|By Lorraine Mirabella, The Baltimore
SunMcClatchy-Tribune Regional News
Dec. 21, 2007 - Baltimore has collected its first profit-sharing check from one of the major development projects that got tax breaks from the city over the past decade to help spur economic growth.
The Baltimore Development Corp. said yesterday that the city received $819,826 for fiscal 2006 from the Marriott Waterfront Hotel. The hotel was one of the first big projects that helped transform Harbor East from an industrial stretch of waterfront to an upscale urban neighborhood.
The Sun reported in August that the city had yet to receive any payments from profit-sharing agreements linked to tens of millions of dollars in tax breaks for projects over the past decade.
In addition to the Marriott, they included the Power Plant, home of the nation's first ESPN Zone and a Hard Rock Cafe; Spinnaker Bay luxury apartments and the Zenith apartment complex on the city's west side.
The complex agreements include various thresholds that must be met before profit-sharing kicks in, city officials said at the time. The primary aim is economic development, they said. A profit-sharing agreement also is part of a $33 million tax break approved for a new Legg Mason headquarters tower now under construction in Harbor East.
The Legg Mason tower, as well as the Marriott Waterfront and Spinnaker Bay, were developed by H&S Properties Development Corp., some in conjunction with other partners.
The payment from the six-year-old Marriott Waterfront came in sooner than expected, said M.J. "Jay" Brodie, president of the BDC, the city's development arm.
"They're doing better than [city officials] estimated when we did the original estimate, which is good news for the hotel and great news for the city," Brodie said. "The deal is starting to provide returns, besides the returns already provided in jobs and all sorts of taxes."
In 1998, the city agreed to give H&S Properties a $5 million low-interest loan, a $5 million grant and a big break on property taxes: $1 a year for 25 years.
The city justified the high level of public financing by saying the developer was taking the bulk of the risk in building in what was then a no-man's land between Fells Point and the Inner Harbor.
No payments were to be made until the developer had earned a 15 percent return on its $77.6 million equity investment.
The amount paid to the city includes a 9 percent return on the city's $5 million grant and $1.6 million in subsidized interest, plus 10 percent of net cash flow, Brodie said.
Under the 35-year profit-sharing agreement, the developer will not be obligated to make another payment until it again earns a 15 percent return.
The hotel owners, which still include H&S principal John Paterakis as well as newer partners Aetna/UBS, must provide the city with financial statements each year, as do other developers with profit-sharing agreements tied to public subsidies, Brodie said.
Michael S. Beatty, president of H&S Properties, did not return calls yesterday seeking comment.
The next big project to begin paying profit sharing to the city will likely be the Power Plant, whose 10-year rent tax break ends this year.
Under its 75-year lease with the city, Power Plant developer the Cordish Co. , which has been paying $1,000 a year rent, is to begin paying 22 percent of net operating profit, calculated after operating costs, real estate taxes and management fees, starting with 2008, with the payment due in 2009.
David S. Cordish, chairman of the Cordish Co., has said Power Plant could not have succeeded otherwise, especially in light of the failure of two previous projects to redevelop the former electric plant.
The break allowed Cordish to lure big name tenants such as Disney, which put in the ESPN Zone, as well as a Hard Rock Cafe and Barnes & Noble.
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