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Stories of the Year: Full speed ahead for major projects, some sectors

Weller Development Co. officials unveiled plans for 3 million square feet of building in 'Chapter 1' of the $5.5 billion Port Covington development. (Rendering Courtesy Weller Development Co.)

Weller Development Co. officials unveiled plans for 3 million square feet of building in ‘Chapter 1’ of the $5.5 billion Port Covington development. (Rendering Courtesy Weller Development Co.)

Real estate development continued at a brisk pace throughout Maryland in 2018 even though the economic expansion of the past decade showed signs of slowing.

A slew of new projects broke ground or continued building in the last year, aiming to provide the space Maryland needs to attract and retain job-producing companies.

“The health care sector continues to be a strong driver of growth in this economy, we also see multifamily real estate as being a strong growth driver in this market as well, and we also have a few big transformational projects happening … those two big projects being Tradepoint Atlantic in Baltimore County, and Port Covington here in the city,” said August “Augie” Chiasera, president of the greater Baltimore and Chesapeake region at M&T Bank.

Port Covington: ‘Cyber Town USA’

Port Covington, located on the south Baltimore peninsula situated along Winans Cove and the Patapsco River, is one of the city’s last waterfront properties with major redevelopment potential.

The proposed overhaul of more than 200 acres of underutilized property laid the groundwork for building over the last few years. But in 2018 the planned $5.5 billion redevelopment made headlines with dates for delivering new buildings, and developers also were able to announce tenants.

Weller Development Co.’s so-called first chapter of building at Port Covington is expected to start in 2019, with the goal of delivering the first buildings in late 2020 or early 2021. “Chapter 1” of construction, including the previously completed Rye Street Tavern and Sagamore Spirit Distillery, will provide 3 million square feet of space.

Cybersecurity startup studio DataTribe, cybersecurity venture capital firm AllegisCyber, and Columbia-based investment bank Evergreen Advisors were named in October as the first tenants at Port Covington.

Those firms represent the start of what’s dubbed “Cyber Town USA,” what backers envision as the world’s leading cybersecurity hub, buoyed by AllegisCyber’s plans for a $400 million investment fund.

Tradepoint Atlantic strikes public financing deal

Loading bays at FedEx's new facility at Tradepoint Atlantic. (Adam Bednar)

Loading bays at FedEx’s new facility at Tradepoint Atlantic. (Adam Bednar)

Tradepoint Atlantic, on the Sparrows Point peninsula along the Patapsco River, also reached significant development benchmarks in 2018.

Tradepoint Atlantic, the name of the project and the developer, is planned as the nation’s largest multimodal hub. The state and county long wanted new development on the property, which at one time was home to the world’s largest steel manufacturing operation when Bethlehem Steel controlled the site.

The  development team struck a deal with Baltimore County in December to receive roughly $78 million in public financing for public infrastructure. Baltimore County, under the agreement, will reimburse the developer up to $44 million for sewer improvements and $34 million for road work.

Work is already underway to transform about 3,250 acres of land into 15 million square feet of vertical construction, with deep-water port frontage and connections to CSX and Norfolk Southern railroads. The $2 billion project possesses potential, according to a 2016 report from Sage Policy Group, to attract upwards of 17,000 jobs, and to produce a regional economic impact of $2.9 billion.

Tradepoint Atlantic also celebrated achievements in mitigating pollution on the property.

The developer held a ceremony in September marking progress remediating the Tin Mill Canal surpassing the halfway point. Cleanup of the channel is expected to wrap up by the first quarter of 2019 and to cost $9 million. Tradepoint Atlantic projects scrubbing pollution from the entire site to cost $56 million.

Maryland Industrial market booming

Industrial properties aren’t the most exciting assets in terms of status or architectural significance.

The product, however, retained its status as what one broker called “the darling of the commercial real estate.” While markets like Baltimore lag behind other parts of the nation in overall development, industrial properties remain heavily in demand.

“The industrial market is as hot as we’ve seen it in recent memory,” Matthew Laraway, a partner at Chesapeake Real Estate Group,  said in September.

