December 11, 2018

As reported by Matthew Rothstein on Bisnow.com

MCB Real Estate Managing Partner David Bramble, Time Group CEO Mark Caplan and CohnReznick partner Adam Kleeman

BALTIMORE’S CBD AND ITS NEIGHBORHOODS HAVE DIFFERENT PLAYBOOKS FOR SUCCESS

Whether in the central business district or in the surrounding neighborhoods, Baltimore City’s commercial real estate community is working hard to build and revitalize communities. But how the two areas work toward those ends is markedly different.

In Baltimore’s most impoverished and most affluent neighborhoods, development of any major scale requires a sizable amount of community engagement, which MCB Real Estate Managing Partner David Bramble said “is like pulling teeth” at Bisnow’s Future of Downtown Baltimore event at the Hyatt Regency Baltimore Inner Harbor last week.

The contrasting experiences and perspectives of those building in the CBD and those focused outside of it were on full display at the event, with one panel devoted to each area. Though plenty of panelists, like Beatty Development Group Vice President of Community Development Tim Pula and Baltimore Development Corp. Executive Vice President Kimberly Clark, operate in both places, the different priorities attached to each came into focus.

“[Community engagement] is one of the most difficult things for a developer to do, but it’s also one of the most important things,” Bramble said. “Generally in Baltimore, communities are very mistrustful of developers, so you have to be prepared for a long discussion.”

Chesapeake Contracting Group President Frank Settleman believes that in order to win over “fearful” communities, developers and their colleagues need to demonstrate that they are invested in improving the neighborhood, not just building their buildings. Chesapeake engages in multiple programs that train and employ young locals without job skills as part of its outreach.

“All of these kids that we’re bringing into these projects have friends, brothers, cousins,” Settleman said. “Maybe one day, they’ll talk to people and say, ‘I got a job, I got skills training. These developers are not the bad guys.’”

In the CBD, where the buildings are already tall and residents are predominantly renters (with an average income of $90K/year, according to COPT Vice President of Asset Management John Hermann), the people that owners and developers need to court are office tenants and capital sources. Their main frustration to that end is the persistent negative reputation Baltimore holds in the national consciousness. Bisnow Cross Street Partners Vice President of Urban Action Community Development Tabitha Atkins, Baltimore Development Corp.

Cross Street Partners Vice President of Urban Action Community Development Tabitha Atkins, Baltimore Development Corp Executive Vice President Kimberly Clark and Chesapeake Contracting Group President Frank Settleman

“Marketing the city is a big challenge; there is just not enough money available to the city [for marketing],” WorkShop Development principal Dick Manekin said in the first panel covering the CBD. “I know that BDC is challenged.”

Clark pushed back against Manekin’s characterization, claiming that he misinterpreted the organization’s recent call for sponsors.

“We’re not struggling,” Clark said in the second panel. “We’re looking for sponsors for a new booth to sell the city at ICSC. Thank you.”

Beyond the battle in the court of public opinion, developers know that the CBD needs to boost its “cool factor” to attract more millennials and the companies that hire them. On the edges of the area, Harbor East is fresher because, as multiple panelists agreed, it was essentially constructed from whole cloth on top of vacant land. In the traditional center, there isn’t the same blank slate to work with.

“The CBD has to be re-created, and that’s one of the challenges we’ve had, because decay has taken hold,” Manekin said. “It takes away from the positive, fresh image you have in Harbor East and the historic feel of Fells Point.”

The progress that is being made has been in the steady conversion of outdated office stock into multifamily buildings, which has both made the neighborhood more populous in the evening and reduced the amount of vacancy in the city’s office stock. But in order to continue that trend successfully, landlords have been striving to mix in the sort of retail that attracts the coveted millennial demographic.

Beatty Development Group Vice President of Community Development Tim Pula and COPT Vice President of Asset Management John Hermann

“As long as the housing is affordable and they have a Whole Foods or market, restaurants and some entertainment, [millennials] really don’t need other stores, because they get that stuff online anyway,” Hertz Investment Group Vice President of Asset Management Rick Trimpe said.

Unlike with their office tenants, CBD landlords don’t feel the need to pull people from far and wide with retail uses. Panelists agreed that treating their retail space as a simple amenity has been a more sustainable model. Beatty’s Harbor Point complex has ground-floor retail at every one of its buildings, but none have the footprint or credit of a Cheesecake Factory.

“A lot of our retail is initially about serving the immediate customer base of the people occupying the building,” Pula said. “We’re not going to capture people from 5 miles away, unless they’re coming for other reasons.”

In contrast, many of the neighborhoods’ retail success stories have been in creating new destinations. With less population density, creating vibrancy requires more ambition, like what Time Group did in building the Mount Vernon Marketplace out of a former warehouse. It opened in 2016 and has been a rousing success, but that was no sure thing at the time.

“[Mount Vernon Marketplace] changed a neighborhood, and it was really cool, and if you had asked me for money at the time, I would have said you were crazy,” Bramble said.

Filled with local and artisanal vendors, the food hall checks all the millennial-attracting boxes that the CBD is looking for, but it needed to bring all of those businesses together so that each had a chance to survive in an otherwise tough market.

“We were really looking for a grocery store. We were hoping for a Whole Foods or a Harris Teeter, but [they had no interest],” Time Group CEO Mark Caplan said. “We did have interest from the CVS’s and the Walgreens of the world, but we needed to think about what we really wanted to do here.”

Once Mount Vernon Marketplace was established as a desirable and successful destination, it boosted investor confidence in the neighborhood. Time Group was able to finance an apartment building next door to the food hall months faster than it would have otherwise, Caplan said.

Neighborhood revitalization doesn’t require something revolutionary like Mount Vernon Marketplace was; a developer simply needs to fill the same purpose in an area.

“Retail has been evolving since day one, and it continues to evolve,” Settleman said. “Once you get that fitness anchor and the grocery anchor, you combine it with some restaurants and services you can’t get online, and then you have yourself a gathering place.”

Though their needs are very different, the CBD and neighborhoods are both inextricably linked by the fabric of the city. Much like the struggles of impoverished neighborhoods become the perception issues for downtown office recruitment, one area’s success or failure will inevitably affect the other. Developers and other real estate professionals need to look outside of their own footprint if they want to achieve truly significant growth, according to Bramble.

“It’s not altruism, it’s enlightened self-interest to say that if you want the value of your investments to grow over time, you need to invest in the entire city so that it grows on the whole,” Bramble said.