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Mistrust lingers over a proposed $5.5 billion 235-acre megadevelopment on Baltimore’s waterfront, partially owned by billionaire Under Armour (UA) founder and executive chairman Kevin Plank. The project, also backed by Goldman Sachs, will break ground on the next phase of development this month.
The land, known as Port Covington, comprises largely undeveloped lots purchased by Plank’s real estate acquisition and development company, Sagamore Development Holdings. Weller Development Co. took over as the property’s lead developer in 2017, and its president Marc Weller is Plank’s long-time acquaintance who formed Sagamore Development Holdings, with Plank.
Their first phase plans are vast — to build a neighborhood from the ground up, replete with 1.1 million square feet of high rise office and residential space, affordable housing units, bars, restaurants, commercial structures, and Under Armour’s new corporate headquarters (its existing headquarters is located in Charm City about two miles away). All told, Port Covington’s full buildout is slated for up to 18 million square feet.
The new Under Armour headquarters, when it was first proposed in 2017, was envisioned to accommodate 10,000 Under Armour employees, though the coronavirus has delayed the project and called into question whether it will actually result in that many jobs.
Weller objects to Under Armour’s new headquarters mentioned in connection with the first phase of the project, stating that it is “independent.” Others view the campus as part and parcel to the developer’s overall project pitch, describing it as a “key ingredient” of the development’s success and “part of the genesis of the project.”
‘1% versus the rest of the city’
The project, tentatively set to break vertical ground on Feb. 18 — will be partially financed using a controversial funding tool known as tax increment financing, or TIF. In theory, TIF revitalizes blighted neighborhoods by redirecting future, hopefully increased, property tax revenues to either directly fund development projects or service their debt.
For Port Covington, Weller said, because the property taxes greatly outstrip the debt service, there is no need to hope for the increase. “It’s built in,” its public relations firm told Yahoo Finance.
Skeptics have questioned whether the development can make good on its promises to boost property tax revenues enough to meet debt service on municipal bonds sold to fund the project, and to help pare the city’s racial economic inequalities, particularly when COVID-19 keeps workers at home, restaurants shuttered, and city residents fleeing for less populated areas.
"In the case of Port Covington, it really was the 1% versus the rest of the city,” says Greg LeRoy, the director of Good Jobs First, which opposed the deal based on concern that the city’s financing deal too heavily favored the developers over the city’s poor residents. “You’ve got this billionaire private enterprise, owned by a billionaire, getting the biggest TIF deal in U.S. history, east of the Mississippi.”
Because TIF debt is not backed by the full faith and credit of the city, the city is not officially responsible to pay its debt service. However, LeRoy cautioned that cities have stepped in to cover underwater TIFs when recessionary conditions have failed to create enough increment to cover the debt service.
According to Weller, building property taxes and escrows “far outstrip” the debt service. Still, LeRoy said no matter how much money is diverted to cover the debt, the city is foregoing money that would otherwise go to public services. Another question that remains unanswered, he said, is how changes in the economy since the time of the initial transaction in 2016 could impact the project’s success.
“What else could the city have done with its borrowing ability and infrastructure budget to benefit the city’s incumbent residents rather than the prospective residents of a substantially vacant area?” LeRoy asked.
The developers are kicking off construction with approximately $660 million in TIF bonds issued by the City of Baltimore, $349.5 million from the state of Maryland, $327.8 from Sagamore, and $224.2 in federal funds. Another $4 billion would come from private investors.
Under the financing deal, Baltimore officials agreed to raise and distribute the $660 million in TIF bonds in four rounds. Goldman Sachs has stepped in to contribute $233 million, the largest commitment ever for the multinational bank’s Urban Investment Group.
In January, a first tranche of TIF bonds totaling $137.5 million were marketed in an oversubscribed offering to private investors. The round, which drew healthy demand, represents about a quarter of the total approved TIF financing package. Ultimately, the Baltimore Sun reported, the city will be on the hook for $1.4 billion in interest payments.
The city will also be required to spend an estimated $2.16 billion to staff the new area with law enforcement and fire departments, and other city services, according to the Sun.
The bond offering is “unusually big,” Toby Rittner, president and CEO of the Council of Development Finance Agencies, which represents the development finance community, told Yahoo Finance. By comparison, an estimated $28 million in TIF helped finance Amazon's (AMZN) HQ2 development in Alexandria, Virginia.
While the TIF financing for the Baltimore project might be unusually large, it is far from unusual for tax payers in any U.S. city to foot the bill for a major development project using the controversial TIF method. Bloomberg’s CityLab has described TIF as a “go-to move” for cities attempting to revive poor neighborhoods, and the nonpartisan Citizens Budget Commission calls it “one of America’s most commonly used economic development tools.”
In addition to the widely publicized Amazon headquarters, TIF bonds have financed high-profile development projects in other cities. Notably, the tony Hudson Yards Development in Manhattan — which features high-end shops like Fendi — relied heavily on TIF financing. In Chicago, former Mayor Rahm Emanuel was criticized for pushing through a $2 billion deal at the end of his term for the Lincoln Yards project in 2019.
“TIF has exploded in popularity on the municipal finance landscape as cities compete for scarce public resources to fund economic development,” a policy paper from the New School noted in 2018, when evaluating the costs of Hudson Yards.
For his part, LeRoy’s frustration over the deal is due, in part, to the speed with which the Baltimore Development Corporation, city council, and then outgoing Baltimore Mayor, Stephanie Rawlings-Blake, approved the project, without, he says, intentionally linking it to sustainable commitments that could help the city’s poorest neighborhoods.
