Field of Dreams
How a scaled-back Under Armour HQ helps rescue Kevin Plank’s shaky Port Covington project
Documents show that if Under Armour didn’t put its headquarters at Port Covington, Kevin Plank could be forced to sell his holdings.
Above: Speaking at a “celebration” of Port Covington’s progress, last month, Kevin Plank said, “We have to ensure that Port Covington benefits as many people and as many parts of this city as possible.”
Months after $137 million in special obligation bonds were issued to help finance Kevin Plank’s private Port Covington project, the company he founded will drastically shrink its future corporate footprint in the city.
But there’s more to Under Armour’s announcement that it will scale back its headquarter plans at Port Covington than the fact that its stock has gone south and its brands have lost their luster.
For the athletic footwear and apparel maker, $70 million worth of land the company purchased from Plank on the peninsula has mostly lain fallow.
Left alone, the property would be hard to sell and could potentially spark another lawsuit alleging the company defrauded stockholders by entering into the land sale to enrich its then-CEO.
Plank, meanwhile, needs to get rid of $77.5 million in mortgages on the rest of the Port Covington land he purchased and wants to develop. (Plank owns everything north of Cromwell Street and west of Hanover Street, while Under Armour owns the land south of Cromwell Street. The Baltimore Sun has a long-term lease at 300 East Cromwell Street, which houses its printing plant and editorial offices.)
But even more pressing for Under Armour’s billionaire founder is the joint venture agreement he signed with Goldman Sachs in return for construction financing.
It notes that if Under Armour “determines not to proceed with the development of its headquarters or moves its headquarters anywhere that is not within the Port Covington peninsula,” Goldman Sachs has the right to force Plank to sell or dispose of his Port Covington property.
Here’s the legal wording for the so-called “Under Armour Exit Event,” which has also been described by Holden Wilen of the Baltimore Business Journal:
Stunning in its implications, the clause effectively says that Plank could lose everything if UA fails to build its headquarters on the peninsula.
It’s a penalty, however, that Plank could escape if UA opted to build on the peninsula.
He needed something – anything – to show his financiers that his shaky office-apartment project, dubbed “Chapter 1,” has a future.
On Monday, Under Armour complied.
For Baltimore and its citizens, the bond issuance and the downsized headquarters will have the same chilling effect:
It means that cash-strapped government will potentially be saddled with a speculative real estate project whose original rationale has been largely shattered. (With interest, the $137 million in bonds will cost $252 million by the time they are retired in 2050. Plank and his investors are supposed to pay off the debt from the enhanced property taxes that will be derived from the completed buildings. But if the project defaults, Baltimore City becomes the responsible party.)
From the start, Plank’s vision – of entertainment and shopping emporiums, a world-class waterfront promenade, soaring glass towers and apartments “for creatives and millennials” – was predicated on Under Armour building its corporate headquarters there.
On Monday, Under Armour announced that it would construct a modest headquarters building on the 50 acres it purchased from Plank in 2016, while vacating the much larger facilities it leases at Locust Point 1.8 miles away.
As a result, the company’s real estate holdings in Baltimore will shrink by 40% by 2025.
UA’s current CEO, Patrik Frisk, blamed “post-Covid reality” for the rollback, saying the smaller headquarters space will better accommodate the staggered work schedules for employees, many of whom will work sparingly at the new campus.
Architectural renderings show an oddly retro, suburban-style campus.
A cruise-ship-shaped headquarters building is to be flanked by acres of parking lots, an athletic field available “to the greater Baltimore community through shared-use agreements and special events,” and two re-purposed big-box stores, a legacy of an earlier failed effort to establish a Wal-Mart and Sam’s Club on the peninsula.
Architectural renderings show an oddly retro, suburban-style campus.
The new campus, Frisk said in a press release, “embodies the ethos we live, breathe and sweat as a team every single day,” adding:
“We are excited to continue our commitment to the City of Baltimore and provide an even better workspace for teammates, a new retail location and a best-in-class athletic facility as we plan for the future of the brand.”
How much have they scaled back?
UA says it will commit to 310,000 square feet of new space (the headquarters building and a UA-brand retail store) and will retain about 1,700 employees.
Five years ago, Plank dangled the promise that Under Armour would build a 3.9 million square foot campus at Port Covington and add 10,000 jobs to its local workforce.
That pledge was made over and over again in TV ads, in testimony before the City Council, and in promotional events before community groups.
Under the scenario painted by Plank and his emissaries, Baltimore would receive $6.9 billion worth of upscale office, apartment and retail development – plus some “affordable housing” thrown in at the last minute – in return for $660 million of city-backed TIF (tax increment) bond financing.
If this all seemed too good to be true (and The Brew and some others said it did), it was.
• Is Kevin Plank getting free money, while the city takes the risk? (7/26/16)
• Critics: Port Covington deal financially risky, worsens segregation (7/27/16)
Shortly after Plank’s private Sagamore Development Co. secured the city’s approval for TIF (tax increment) bonds, Plank’s public company, UA, went into a tailspin.
Since the fourth quarter of 2016 (the TIF bond approval was signed into law on September 28, 2016 by Mayor Stephanie Rawlings-Blake), UA has endured four years of:
Layoffs, declining sales, executive turmoil, lower-than-expected earnings, canceled sponsorship deals, a depressed stock price, repeated restructurings, and an ongoing probe of accounting irregularities by the U.S. Securities and Exchange Commission.
In December 2019, Plank was ousted as UA’s CEO and president and “transitioned” to executive chairman and brand chief.
Over the same period, Sagamore Development, Plank’s private real estate venture, disappeared from the public record, replaced by Weller Development Co. headed by two Plank associates, Marc Weller and Steven Siegel.
Since then, Weller Development (with Plank looming in the background as Baltimore Revitalization Indirect Investor or BRII) has tried to jumpstart horizontal infrastructure construction on East Cromwell Street near the existing Sagamore Spirit Distillery.
The group succeeded last June when Bernard C. “Jack” Young, days after he lost his primary bid to remain Baltimore’s mayor, pushed through the tax increment (TIF) bond package.
• Mayor Young commits $148 million in bond funding to jumpstart Port Covington project (6/15/20)
• Developer gave over $80,000 to officeholders and political committees (6/17/20)
• Rewriting history: City says Under Armour “isn’t relevant” to Port Covington Project (6/17/20)
The tranche of special obligation bonds – sold on behalf of Baltimore by the Maryland Economic Development Corporation because the city had reached its TIF bonding limit – allows Plank to partly cash out on his original investment.
According to a disclosure statement to bond investors, proceeds from the TIF issuance would allow Plank to refinance his $77.5 million in property mortgages.
He could also collect $25.3 million in “soft costs” he claims to have spent on engineering, architecture and legal costs, including $433,279 used to lobby city officials to win approval of the project.
But this $100-million-plus bonanza would be in jeopardy if Under Armour failed to commit to building at Port Covington.
During the last four years, as it faced multiple marketing and financial setbacks, UA would only say that its plans for Port Covington were “on hold.”
On Monday, however, the company that Plank founded (and remains a dominant shareholder) said it would move its global headquarters from Locust Point to Port Covington.
Three sketches of the proposed campus accompanied the six-paragraph press release. The statement was otherwise devoid of specific plans, a construction timeline or an estimated price tag for the move.
PROVIDED TO PROSPECTIVE PORT COVINGTON BONDHOLDERS
Port Covington documents by Fern Marie on Scribd