Content presented by NAIOP Maryland
On a 21-acre site behind M&T Bank Stadium, Chesapeake Real Estate Group (CREG) is preparing to execute a transformation.
CREG is under contract to purchase the former site of the Kaydon Ring & Seal manufacturing plant in the Carroll-Camden Industrial Area with the intention to raze the buildings and construct 300,000 to 400,000 square feet of modern industrial space plus some Industrial Outdoor Storage (IOS).
The plan came with inherent complications, including the need to complete an environmental cleanup on a site that had been contaminated by more than 100 years of manufacturing operations, cap the land with clean fill and raise the site’s elevation.
But CREG Principal and Managing Partner James Lighthizer said the costs and complications of the project are all worthwhile.
“We love infill projects mostly because municipalities love them,” Lighthizer said. “You’re taking something old, making it new and upgrading the tax base. Economic development folks, planning and zoning folks, the community, everybody likes infill development so politically and from a regulatory perspective, it’s popular.”
Furthermore, the location of the Kaydon and other infill projects counter some of their financial challenges.
“From a marketing perspective, there’s always a perceived value with what I’ll call the herd mentality,” Lighthizer said.
“Businesses and institutional capital like to be in places where a lot of other people already are located. There’s no location uncertainty. You can point to other companies that are in that area, so it’s very predictable from a capital and demand standpoint.”
Real estate fundamentals — location, tenant demand, the acute shortage of developable land in central Maryland plus changing property valuations and perceived best uses for sites — are making a variety of tear-down, infill projects attractive.
Successfully completing them, however, requires development teams to contend with added and unique site conditions, employ novel design processes, navigate permitting challenges, and embrace the possibilities and risks of operating a little beyond business norms.
Prime locations
When Merritt Properties began considering the purchase of the former General Motors plant in White Marsh, President Robb Merritt knew the property’s high price tag would push the land-acquisition line in his budget to the maximum and push Merritt to secure record-high lease rates in the new development.
“But it was also Real Estate 101: location, location, location,” Merritt said. “The property was expensive but it’s directly off I-95 at Exit 43 and it’s 50 acres so it is not too big, not too small.”
Transforming the automotive plant into White Marsh Interchange Park was complicated. It included dismantling a factory that had been left completely in place, right down to the pens in the desks, and resolving an ongoing commitment the property had to a solar company. Ending the 20-year lease on a solar installation and having the equipment removed added about three percent to the purchase price.
And then there was the challenge of permitting.
“We petitioned Baltimore County to give us fast track permitting. It would be a little quicker but we wouldn’t skip any steps,” Merritt said.
The cost of buying and demolishing a former auto plant stretched the budget of the White Marsh Interchange Park project but created new properties that commanded record lease rates. Photo courtesy of Merritt Properties
County officials declined the request, saying they couldn’t trust Merritt’s predictions of future jobs on site because they didn’t yet know who would lease the space, he said.
“Merritt and St. John Properties own many buildings within five miles of that site and we can count the number of jobs in our other buildings. Therefore, we know that 750,000 square feet of space developed at White Marsh Interchange will have over two jobs per 1,000 square feet, which would be 1,500 jobs,” Merritt said.
The denied request meant that permitting took more than two years even though the land was already entitled and suitably zoned.
Leasing the space, however, proved to be an easier step.
“We thought we would get $16.50 a foot. We’re getting $18,” Merritt added.
As construction of Phase 1 neared completion last summer, Merritt signed leases totaling 80,960 square feet and began preparing to start construction of Phase 2.
Design challenges
Designing a project to be built on a tear-down site also presents distinctive challenges.
When Sun Products shuttered its 90-year-old manufacturing plant on Holabird Avenue, CREG launched a plan to “take a multi-story, smokestack, detergent manufacturing facility and turn it into 1 million square feet of Class A industrial property,” Lighthizer said.
That project and other teardowns, including CREG’s redevelopment of the former Murray Steaks plant site, taught the company a key lesson about how to successfully design redevelopments, he said.
“The topography, the elevation is where we really needed to spend our time to figure out how high the finished floor elevations would need to be to cap the site to MDE requirements, and where to locate sub-surface utilities, and storm water management pipes to avoid environmental conditions,” Lighthizer said. To make the design and project financials work, “the whole key for us was in the grading.”
A “very heavy topography change” as well as property borders beside Eastern Avenue, Greektown and a CSX train line factored heavily into the designing of Yard 56.
On the derelict site of the former Pemco manufacturing plant, MCB Real Estate completed a stunning transformation that created housing, retail, medical office and amenity space. Photos courtesy of MCB Real Estate.
“Master planning for the project was done really well,” said Patrick Reid, Managing Director of Construction for MCB Real Estate. “The fact that we were flexible and patient as we developed that business plan was really helpful.”
The design and construction process, which ran from 2018 to late 2023 and included one pause, enabled the development team to reevaluate tenant mix and tailor the buildings accordingly. It allowed time to assess the best density and unit mix in the residential component of the mixed-use development. It even led to the decision to “move a building to a different side of the site and locate our medical office building beside Eastern Avenue,” to complement the neighboring hospital and improve community access, Reid said.
The process, he added, “taught us to not be so focused on the initial plan and always be forward thinking.”
The result was a development that “created a sense of community with Greektown and the other neighboring communities,” Reid said. “We brought in a grocery store, a gym, medical services and a mix of tenants that serves different demographics in that area and we created a safe place for residents to shop.”
The huge Perkins Square project, currently underway in Baltimore, appears to be on track to deliver a similar, community transformation, said Steve Rubin, Vice President of Project Development for Harkins Builders.
On the site of the former Perkins Homes project, a complex redevelopment effort is producing block after block of urban renaissance. Photo courtesy of Harkins Builders.
The redevelopment includes demolishing the 12-block site of the 1940s Perkins Homes development and executing a masterplan that includes 1,346 affordable apartments and townhomes, 500 market-rate residential units, small-scale retail, a large public park and a new public school. Harkins built Phase 2 of the project, which included four blocks of townhouses containing a total of 28 homes and two apartment buildings with a total of 128 units.
An uncommonly large stakeholder group which includes two development companies from two different states, and a complex mix of private and public funding sources has made Perkins Square a complex project to work on from an administrative perspective. But the results are striking.
“It is drastically changing that whole area of East Baltimore,” Rubin said. “That area is in the shadow of the world’s best hospital, Johns Hopkins, but it had suffered from decades of disinvestment. But now you are seeing block after block of urban renaissance and it is becoming pretty walkable all the way from Fell’s Point to Hopkins.”
Office teardowns
Not every successful tear-down project, however, is sprawling and multi-faceted.
MCB Real Estate recently completed the redevelopment of 42 retail pad sites in Maryland and Virginia, including the demolition and reconstruction of some sites. On one site, a former bank building was razed to make way for a Silver Diner.
Near I-695 in Arbutus, Merritt Properties purchased a 16-acre site containing an obsolete office building and began transforming it into the Beltway Business Interchange — a light industrial park with two buildings, totaling 111,300 square feet.
Beside the Brandon Shores power plant, CREG is planning to purchase a 50,000-square-foot office building from Exelon. It plans to raze the building and replace it with either 100,000 square feet of warehouse space or Industrial Outdoor Storage.
Lighthizer anticipates the region could see more projects where developers tear down existing office buildings and replace them with industrial space.
“Particularly with Class C office space, it’s very difficult to repurpose and we have some Class C space in the city,” he said. “There are a lot of office buildings in many urban areas and some suburban areas where the land is worth more than the buildings and the renovation costs are cost prohibitive so tearing down those buildings makes business sense.”