“Baltimore is a poor city. But a lot of the decisions that have been made by the Baltimore Development Corporation and City Hall have favored the harborfront area over the rest of the city, for decades," LeRoy said.
To be sure, the project requires money to be spent on revitalizing the neighborhood. A Memorandum of Understanding (MOU) and Community Benefits Agreement between the Port Covington developers and the city requires $9.4 million to be spent on construction to revitalize property and improve schools in struggling communities that surround Port Covington, known as the South Baltimore Six Coalition or SB6. The developer expects another $39 million over a 20-year period to benefit SB6, according to the MOU.
Other objections from the ACLU and Under Armour shareholders
But these benefits for SB6 were not sufficient for Good Jobs First, or for the ACLU, which opposed the creation of a “luxury enclave … while Black neighborhoods are starved for basic infrastructure and resources.” And the ACLU and Good Jobs First are not the only parties to object to funds that Weller and Sagamore received as part of the deal. In 2018, Port Covington became the subject of two shareholder lawsuits against Plank, Under Armour’s board members, and Plank’s real estate company, Sagamore Development.
The suits, which were ultimately consolidated and dismissed by a federal judge in Maryland, alleged that Plank steered Under Armour into deals that benefited his other companies at the expense of Under Armour shareholders. The dismissal came in March 2020, the year after Plank stepped down as CEO and retained his position as chairman.
The ACLU, which first opposed the project in 2016, objected again in a June 2020 letter on behalf of the organization’s 4,300 Baltimore members. The organization said it disagreed with terms that permit $433,279 of the TIF funds to be used to reimburse Plank for his own lobbying expenses to secure TIF ordinance approvals and negotiate the MOU.
Barbara Samuels, managing attorney of fair housing for the ACLU of Maryland, along with representatives of several nonprofit groups, asked the board to delay approval of the first tranche of TIF funding to allow for updated financial projections, stating that its structure had "dramatically changed," over time, increasing risk for the city of Baltimore.
The political and economic climate in which the Port Covington project was conceived, Samuels argued, no longer exists, due to the COVID-19 pandemic, which has delayed the construction of the Under Armour headquarters. "This is not the same project presented to the City Council,” Samuels argued during a public hearing in June.
Meanwhile, others continue to question the deal and the involvement of Plank and Goldman Sachs. The substantial investment by Goldman spurred John Wayman, who was appointed to a strategic roundtable group formed to support Weller’s efforts to achieve the required community benefits engagement, to directly ask about the bank’s motives. Wayman is also a former director of security for Maryland’s Treasury Department.
Wayman acknowledged that Plank had “done a lot” for Baltimore, including selecting the city for Under Armour’s headquarters and donating $1 million to Baltimore’s CollegeBound program.
Wayman said while he now supports the project, he still has lingering concerns about whether it will be as transformative to the community as proposed.
“Were [philanthropic things] being done because of being able to deal with tax liability? Or was it a genuine concern for individuals in the city?” asked Wayman.
‘This isn’t charity’
Margaret Anadu, who heads the Goldman Sachs' Urban Investment Group, said that some may look at the bank's investment as charity. However, she told Yahoo Finance that the firm’s investment — the largest-ever made by its Urban Investment Group — is no handout.
“This isn’t charity. This isn’t philanthropy...we’re doing this because we believe, both in the short term and long term, Baltimore is going to be a strong investment for us. And the size of [the investment] is also no accident. We didn’t want to, you know, come to Baltimore and do something small,” Anadu said.
For his part, Wayman began to have more faith in the project after talking with Marc Broady, vice president of community affairs at Weller Development, the project’s lead developer. Broady highlighted the development’s potential to bolster Baltimore’s tax base by attracting new industries, according to Wayman.
“We don't have a major plant, and we still aren't in a position where we control our port, which is something that I want to work on with the state,” Wayman said. “Because then, you would have Amazon (AMZN) and you'd have Elon Musk (TSLA).” Baltimore, and Port Covington, Wayman said, are perfect places for distribution centers, cargo, transportation, and logistics.
In an interview with Yahoo Finance, Marc Weller, Plank’s longtime acquaintance and a founding partner of Weller Development, maintained his optimism about Port Covington.
“The project now is at a point where it stands on its own merits,” Weller said, in response to a question about whether the development would continue even if the new Under Armour headquarters fall through. “You know, the commitment that we have both from Goldman Sachs, Margaret [Anadu] and, and, Kevin [Plank] is our, as our partner, as well, is really unwavering. And so we feel very confident in what the future holds for Port Covington."
Still, the deal magnifies what Wayman describes as a disconnect between local politicians and the business elites of the city. Local Baltimore business leaders, he said, have not been involved enough for the development to fully realize the potential of its promises.
“Do I think the city may have given a little bit too much in the process? Possibly,” Wayman said. “I think that if the city leadership and officials were more business savvy, they would have crafted a deal that basically gave more to the people.”
Yahoo Finance reached out to Plank, Under Armour, and a lawyer for Under Armour shareholders who sued over the project for comment but did not receive responses.
UPDATE: This article was updated for clarity. While the TIF-debt is not directly collateralized by city taxpayers, taxpayers forgo money that would otherwise go to public services and take on risk that the project may not be completed as planned. An earlier version of this headline read “Under Armour headquarters backed by taxpayers draws mistrust and scrutiny.” The article was updated to reflect Sagamore Development Holdings’ entity ownership, and John Wayman’s role as a strategic roundtable member.
Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney. Follow Alexis Keenan on Twitter @alexiskweed.
Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.