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Lawsuit seeks to halt State Center development

Seventeen stories above Charles Street, David E. Johnson looked at the panorama of Baltimore’s center city and bemoaned the vacancy rate in commercial buildings that today has reached nearly 25 percent.

Johnson, president of Stratford Realty Management Co. LLC, blamed the Great Recession for much of the glut, and said a plan to build 1.5 million square feet of office and retail space at State Center just under a mile away would create irreversible damage to office towers downtown.

“A lot of communities bent over backwards to nurture the central business district,” Johnson said, of the move to build up Baltimore’s core that began in the late 1960s with the development of Charles Center.

Johnson is part of a group of downtown property owners that filed a lawsuit on Friday in Baltimore City Circuit Court seeking to halt the $1.5 billion redevelopment of State Center.

The lawsuit is centered on a claim that the state failed to follow its own procurement rules in hiring a developer for the project by not opening up the process to competitive bidding in 2005, when master developers for the 15-year-project were named.

On Friday, Johnson spoke for the property managers at a news conference in an office space on the 17th floor at 201 N. Charles Street that has been vacant for more than three years.

Besides the lack of competitive bidding, he said that the proposed State Center project would force a mass exodus of state government jobs from center city to the State Center’s Preston Street site, leaving the central business district nearly void.

“Look down, and you’ll see delis and dry cleaners,” he said, pointing out of large windows to the Lexington Street corridor off of North Charles Street  below. “They would go out of business as a result. It will have a domino effect.”

He said that office space in the central business district — which includes nearly 700,000 square feet of state-leased space — is  struggling with a vacancy rate of nearly 25 percent, or 2 million square feet, due mostly to the recession’s tight grip on commercial real estate.

If the state-leased offices move to State Center, many towers throughout the central business district would be faced with massive vacancies, and the area “cannot remain viable” the lawsuit charges.

Those state offices include the Office of the Maryland Attorney General and the Maryland Transit Administration.

“This project is not in the best interest of the state and the city,” said Alan M. Rifkin, attorney for the property owners and a prominent state lobbyist. “The boondoggle of all this is extraordinary from any perspective.”

Kirby Fowler, president of the Downtown Partnership of Baltimore, said Friday the partnership’s board voted to endorse the State Center project last week.

Fowler said Gov. Martin O’Malley told him that the city center would not suffer.

“I have been given assurances that any state job removed from the downtown business district as a result of the State Center development would be replaced by another state job,” Fowler said.

Caroline Moore, CEO of Ekistics LLC, the master developer for State Center, said in an emailed statement: “We are confident that the selection process was completely appropriate and will be validated by the courts. State Center is an unprecedented economic development opportunity for the city of Baltimore, with the first phase alone projected to create 1,600 jobs, $50 million in new tax revenues and hundreds of millions in economic impact. All of Baltimore, including downtown, will be strengthened by it. Unnecessary delays will only postpone the arrival of important jobs and investment.”

Rifkin said the other property owners suing the state comprise 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.

Rifkin said attorney Peter G. Angelos, owner of the Baltimore Orioles and a property owner in the central business district whose staff has scrutinized the State Center project this past year, was not a plaintiff. Angelos is, however, paying for much of the lawsuit, a source close to his office confirmed on Friday.

The State Center development will be a public and private partnership, state officials have said.

The project’s planners have set it up to draw on $314 million in tax increment financing — or taxpayer-backed bonds sold by the city — to help finance the development. Those bonds, called TIFs, are structured for repayment over 30 years based on projected, increased property values that the development will bring.

Under the TIF plan, the bonds are repaid through diverted property taxes, and the city tax base receives nothing for the term of the repayment.

Other State Center financing includes money from the state, city and private sources, development documents show.

The project is expected to begin early next year with construction of a parking garage. Its history has been wobbly.

The original developers of State Center, Struever Bros. Eccles & Rouse and Doracon Contracting Inc., have both scaled back their work in Maryland based on the recession and a corruption scandal involving former Mayor Sheila Dixon, respectively.

Struever Bros. Eccles & Rouse withdrew as the master developer in 2008, and Doracon owner Ronald Lipscomb, Dixon’s former boyfriend, has moved his business away from Maryland as a result of the scandal, which was a factor that led to Dixon’s resignation from office on Feb. 4.

The state has replaced both developers with Ekistics, a new local development firm headed by Moore, a former Struever executive.

The lawsuit seeks to have the State Center project halted through an injunction, Rifkin said, because of the plaintiff’s claims that procurement procedures were not followed.

Rifkin said Friday no court date had been set for the lawsuit.