A Closer Look at COPT's Love Affair With Baltimore

BALTIMORE--When Corporate Office Property Trust announced it was buying "Maryland's tallest building" last month, it no doubt hoped investors and analysts would be pleased. The iconic Transamerica Tower is a fixture in downtown Baltimore and a resident of the strong Pratt Street submarket.

But apparently Wall Street had questions about the deal both during the earnings call and afterward. Should the REIT be investing so heavily in a market that, per its depicting in the HBO series "The Wire" looked rather run down, according to a behind-the-scenes account of these fears in the Baltimore Sun. Really.

CEO Roger Waesche tried and tried hard to sell the city to the callers.

A sampling of his comments on this topic from that event:

… Baltimore's economy has evolved from one that relied on manufacturing and heavy industry to one that is driven by industries of the future, namely healthcare, education, technology, research and biotech.

….market data shows Baltimore ranks fourth among the top 50 markets in the combined employment concentrations of healthcare, education, government and technology. The top three cities are Washington, Boston and San Francisco.

…. CBRE ranks Baltimore as being in the top 10 markets for the tech industry and in recent years ranks Baltimore second behind San Francisco for growth in tech talent. Also in the second quarter of this year, Baltimore led the country in job growth.

….Baltimore's current demographics now compare to cities like Boston, Seattle, Portland and Minneapolis.

…..employers are moving into the downtown market to attract and retain highly educated workforces. Against the backdrop of shrinking supply, demand from corporate relocations and expansions has supported 2% annual rent increases in recent years

But perhaps the best case can be presented by the actual building in question: the Transamerica Tower and the journey its previous owner, Lexington Realty Trust made to turn the property around.

For Lexington Realty, its sale was the successful completion of an investment in a property that was in dire need of repositioning.

"This disposition completes another successful repositioning of an asset that had high vacancy following the expiration of a single-tenant lease," said Lexington CEO T. Wilson Eglin.

For the city of Baltimore, though, the sale also had deeper meaning given the prominence of the building in the city's streetscape. For a 35-tower downtown building to be largely empty, as it was at one point in 2008, hurts plain and simple.

It was in 2008 that the tower's main tenant -- Legg Mason -- vacated the property. It moved to Harbor East, part of larger trend of companies to relocate away from Baltimore's CBD.

Lexington went on to invest some $45 million on improvements for new tenants – an expenditure that truly was paying off by 2011 when Miles & Stockbridge announced it would relocate its Baltimore office to the building, moving in in early 2013. It took 120,000 square feet at the 530,000-square-foot tower.

This idea that Baltimore's downtown is well on its way to a renaissance is not a mainstream one, as Waesche noted on the call.

"We are confident in downtown Baltimore's growth prospects," he said. "We are aware that our view in contrarian but also certain it is correct."