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Mayor gives up on a “Superblock” plan that never made sense

City Hall was willing to squander millions in tax credits to attract a project that couldn’t cut it in the private marketplace. ANALYSIS.

Above: Mayor Rawlings-Blake gives a thumbs-up for the Superblock project, while touring the onetime Read’s Drug Store at Lexington and Howard streets. (Mark Reutter)

When the Rawlings-Blake administration strong-armed the city’s preservation board in 2011 to approve the $150 million “Superblock” plan for the Westside, a veteran CHAP commissioner was overheard confiding  to another commissioner:

“Don’t worry. This project will never get built.”

For years, it’s been an open secret that the grandiose plan to revive Baltimore’s former retail center on Howard and Lexington streets was deeply flawed – shunned by the retail chains that were supposed to flock to the site and beset with unrealistic assumptions.

Yet somehow the message never got through to Mayor Stephanie Rawlings-Blake and her inner circle.

Hard economic realities were what doomed this project, not the efforts of preservationists and civil rights activists trying to preserve some of the historic facades.

Insisting that the Superblock was her top economic priority, Rawlings-Blake spent enormous time and political capital trying to push through the development, even getting her spiritual guide, Rev. S. Todd Yeary, to back the project as a “job creator.”

In attempting to fit this square peg into the round Westside hole, City Hall dangled millions in tax breaks while the developers, who never actually paid for the property, spent relatively little.

That is, until this week.

In a dramatic reversal that’s been underplayed in the media, the mayor effectively switched sides, withdrawing the exclusive contract with Lexington Square and talking about a “smaller scope” and “a diverse group of developers” for the site.

Tax Breaks and Demolition

This comes from the same mayor who approved a $22 million PILOT tax break to the developer last December and, perhaps more importantly, agreed to sell the parcel for just $2.85 million – $19 million below the appraised value when the city first entered into an agreement with Lexington Square in 2007.

Besides receiving zero property tax revenues on 3.6 acres of prime downtown property (the city purchased the site’s buildings years ago and ejected the small retail businesses), the Rawlings-Blake administration allocated $2.52 million to demolish the former Greyhound bus terminal and related projects, and $500,000 (including a recent “extra work order“) to stabilize the deteriorating Read’s Drug Store building.

What’s more, as The Brew has pointed out here and here, the core developers were a shadowy lot who never appeared in public hearings, preferring to rely on their City Hall lobbyists (Sean Malone and Lisa Harris Jones) and local attorneys (Jon M. Laria and Mark Pollak of Ballard Spahr) to present their case.

The group has not responded to Brew requests for an interview made through their lobbyists.

A drawing submitted in 2011 of proposed site at Lexington and Howard Streets. Even after the courts cleared the way for the project to move forward, the developers came up with nothing concrete. (Lexington Square Partners, 2011)

A drawing submitted in 2011 of the proposed development. Even after the courts cleared the way to move forward, the developers never came up with anything concrete. (Lexington Square Partners, 2011)

The Four Families

Lexington Square Partners is comprised of “the Four Families from New York” – a phrase used by the development group, not a Hollywood scriptwriter – who controlled the purse strings, and the Dawson Group, a minority business from Atlanta that did usually show up for public hearings.

The “four families” were the Chera, Goldman and Feil families, active in Brooklyn and Manhattan real estate, plus the Nakash family, owners of Jordache, the jeans company. They own 80% of the partnership, and Dawson, who entered the partnership late, has the remaining 20%.

The “four families” were granted an exclusive agreement to buy the Superblock in January 2007 – one of the parting acts of Martin O’Malley as he transitioned from Baltimore’s mayor to Maryland’s governor.

The group proposed tearing down the majority of buildings on the site – bounded by Howard, Lexington and Fayette streets and Park Avenue – and erecting a high-rise apartment building, a 650-space parking garage, 217,000 square feet of retail space and, possibly, a “boutique” hotel.

Preservation Fights

From the start, their plan was controversial. “reservationists said it  violated a 2001 memorandum of understanding between Mayor O’Malley and the Maryland Historical Trust to retain as many as 17 historic buildings on the site.

Both the city and Lexington Square refused to compromise, and a series of lawsuits were filed by third parties, including by a developer rival, Carmel Realty Associates.

Meanwhile, Lexington Partners’ plan to demolish the former Read’s Drug Store at Lexington and Howard streets sparked an outcry by some civil rights leaders, who noted that a historic sit-down demonstration had taken place in the building.

In April 2012, the Maryland Court of Appeals dismissed the final lawsuit by an entity controlled by Peter G. Angelos, owner of the Baltimore Orioles and a downtown real estate magnate.
Preservationists weren’t the only critics: Baltimore property owner David H. Hillman wrote a blistering letter decrying the use of PILOT tax breaks on such a “dubious” project.

By this time, the original land disposition agreement had expired.

That Should Have Been a Clue

The Rawlings-Blake administration then proceeded to extend the agreement – for a total of five times – as the Baltimore Development Corporation (BDC) prepared a generous PILOT tax break for the project.

The $22 million tax break was justified by then-BDC president M.J. “Jay Brodie who said his agency concluded that “private-sector economics won’t work.”

This should have been another warning sign – that “but for” a huge public subsidy, the project made no economic sense.

Instead, for the latter half of 2012, the City Council went along with the fiction that the Superblock could attract private financing if there was enough public money in the pot.

The City Council went along with the fiction that Superblock could attract private financing if there was enough public money in the pot.

The mayor and her allies justified this action by emphasizing the number of construction and retail jobs the project would create.

In one of many documents issued by city agencies, the Planning Department provided these rationales for the Superblock’s tax breaks:

“Build human and social capital by strengthening neighborhoods; Expand housing choices for all residents; Create and preserve mixed-income neighborhoods; Strategically redevelop vacant properties; Implement crime prevention through Environmental Design Standards.”

Buried in the verbiage was a significant detail.

Retail jobs created by the Superblock would pay an average salary of $20,800, far less than the amount needed for the employee to live at the proposed project.

Back to Square One

Last September, we published a story, “An inconvenient truth about the Superblock,” noting that the developers, by their own reckoning, had made no solid progress in securing a $99.3 million construction loan and had no lease agreements with retail tenants in hand.

Harold Dawson, the developers’ representative, soft-pedaled the absence of hard money, blithely telling the City Council, “I don’t believe there’s a problem at all.”

Now nine months later, the mayor has denied the group’s petition to get another six-month extension to secure private financing.

Instead, Rawlings-Blake says she has ordered the BDC to prepare new data about the market conditions and site characteristics of the two derelict blocks that constitute the city-owned property.

Under consideration will be a project of the “same scope or smaller.” An RFP (Request for Proposals) will be issued in the fall “to attract a diverse group of developers to this project.”

Only time will tell whether the new process – which Kaliope Parthemos, the mayor’s economic development advisor, characterized yesterday as “starting from square one” – will yield a viable project to counteract the years of stasis and physical deterioration that have beset this currently not-so-super block.

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