Eight years after its sale fetched more than $66 million, the office tower at One South Street in downtown Baltimore sold last month for $24 million, a markdown that could be a barometer for the city’s commercial real estate industry.
Commercial real estate prices across the country are slumping and many downtowns are struggling with vacant office space. The sale of One South Street — a 30-story building that opened in 1992 — appears to be the first post-pandemic sale of a downtown office tower in Baltimore.
The seller, Virginia-based American Real Estate Partners, confirmed the short sale to New York-based BHN Associates and said in a statement that it will continue to manage the property. Spokesperson Louise Boulton-Lear called the building “a Baltimore landmark with iconic architecture, a strategic location and world-class views.”
Stephen Walters, an economist and professor emeritus at Loyola University Maryland, said he’s never been inside the 479,000-square-foot building, but he was stunned to learn it sold for less than half its 2015 sales price.
“If there’s not something terribly unique about this building, I would really worry that this is a terrible leading indicator that there’s been a massive reduction in the demand for downtown space,” Walters said.
Terri Harrington, a commercial real estate broker, said a lot has changed in the eight years since One South Street last sold. There was a pandemic. More people work remotely. Businesses want newer offices with more amenities. Every downtown office building faces these challenges, Harrington said.
Harrington pointed out that several high-profile tenants have left or plan to leave downtown Baltimore in recent years, including Transamerica, Bank of America, T. Rowe Price and Pandora. Pandora is moving its North American headquarters to New York, while the other three are headed for newer buildings in Harbor Point and Harbor East.
“Occupancy drives value and many buildings downtown are struggling to maintain that occupancy,” Harrington said. “I also believe you are going to see other buildings in the same boat.”
Harrington said the management of One South Street has done a “great job” of retaining tenants and that its sale is a vote of confidence in downtown. A report from the data analytics firm CoStar showed the building was 5% vacant at the time of its sale in June. Meanwhile, office space in downtown Baltimore has an average vacancy rate of 20%, according to the real estate company Newmark Group.
The anchor tenant of One South Street is Stifel, an investment banking firm. The tower is one of the tallest buildings in Baltimore. According to a research guide by civil engineering students at the Johns Hopkins University, the lead architect was Geraldine C. Pontius of RTKL Associates Inc.
Unlike the housing market, where homes are constantly selling and renters typically have 12-month leases, office towers like One South Street trade hands much less frequently and their tenants have multiyear deals. According to Luis Quintero, an economics professor at the Johns Hopkins Carey Business School, that makes it harder to draw definitive conclusions about the commercial real estate market.
Quintero did not want to put too much stock in the sale of a single building, but he said the decrease in sales price does reflect a broader trend in commercial real estate. The market is adjusting, he said, and the sale of One South Street could mean that nearby buildings are also worth less.
If more office space goes vacant and property values decline, the city could see a reduction in both property and income tax revenue, Quintero said.
Mordy Wider, senior director at BHN, said One South Street is the first Baltimore acquisition for his firm, which owns properties throughout the Northeast. He said BHN’s partner in this purchase is Silver Equity, a skin care holdings company.
Wider is bullish about Baltimore and believes the downtown is undervalued.
“People are scared of office markets generally,” Wider said. “Baltimore is going to be a different story.”
Wider rattled off several reasons to be optimistic about downtown Baltimore. Thousands of state employees will commute to downtown in the coming years when agencies at the aging State Center complex relocate from Mid-Town. Those agencies will bring Maryland Capitol Police, which in turn will bring a stronger sense of security, Wider said. There are several office-to-residential conversion projects underway downtown, which will decrease vacant office space and increase foot traffic, he said. Plus, there are the Ravens and Orioles stadiums and the newly renovated CFG Bank Arena nearby.
With the right tax incentives from the city, Wider believes downtown Baltimore is poised for a rebirth and could even lure back some former tenants.
“We believe downtown is going to be better than Harbor East in the next five years,” Wider said.
