due to two factors.
    The value of the site has collapsed since 2007 because the city has
    evicted all of the tenants and the buildings lie vacant.

    What’s more, it was disclosed yesterday, the city is applying two credits towards the purchase price.”

    Not to excuse our corrupt government, but I suspect the collapse of the housing market, the foreclosure and banking crisis, and the Great Recession may have played a *tiny* role in the decline of the value of the properties as well. Just sayin’.

    • Gerald Neily

      To summarize: Adhoc govt dealmaking => Excessive delays => Economic boom/bust cycle => Deteriorating city => Lather, rinse, repeat

  • FunTymer

    What does Brenda McKenxie have to say about all this

  • RickFromBmore

    One angle to this whole West Side story that has never been fully discussed involves race and class. When I used to work on West Franklin Street in the late 1990s these buildings were all occupied. The businesses were run by Asians or African Americans and their patrons were lower income people who usually came to Lexington Street by bus or on the Metro. My question has always been – what was wrong with that? The businesses may not have been pretty, but they served their clientele and they contributed to the commercial life of the city. It angers me that City Hall believes that “good” development is the sort that is fueled by tax breaks and well connected out of town businessmen. I’m enraged that they think big box retail or national chains will contribute more than local small businesses. Let’s face it. Whether the mayor has been black or white, the objective has been to turn the West Side into a suburban-style playground for inner harbor tourists. What would have made more sense would have been to help existing businesses expand and improve their properties. Along with an concerted effort to convert upper floor spaces into inexpensive loft apartments, this alone would have created far more energy on the West Side than this prolonged “superblock” debacle.

    • http://twitter.com/bosconet p johnson

      I think another problem Baltimore has is how successful the Inner Harbor has been. The lesson learned from that is we need BIG developments to turn around an area. Now did the Westside need to be ‘turned around’ is another matter. 

  • Arabella_Woodhope

    Other cities have laws to prevent demolition by neglect. Baltimore, rather than adopting such a law, institutionalizes it–by buying up properties, allowing them to deteriorate, then using condition as a reason to give a massive discount to an out-of-town developer. This is not a sane model for historic preservation or economic development, and Brenda McKenzie would do well to abandon it.

  • http://twitter.com/wallywhat Wally Pinkard

    So the city took over in 2007 and kicked out all the tenets so the place could sit empty for 5 years and lose 90% of its value. Is the part of the values to vacant program?

  • cwals99

    The bigger picture to Baltimore’s development starts in the 1980s when the Master Plan was developed.  The goal of advancing  wealth inequity through transferring all of the wealth from lower and middle class in what was the largest few decades of corporate fraud in human history required the movement of the rich back to city centers as these are the easiest to protect from the angry masses and the occasional terrorist.  So all of these schemes with tax breaks and pay-to-play have been in place for those 30 years as a way to make the people pay for this transition. When the Sparrow’s Point land is sold for a song, you know the people getting the buy expect that bargain-basement price and a taxpayer cleanup of toxic soil to boot.  The same for this deal.  This property at this point of the city’s development is very valuable as Baltimore is moved towards a New York City world-class property value.

    That is why there are so few people involved in this process and why it is all so secret.  We read these articles each day and see something unfolding that has been in place for decades.  When your City Council member acts shocked at such events she/he is being disingenuous.  What the people need to do….and I don’t believe the premise that all is captured in politics…is find it important enough to organize and get out the vote.  Stop waiting for justice or labor leaders that are silent and run for office!  We can reverse these contracts because most of them were not made in good faith and have not met any of the terms of agreement.

  • Day_Star

    So poorly thought through. The justification for this massive project was always on thin ice: more downtown residential units and franchise stores. Not liking how something looks or serving a low economic clientele is not a compelling reason to clean house and commit such public resources. Low income is different than abandonment and blight.

    Fixing-up the once decrepit inner harbor and the face of Baltimore’s tourism industry, I get. Investing around Johns Hopkins to make sure students, doctors, patients, and bio-med companies don’t choose somewhere else because of blight, I get. Not perfect, but there’s a compelling economic return on investment justification for the City’s commitment.

    If more residential units and big boxes is the end goal, there are other locations where they can be built on a parcel-by-parcel basis around existing urban assets rather than this cluster screw-up. Not having to drive to the suburbs to go to big boxes and TOD is attractive, but must, must, must it all be centered on Lexington Street? The City is 11 months pregnant and took Daniel Burnham’s “make no small plans” to heart, so I guess it has to be.

  • tablecolcks

    O  REALY…I  WONDER  WHO  IS  RELATED  TO  THE  BUYERS  OR  ASSOISTED  WITH  THEM…BET  WE’LL  NEVER  KNOW…WISH  I KNEW  HOW  TO  FOLLOW  THE  MONEY  TRAIL

  • http://twitter.com/Paul_Stagg Paul Stagg

    If the private sector economics don’t work, that’s a signal that the project will fail.  Economics is neat that way.

    Now, I’m all for tax breaks and government getting out of the way of development, but the issues at this location aren’t being addressed. 

  • http://slumlordwatch.wordpress.com/ Carol Ott

    What a shame.  These buildings would have been perfect live/work spaces for artists and artisans, similar to what the city is trying to do in Station North.  In fact, the two neighborhoods would be connected via light rail and bus. 

    But instead, the city chooses to waste yet more taxpayer money on “Big Development Plans” that mean overpriced condos and apartments, and businesses that will appeal to only a select few — mostly outsiders, not current residents.

    Until our city understands the importance of developing for the residents that are already here, and stops developing for the mythical beast — the 10,000 new families — this city is doomed to failure.

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