The industrial vacancy rate in the Baltimore metro area fell to 6.7 percent in the third quarter, according to CBRE’s most recent market report, the lowest rate ever recorded in the market by the firm. Positive absorption totaled 3.5 million square feet through the first nine months of 2018. That was well above the 10-year average annual volume for absorption of 2 million square feet.

The primary drivers for industrial space demand are e-commerce firms. Their need for distribution space and access to 10 million customers in the combined Baltimore and Washington metro areas generated a bevy of new leases and construction. The Interstate 95 corridor between Cecil and Prince George’s counties attracted a significant amount of new deals and building.

Maryland fails to land Amazon’s HQ2

Baltimore Mayor Catherine Pugh gives the thumbs-up gesture at a rally to send off the city's proposal to land Amazon's 'HQ2.' (Adam Bednar)

Baltimore Mayor Catherine Pugh gives the thumbs-up gesture at a rally to send off the city’s proposal to land Amazon’s “HQ2.” (Adam Bednar)

E-commerce giant Amazon’s search for a second headquarters site garnered bids for the project from across Maryland, ranging from the Old Goucher neighborhood in Baltimore to Montgomery County.

But Maryland, despite offering a package including $5 billion in cash incentives, failed to land what the online retailer called “HQ2.” Amazon, which pulls in 60 cents of every $1 spent online, eventually selected locations in Long Island City, New York, and Crystal City, Virginia.

In a stinging rebuke to Baltimore, which submitted a bid centered around Port Covington backed by Gov. Larry Hogan, the city did not make the list of the final 20 locations Amazon culled from 238 applications nationwide. That list included cities like Pittsburgh, Newark and Raleigh.

Officials involved in Baltimore’s Amazon pitch said violent crime and an inadequate mass transportation system did not cause the snub. Based on conversations with Amazon officials, government and private sector boosters said the company’s executives apparently believed Charm City lacked tech talent.

“It felt to me like (available tech talent) was No.1, 2 and 3 on their list,” Tom Geddes, CEO of Plank Industries, Port Covington investor Sagamore Development Co.’s parent company, said in February.

Montgomery County made the final 20, and was considered a prime contender for HQ2 and its projected $17 billion economic impact. But Amazon selected the site across the Potomac River instead.

Despite losing out on HQ2, government officials and private sector boosters tried to spin Crystal City’s selection as a regional win. Some of the jobs will go to Maryland residents, they argued, which benefits the state even as Maryland avoids having to cough up the subsidies it promised.

Opportunity Zones: A new hope

Maryland jurisdictions looking to lure investment for real estate development and businesses hope Opportunity Zones generate an infusion of new cash.

Opportunity Zones, 149 of them in Maryland alone, were created as part of the federal Tax Cuts and Jobs Act of 2017. The goal of the initiative, according to supporters, is to bring investment to economically distressed areas. Those supporters expect tax breaks on capital gains invested in communities, certified as Opportunity Zones by the secretary of the U.S. Treasury Department, to provide the necessary incentives.

If an investor places gains into a zone, via a Qualified Opportunity Fund, for 5 years, 10 percent of gains from the opportunity fund speculation are excluded from capital gains taxes, according to the Internal Revenue Service. That figure increases to 15 percent if the investment in a businesses or real estate project is held for seven years. If an investment is held for 10 years, earnings avoid capital gains taxes altogether.

Maryland jurisdictions ranging from Garrett County to Baltimore are preparing to lure as much investment to their zones as possible. The Baltimore Development Corp., the city’s quasi-public economic development agency, even hired a coordinator for its program.

However, concerns about Opportunity Zones linger.

One worry is that populous areas will attract most of the investment because they have resources already in place to attract those investments. Others worry certain zones, such as those covering downtown Baltimore and Port Covington, will draw the majority of investment and leave little for more downtrodden urban areas and rural communities.

Next year is shaping up to be the major year for cities and counties to draw investments to their zones. That’s because the major benefits of the program will be realized by investments made in 2019.

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