Mind the gap, Baltimore
May 16, 2008
We attended a media roundtable Thursday morning, hosted by local market experts from the commercial real estate firm Cushman & Wakefield, to discuss the state of the commercial and industrial real estate markets in the region. David W. Baird, a senior managing director of the Baltimore office, spoke of disconnect between real estate buyers and sellers in the city.
“If you’ve ever been to London, you know those annoying messages on the underground—‘Mind the Gap’,” he said. “That’s where we are right now. We have to mind the gap between buyer and seller expectations.”
A few years ago, he said, there was $17 to $20 of investment capital for every $1 of real estate. Now, real estate investors and developers are competing tooth and nail for loans. Baird also noted that last year, $80 billion worth of Commercial Mortgage-Backed Securities were issued. So far in 2008, only $4.9 billion in CMBS have been issued.
“Sellers are holding on to their inventories,” he said. “Major money center banks are almost out of the buying and selling business … The only active lenders are life insurance companies for the major commercial development markets, and they’ve increased their spreads.”
T. Courtenay Jenkins III, a senior director at C&W, spoke of a “Pause Button” effect that has effectively put big real estate transactions in the Baltimore area on hold.
“It takes a little longer to get a deal done these days, because no one is sure where the bottom is,” he said. “Buyers…freeze their space requirements suddenly, then suddenly hire a new wave of employees…It’s a stop-and-start market.”
The panel of experts also discussed 100 Light Street, the Legg Mason tower, and its future once the money management firm moves to its new building in Harbor East, expected in 2009.
Jenkins said 100 Light Street is widely regarded as “a building that has really seen its day, and is out of date” in the world of Class A office space because of its small floor plates and antiquated fiber-optic systems. Jenkins predicted that its owners, New York’s Lexington Realty Trust, will either substantially renovate the building, or drastically lower rents to compete with newer, more advanced office properties, which these days are fetching close to $40 per square foot.
“100 Light Street has got a lot of landlords nervous,” he said. “What are the odds of getting another tenant to take 250,000 square feet of space [in that building]?…100 Light Street could drop rates to the low $20s.”
However, details of a recent deal struck with USF&G, the building’s previous owner, indicated that many of the tower’s upper levels are already listed at $30 per square foot, and that Lexington already has plans to renovate the building.
ROBBIE WHELAN, Business Writer
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