A prominent commercial real estate professional argues moving the Maryland Insurance Administration from downtown Baltimore will cost taxpayers money.
Robert A. Manekin, a senior vice president at JLL with more than 40-years of experience as a broker and developer, contends moving the agency from the Central Business District to Montgomery Park appears to save Maryland money if the only consideration is occupancy cost. But when reviewing factors such as the impact on downtown property values, he said, the move doesn’t produce the intended results.
“I totally understand the desire to be cost conscious and responsible with the taxpayer’s money. However, the approach taken with MIA fails to address the issue of declining assessments and lower tax revenues emanating from Baltimore investment real estate,” Manekin wrote in a letter dated July 23 and addressed to the three members of the state Board of Public Works.
Due to an excess of office space and lack of demand in the area north of Lombard Street, Manekin found state assessments of commercial office buildings have plunged. He cites three properties as examples of vacancies creating steep declines in property values, and he documents the impact that’s had on assessments.
The first building mentioned in Manekin’s letter is 120 E. Baltimore St., which lost $29.95 million in assessed value after it sold in November for $32.8 million. Roughly a decade before the property traded for $62.75 million.
Following the General Services Administration and Army Corps. of Engineers departure from 10 S. Howard St., which was valued at more than $57.34 last summer, that building’s value was assessed at $31.5 million in July.
The building at 25 S. Charles St. previously held a base value of more than $42.65 million. After factoring in M&T Bank’s pending move to the property at 1 Light St., tax officials revised its value last summer to roughly $23.95 million, a reduction in assessed value in excess of $18.69 million.
Manekin places the three building’s total loss in value at more than $74.49 million. That decline, factored with an overall tax property burden of 2.5 percent, represents a loss of more than $1.86 million in tax revenues annually.
Those figures, he points out, don’t take into account decreased assessments for properties at 120 W. Fayette St., 100 N. Charles St., and the Wells Fargo Tower at 7 St. Paul St.
The last property sold to Hertz Investment Group in April for $36.75 million or $97 a square foot. By comparison, Manekin wrote, single-story office properties in Columbia sell for more. In June, Alder Real Estate purchased a portfolio of nine single-story office buildings in that submarket for roughly $123.75 a square foot.
If the Maryland Insurance Administration move is approved, Manekin contended, 200 St. Paul Place’s value will suffer the same fate.
What the state should do, he said, is vacate its decaying office properties at State Center and move those employees into office space downtown. Maryland and master developer State Center LLC are locked in a protracted legal battle over a $1.5 billion proposal to redevelop the complex north of downtown, including 2.1 million square feet of office space.
Relocating agencies from State Center to existing buildings in the Central Business District, Manekin estimated, would save taxpayers at least $10 a square foot because of the cost of new construction.
“Furthermore, relocating those agencies to the CBD would stabilize — if not increase — real estate assessments in CBD properties directly and, by absorbing excess capacity, indirectly,” he wrote.
The Board of Public Works, which consists of Gov. Larry Hogan, Comptroller Peter Franchot, and Treasurer Nancy Kopp, had been expected to vote on a new lease for the Maryland Insurance Administration this month. That decision is now expected to be pushed back to at least September or October.
Tim Polanowski, president and CEO of the St. Paul Plaza owner Kornblatt Co., said he agrees with Manekin’s assessment. Other downtown property owners, he said, are concerned the state is setting a precedent in leaving downtown. Collectively, the various state agencies located downtown make Maryland the district’s largest office tenant.
Kornblatt Co. recently moved to refinance, so the potential loss of its largest tenant and its roughly 250 employees puts the company in a rough spot. Refinancing properties to provide capital to reinvest, Polanowski said, is a common strategy with developer-owned buildings. Kornblatt, however, faces a balloon payment on the property at the end of 2020 with Maryland Insurance Administration’s lease set to expire in June.
“Banks will work with us, but it’s not an ideal situation to extend with the current lender,” Polanowski said, because of the interest associated makes getting value out of such a deal nearly impossible.
Manekin, in urging the state to keep the Maryland Insurance Administration downtown, praised the Hogan administration for “unfailing commitment to economic development,” which he called “unprecedented in recent years.”
“However, the proposed relocation of the Maryland Insurance Administration does not reflect a conscious economic development policy as it relates to leveraging occupancy by State Agencies to increase assessments and generate more tax revenues,” Manekin wrote.