Port Covington still looking for its first tenant
South Baltimore waterfront developers stay optimistic
The first phase of the Port Covington waterfront community has no tenants signed, but developers hope to finalize the first leases by the end of the year as construction wraps up.
Construction timelines in an initial appraisal done early in the pandemic show developers originally believed the five buildings — more than 1.1 million square feet of office, apartment and retail space — would be finished by the end of July. But by December 2020, before municipal bonds were sold to finance public infrastructure, the construction schedule was pushed back to the end of this year.
The developer said this week that the project remains on track with no cost overruns. In one building with large floor plates, interest from potential office tenants exceeds available space, said MaryAnne Gilmartin, founder and CEO of MAG Partners, a lead partner and one of the developers that took over the project in May.
Gilmartin said she expects a major lease signed by the fourth quarter and retail commitments to follow.
An apartment rental office should be open and signing tenants in January, with the first residents moving in during the first three months of next year. Beyond that, there’s a lengthy waiting list for a limited amount of affordable housing and an agreement with an extended-stay hotel operator.
“Construction has gone remarkably well, notwithstanding the pandemic and supply chain issues that really plagued all cities across the country trying to build new product. Really there are no delays,” Gilmartin said in an interview. “Given what’s going on in the office market generally across the country, to have that level of activity … is a testament to the quality of the buildings.”
The first phase of development covers 60 acres of a 235-acre site along Cromwell Street south of Interstate 95 that is planned for up to 14 million square feet of shops, restaurants, office space and housing, plus 40 acres of parks, across 45 new city blocks. The Baltimore Sun leases its office in the Port Covington development. The site is eligible for a mix of tax credits, meaning its effective property tax rate will be a fraction of what the average Baltimore homeowner pays.
The first phase of the project alone is expected to claim an estimated $47.5 million worth of tax credits over the next decade, according to bond documents.
The scope of this phase was laid out in December 2020 when more than $137 million of municipal bonds were sold to finance public infrastructure projects at the site. In hundreds of pages of bond disclosures, developers predicted a bustling minicity where thousands of Under Armour employees and other office workers would live, work and shop. The eventual market value of the five buildings in the first phase was projected to top $550 million. A light rail spur and stations and even water taxi stops were being eyed.
“The developer reports they have had tremendous momentum with office leasing interest from many diverse companies including headquarters uses and technology and cybersecurity firms,” according to the 2020 bond documents, noting the expected rental rates would be significantly higher than the average cost for office space in Baltimore.
Three cyber companies have since backed out of moving to Port Covington, the original developer left the project in May, and this phase of development is adding more than 400,000 square feet of office space in Baltimore when the American economy, while coming out of the coronavirus pandemic, is perhaps headed toward a recession.
“There’s so much uncertainty right now in the economy, the political environment,” said Bill Harrison, a vice president at the Columbia-based real estate firm Lee & Associates.
Companies are being extra cautious when deciding where to locate, Harrison said, and employees want to work in safe, secure areas with an easy commute and amenities such as free parking.
Meanwhile, Baltimore’s office vacancy rate ballooned during the pandemic. The city’s traditional business core — the Central Business District — had an office vacancy rate of about 19% earlier this year, according to data from CoStar, and Harrison believes that vacancy rate could stabilize or possibly get worse.
“We’re seeing some migration of tenants from the Baltimore market into the suburbs,” he said.
Gilmartin sees opportunity in the site’s accessibility, waterfront location and affordability relative to others in the Baltimore region.
MAG Partners and MacFarlane Partners invested in the project when they joined owner Sagamore Ventures and investment partner Goldman Sachs and took over from Weller Development Co.
Gilmartin said the large floor-plate office building is substantially complete and ready to be delivered to tenants that can finish interior space. A second office building should be completed by the end of September. That building, which will include Rye Street Market on the ground floor, is designed for small- and medium-sized businesses seeking from 1,000 to about 25,000 square feet and offers pre-built suites. Gilmartin said that by the end of the year she expects to have at least 25,000 square feet committed in that building.
“We have very brisk demand,” she said. Developers plan to launch outdoor events, entertainment and pop-up retail on site in the coming months to offer a taste of their vision of a live-work-play lifestyle.
“The activation strategy, which is in part a retail strategy, is critical to us, because we’re creating a place, we’re not just building buildings,” she said.
Brad Byrnes, who has redeveloped and brokered the sale of historic buildings in the Central Business District for several decades, said the city and downtown in particular have not fallen out of favor with businesses. The president of Byrnes & Associates Inc. said many employers, even those shifting to hybrid in-office and remote workplaces, still want a presence in cities.
His latest project is proof, he said. He bought two historic Redwood Street buildings totaling 90,000 square feet in October 2020, at the height of the pandemic, as longtime tenant Gordon Feinblatt was moving to Harbor East, leaving the buildings 90% vacant. The firm redeveloped the buildings for tenants needing 5,000 square feet or less and also offers private office rentals with access to rooftop decks and conference rooms.
“Since then … we have signed 40 leases, at a time when everyone says that downtown’s dead, cities are dead, everyone’s leaving,” he said. “We’re well ahead of our most optimistic forecast.”
Tenants have included attorneys, architects, mechanical engineers, environmental services, nonprofits, and web design and tech firms, and they’ve come from Canton, Hampden and other East Coast cities as firms look to open small satellite submarket offices and appeal to young workers who seek out urban life.
“We’re at a price point where we’re about half the price of some of these submarkets, and it’s one of these situations where that’s the opportunity,” he said.
At Port Covington, much of the success hinges on Under Armour, which originally announced plans to bring up to 10,000 employees to a gleaming new headquarters with three 450-foot towers and a 5,000-seat outdoor stadium.
Those employees, many of them young professionals, would be the “primary demand generator for apartments and retail uses within the adjacent Port Covington Development,” according to the 2020 bond documents.
The proposed towers and stadium have since been scrapped, and the overall scope of the headquarters is much smaller.
Plans unveiled in May show a glassy stadium-like structure with a solar panel canopy, ground-floor flagship store and a performance center for employees and visiting athletes. Under Armour envisions the new Cromwell Street campus as housing 1,500 corporate employees and drawing retail customers and community members to use a track-and-field facility and multisport playing field.
David Plymyer, who retired as an attorney for Anne Arundel County in 2014, recalled being swept up in the excitement when plans of developing Port Covington were first announced eight years ago. Baltimore ultimately approved a record-breaking $660 million in tax increment financing bonds to help support the development. Plymyer still hopes the project works out, but has since become a vocal critic of how politicians, developers and community leaders have ignored its risks.
Plymyer believes a $135.9 million pledge by the developers to a community benefits agreement clouded people’s judgment. (Developers have so far provided about $20 million through that agreement.)
His worst fear is that the development could be abandoned midway through, leaving the city to maintain the newly created public infrastructure. Plymyer said Baltimore’s leaders could have reexamined the deal in 2020, when the first tranche of bonds were sold, but “the city blew right past that opportunity.”
“We’re going to continue to hear all good news from the developers and the people doing the marketing until everything collapses,” Plymyer said. “That’s just the nature of how this works.”