A Nov. 20 Metro article about the declining value of a state-owned office tower in Maryland incorrectly said that it had been appraised at $80 million when it was put on the market. Legislative leaders had said that $80 million was the minimum the state should accept for the building, but they set that price without an appraisal.
Value of Md.-Owned Tower for Sale Has Plummeted
Monday, November 20, 2006
The state-owned office tower that stands at the edge of Baltimore's Inner Harbor is considered an architectural and real estate gem, and yet in the months since Gov. Robert L. Ehrlich Jr. placed it on the auction block, its appraised value has tumbled by more than half.
The result is that the 31-story World Trade Center designed by I.M. Pei, which state officials once believed could yield more than $80 million for the Maryland treasury, might now be sold for less than $40 million.
"That would be a fantastic rip-off for the state," said Del. Galen R. Claggett (D-Frederick), a commercial real estate agent who has been monitoring the sale. "Whomever buys it is going to get it for 50 cents on the dollar, and that would be ridiculous."
Claggett is one of several who believe the potential sale raises questions about a long-standing Ehrlich administration policy of selling state assets to raise cash. Two years ago, that approach brought the Republican governor intense scrutiny when he contemplated selling a swath of Southern Maryland woodlands to a well-connected construction executive.
State Treasurer Nancy K. Kopp (D) also questioned last week whether the Ehrlich administration might have tried to deflate the value of the building before selling it to a well-connected bidder -- a suggestion the administration strongly denied.
Two of the six bidders in the final consideration are Baltimore Orioles owner Peter Angelos and 1st Mariner Bank Chairman Edwin F. Hale, according to a source familiar with the sale who declined to be identified because the bidding process is intended to be confidential. Both bidders have close ties to leading Maryland political figures: Angelos was a hefty backer of Ehrlich's, while Hale has donated to both parties and is close to Gov.-elect Martin O'Malley (D). The official did not reveal the identities of the other bidders.
Kopp said state officials have refused to sign new leases or renew expiring ones, essentially devaluing the property. "It raises very serious questions in my mind," Kopp said Friday, after being briefed on the sale by state real estate officials.
"I find it disturbing that a signature building is sitting half-empty, and I don't understand why the administration would have allowed that to happen," Kopp said. "I don't know enough to accuse anyone of doing something wrong. But I am concerned about that possibility."
State Transportation Secretary Robert L. Flanagan said everything his agency did to prepare the building for sale was done at the behest of the state's real estate consultants, all with the goal of maximizing the value to taxpayers.
"The goal is to effectuate the sale in the way that promotes public confidence in the process that we've gone through," Flanagan said. "That's my most important goal."
The building's rapid slide in value stems largely from an exodus of tenants that has left more than half of the building's 300,000 square feet empty. In the commercial real estate world, an office building's value generally declines as it loses the steady flow of income from rent-paying tenants. Two recent appraisals have valued the building at $30 million and $37 million, an official said.
"What you're buying is a stream of income," said Warren G. Deschenaux, a policy analyst for the state legislature who has been monitoring the sale. "It's like a [certificate of deposit], only taller."
Flanagan said his agency was advised against finding new tenants for the empty suites. Robert R. Neall, a former Republican state senator who was assisting the state in evaluating bids, said the brokers reasoned that empty space could be a selling point to a developer who sought to convert the building from an office to a hotel or condominium.
"It all depends what the user wants to do with it," Neall said. "If you have another use, a half-empty building is convenient . . . [and] a lot of long-term leases could actually adversely affect the value."
But Kopp said that assertion is undercut by claims from the administration that the tower will remain an office building. "They said they were not going to convert it," she said.
Under that scenario, she said, she could not understand why she received reports from former tenants that the state did not make any effort to persuade them to stay.
Margie Shapiro, whose firm, Samuel Shapiro & Co. Inc., once occupied the fifth floor of the Trade Center, said that after Hurricane Isabel flooded the building's operating systems in September 2003, she became frustrated with the state's failure to adequately maintain the structure.
When her firm's lease was up, "they offered no kind of accommodation" to keep the firm there, she said. "The way they treated us was enough for us to sever any ties."
Flanagan said that although there was no effort to drive out tenants, the state was not inclined to keep them, either. "The quality of tenants that we had traditionally procured did not enhance the value of the building," he said, noting that one tenant owed more than $600,000 in rent before vacating.
Ultimately, the fate of the building could now be a matter of timing. Flanagan needs to identify the winning bidder today if the Ehrlich administration intends for the building to be sold before the governor leaves office. That's because the sale must undergo a 45-day review by legislative leaders before being forwarded to the three-member Board of Public Works for a final vote. Two members of the board, Ehrlich and Comptroller William Donald Schaefer (D), will relinquish their seats after the Jan. 3 meeting. (Kopp is the third member.)
Of their replacements, O'Malley has not taken a position on the sale, but the other incoming member, Comptroller-elect Peter Franchot (D), has been clear about how he would vote.
"The building, if it were ever sold, shouldn't be sold for a penny less than $80 million," Franchot said. "This is one of the real estate jewels of the Eastern Seaboard, and it would be a sale against the interests of the taxpayers if we accepted anything less."
Staff researcher Meg Smith contributed to this report.