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Motion to dismiss State Center lawsuit has 3-hour hearing

Did they “hide in the weeds” or are a group of downtown property owners on the brink of financial ruin?

A Baltimore City Circuit Court judge heard a motion Wednesday to dismiss a lawsuit by members of the group, who claim the $1.5 billion State Center redevelopment will render leasing in center city null and void.

In a lively three-hour hearing at the Clarence M. Mitchell Jr. Courthouse, Judge Althea M. Handy heard arguments from both sides about the pending project, now stalled because of the lawsuit.

Judge Handy declined to rule on the motion following the hearing, but promised a decision in the near future.

The lawsuit was filed on Dec. 17 by property owners who claim the state violated its procurement rules in selecting a developer in 2009 without competitive bidding.

The development is planned to hold 1.5 million square feet of office, retail and housing space and will replace the giant state office complex on West Preston Street. State Center is expected to take 15 years to complete and is structured so private developers will lease space to state offices that will continue to be located at the site with some other offices moving to the site from downtown buildings.

The project has been billed as a public-private venture, and documents have shown developers could seek up to $314 million in tax increment financing, or TIF bonds, to help pay for construction. Few other details have been made available about the private financing for the project.

Construction of a $36.5 million parking garage — the beginning of the mega redevelopment — was halted in January because state economic development officials said they could not sell the $33 million in bonds needed to break ground with the lawsuit pending.

At the hearing, attorneys for the state Department of General Services, Ekistics LLC, the master developer, and the property owners sparred over the project.

In explaining why the state wants to replace the complex, Campbell Killefer, deputy chief of civil litigation in the Office of the Maryland Attorney General, said the existing structure is simply ugly and outdated.

“Some call the large concrete structure Soviet Realist architecture,” Killefer said. “The state wants modern, more humanist buildings to go up there to attract more business and residents.

Killefer said the State Center development would be a transit-oriented project and include recycled materials in construction, making it “green.”

“It will be a campus-like environment with grass and trees,” he said. “The existing form is like a dagger through certain neighborhoods.”

Killefer disputed the claim by State Center foes that the contract for a developer was not bid. The project, started in 2004 under former Gov. Robert L. Ehrlich Jr., sought a request for qualifications, not a request for proposals, in September 2005, which drew four interested developers, one of which was selected.

That development team, headed by William Struever and Ronald Lipscomb, backed out after both companies they headed, Struever Bros. Eccles & Rouse and Doracon Contracting Inc. experienced legal and financial troubles in 2007-2008. Lipscomb’s Doracon Contracting shut down after legal woes stemming from a romantic relationship with former Mayor Sheila Dixon. Lipscomb was implicated in a City Hall corruption scandal that led to Dixon’s resignation, and has not worked in the state since 2008.

Struever Bros. withdrew as the master developer in 2008 and today is not operating at full capacity because of financial setbacks. In response, the state Department of General Services replaced both developers with Ekistics, a newly formed local development firm headed by Caroline Moore, a former Struever executive.

As the project progressed over a five-year period, Killefer said the downtown property owners “lay in the weeds” and waited to file a lawsuit to try to stop development.

“It was inequitable. It was unfair to lie in the weeds,” Killefer said. “It was an ambush.”

Alan M. Rifkin, an attorney representing the property owners, argued that the State Center project would render downtown office space nearly worthless. The center city office space is currently experiencing vacancy rate of 19.5 percent, or a total of nearly 2 million square feet. Upscale office space at Harbor East has attracted large tenants such as Legg Mason out of the city’s core, further hindering leasing.

Rifkin charged that the Department of General Services did not follow the state’s procurement law in lining up a developer for the project.

“Ekistics was not formed until 2009,” Rifkin said of the new master developer that was placed in the top position without bidding after Struever and Lipscomb backed out. “And yet somehow they were chosen to be the developer. “We all get the fact this is an important project for very important people in this state – it’s important for the governor, we understand that it’s important for the mayor. Extrinsic as that argument may have been in a court of law, the practical reality of that doesn’t change the essential characteristic of the fact that a procurement was required. That’s why we’re here.”

The 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.

Last month, five restaurant owners in Little Italy joined in the lawsuit claiming that the State Center development would impact their business at Sabatino’s, Da Mimmo’s, Chiapparelli’s, Caesar’s Den and Vaccaro’s Italian Pastry Shop.