Lawsuit over State Center redevelopment to go forward
Posted: 3:55 pm Wed, July 13, 2011
Daily Record Business Writer
Judge Althea M. Handy denied a motion to dismiss the lawsuit that pits a large group of downtown property owners against state officials and developers in a bitter struggle over the future of the massive development that would occupy eight blocks on the city’s West Side near Martin Luther King Boulevard.
The lawsuit is funded in part by attorney, Baltimore Orioles owner and downtown landlord Peter G. Angelos, who is not a plaintiff.
In her ruling, Judge Handy said the lawsuit can proceed because arguments supported the concerns of the plaintiffs about the State Center development’s potential economic impact on downtown commercial and retail leasing.
“Plaintiffs have pled that state agencies engaged in illegal and ultra vires acts that could potentially cause plaintiffs pecuniary harm or an increase in taxes,” Judge Handy wrote. “This court finds that the allegations contained in plaintiffs’ amended complaint are sufficient to establish taxpayer standing.”
Alan M. Rifkin, of Rifkin, Livingston, Levitan & Silver LLC and the attorney for the downtown property owners, said discovery would begin immediately.
“As a result of the court’s order and through the judicial process, these taxpayer plaintiffs now have the opportunity to further uncover how and under what circumstances one of the largest state construction projects ever landed in the hands of these developers without competitive bidding,” Rifkin said in a statement.
Caroline Moore, CEO of Ekistics LLC, State Center’s master developer, said in a statement that she remained confident in the project.
“Given the judge’s decision, we are eager to proceed with the case so that the project can move forward as planned,” Moore’s statement said. “We’re confident that ultimately the court will confirm that the state acted properly, and the development team was chosen in strict accordance with state law.”
Her statement also spoke of the project’s potential for economic development in the city.
“For the hundreds of people waiting for construction jobs, for the thousands of midtown residents who desperately want this development, and for the taxpayers in Baltimore City and the state of Maryland: the State Center development team remains focused on the project. We look forward to putting shovels in the ground soon to bring this international model for urban smart growth development home,” she said.
The 1.5 million square-foot project has been stalled indefinitely because of the lawsuit.
A $33 million state bond sale for construction of a parking garage was called off in mid-January because of the lawsuit, according to Robert C. Brennan, executive director of the Maryland Economic Development Corp.
Many state agencies currently leasing office space in downtown Baltimore would move to the new development, including the Office of the Maryland Attorney General and the Maryland Transit Administration.
The prospect of those moves prompted downtown property owners, including Angelos, to claim that such a scenario would saddle their properties with massive vacancies.
Critics also say State Center would cost taxpayers millions, even though the build-out would take 15 years to complete in five phases.
Phase I would be a $28.3 million underground parking garage with 928 spaces and an office building rising 12 stories above it. Moore has said plans for that construction have remained active, despite the lawsuit.
Last week, the Maryland Public Policy Institute and the Maryland Tax Education Foundation released a report concluding that State Center could cost state taxpayers at least $273 million for Phase I.
The report, debunked by Moore and Christopher Patusky, director of the Office of Real Estate for the Maryland Department of Transportation, also detailed potential higher leasing costs at State Center. It said office space leased by state officials at the new development would cost $38 per square foot, about $10 more per square foot than what the state now leases downtown office space for.
One of the lawsuit plaintiffs, David E. Johnson, senior vice president of Lexington Charles Limited Partnership and the president of Stratford Realty Management, said he was encouraged by Handy’s ruling.
“Obviously, it allows discovery to continue,” Johnson said. “And we’ll find out if the procedures went by the book and whether they complied with procurement rules which we believe are applicable in this instance.”
Johnson said he and other property owners continue to market downtown office space, currently strained by a 21 percent vacancy rate.
The lawsuit ruling “allows us to attempt to stabilize the market and not have to be occupied with competing with a state-subsidized development,” he said, adding he believes the State Center construction will not begin while the legal fight continues.
“No financier is going to take the risk while the project is under threat of a lawsuit,” he said.
Ekistics is not the original developer of State Center.
Struever Bros. Eccles & Rouse and Doracon Contracting Inc., were first designated as the project’s developers, but both scaled back work in Maryland and the Streuver firm withdrew as master developer in 2008. Struever Bros. has shut down most operations because of the recession, and a corruption scandal involving former Mayor Sheila Dixon and Doracon’s owner Ronald Lipscomb prompted Doracon’s demise as a company.
The state replaced both developers with Ekistics, a new local development firm headed by Moore, who is a former Struever Bros. executive.
Besides Johnson, the other property owners suing the state include St. Paul Plaza Office Tower LLC; Lexington Charles L.P.; 301 Charles Street LLC; Park Charles Apartments Associates LLC; Park Charles Office Associates LLC; 501 St. Paul Street LLC; St. Paul & Franklin LLC; RoboPark LLC; Charles Plaza LLC; 39 W. Lexington LLC; Baltimore Condo 2-8 LLC; Fayette Garage LLC; Charles Towers LLC; The Marlboro Classic LP; and Redwood Square Apartments LP.