In the end, it came down to the bottom line.
Exelon Corp.’s selection of a potential $120 million Baltimore headquarters site for Constellation Energy Group in Harbor Point was made in part because the property already had lucrative developer tax breaks attached to it, observers say.
The Chicago-based energy giant announced Wednesday that the property, located between Fells Point and Harbor East, was picked for its “proximity to the downtown waterfront, the ability to accommodate 300,000 to 370,000 rentable square feet, a trading floor size of at least 70,000 square feet, office floor size of approximately 30,000 square feet and availability for occupancy in 2014.”
But J. Kirby Fowler, president of the Downtown Partnership of Baltimore Inc., said the selection was made because the Harbor Point site’s owner, H&S Properties Development Corp., already had obtained tax increment financing and enterprise zone tax credits, which no other site in consideration had. H&S is controlled by billionaire baker and developer John Paterakis Sr.
“What they essentially told me is that the development team submitted a good proposal, there would be cost savings to Exelon,” Fowler said. “What this whole exercise has shown us is that the public and private sectors need to reassess how incentives are being used and where they are being used.
“It doesn’t make much sense for incentives to be available to pull good corporate tenants out of the core of downtown where their presence reinforces the historic business community.”
Constellation Energy’s current headquarters is at 100 Constellation Way, on the eastern edge of downtown. Exelon is in the process of acquiring Constellation for approximately $7.9 billion in an all-stock deal.
City Councilman William H. Cole IV, whose 11th District includes one of the sites that had been under consideration — the former McCormick & Co. spice plant — said the public incentives made a difference in the final decision.
“I don’t begrudge any other property owner who’s already got a tax incentive,” Cole said. “It’s not their fault. I do think that we need to have a real conversation for ways that we can level the playing field so that downtown doesn’t continue to lose opportunities.”
City Councilman Carl Stokes, who headed a task force last year to examine public incentives given to wealthy developers, said a request last week by another developer for a $41 million tax incentive payment in lieu of taxes for the McCormick site was nullified by the Exelon site selection of Harbor Point.
“I don’t think the mayor is going to send such a thing,” Stokes said, of the request he said was being prepared by Mayor Stephanie Rawlings-Blake to be sent to the council this winter.
Rawlings-Blake did not respond to a request for comment.
Judy Rader, Exelon spokeswoman, said in an emailed statement that Exelon did not specifically consider the tax breaks when it made the Harbor Point selection.
“As with any investment decision, Exelon was economically prudent in evaluating its real estate options,” the statement said. “That meant considering the overall cost of occupancy for each property, including base rent, operating expenses and property taxes. Importantly, the development of the new headquarters will produce new property tax revenues for the city of Baltimore and state of Maryland.
Exelon’s decision was made after months of lobbying of the company by civic leaders over where the new headquarters should built.
Fowler and the partnership’s board argued that Exelon should build in the city’s downtown core in order to preserve the business density in the district. But Paterakis and Michael Beatty, H&S Properties executive vice president, wooed Exelon to the waterfront, to a site that was formerly the home of the Allied Signal Plant, a former federal Environmental Protection Agency Superfund cleanup site, and now a parking lot.
Beatty did not return repeated calls for comment Wednesday.
Fowler said other sites under consideration were the former site of the News American newspaper at 300 E. Pratt St. across from HarborPlace, a portion of the current site of the Harbor Campus of the Baltimore City Community College at Marketplace on Lombard Street, and an existing skyscraper at 1 Light St., at the corner of Light and Baltimore streets. None have existing developments had incentives attached to them.
Fowler said he was disappointed by the selection of Harbor Point.
“I was advised [Tuesday] night and I tried to change the course of the decision [Wednesday] morning,” he said. “We believe there are numerous attractive sites that would have had the benefit of reinforcing the core of downtown. We never asked for anyone to engage in charity. These locations that were near the core of downtown would have just made good business sense on top of making a favorable business gesture.”
In a letter sent to the partnership’s board of directors after the Harbor Point decision was announced, Fowler called for a renewed discussion of implementing developer tax incentives in the central business district.
“The attraction of building a signature project with waterfront views is undeniable and, clearly, there is market demand for just such spaces,” he wrote. “Yet many newer sections of downtown also benefit from economic incentives that are often not available in some older areas, and this creates an obvious economic disadvantage. Also, if market demand exists, there is some question as to whether incentives are needed at all in the thriving newer districts.
“Office vacancy rates have come down from a recessionary high, but the rates are still unacceptably high. The addition of several hundred thousand square feet of new space will likely have a domino effect, pulling employees out of older buildings and keeping the vacancy rate up.”
Cole said the Exelon headquarters development speculation has been an emotional roller coaster ride for many in the city over the past year.
“I think that the hardest part of this whole process is that when Exelon announced that they were going to build a new building, the excitement went up. My mind immediately raced to the key sites in downtown that needed that kind of anchor,” he said. “I think many of us who know downtown well thought ‘This is the shot that downtown needs.’ That’s why it’s somewhat deflating.
“I’m disappointed, but I’m not angry,” he added. “I understand that this is a business decision.”