Why is Maryland rolling over for the EPA’s “Rain Tax” when Virginia successfully fought and won?

“The best things in life are free, but sooner or later the government will find a way to tax them.” Anonymous

The Federal Pollution Control Act of 1972 was a landmark decision to control pollutants pouring into our waterways from commercial and farming operations.  However, after decades of policing “point sources” the EPA did not realize its targeted reductions in water pollutants, and decided to begin regulating nonpoint source pollution “caused by rainfall or snowmelt moving over and through the ground.”

The EPA merrily passed down unfunded mandates on a state-by-state basis to regulate rain water runoff; in 2010 the EPA ordered Maryland to reduce storm water runoff (regardless of whether or not it contains pollutants) into the Chesapeake Bay in an effort to reduce phosphorus and nitrogen levels by 15% and 22%, respectively.

The cost to implement these programs in Maryland alone is estimated at $14.8 billion.  Of that amount $1.8 billion is Frederick County’s share to be met “by 2025, according to figures provided by the county.”

Virginia’s response to their mandate was to take the EPA to court, declaring the agency had overstepped its bounds in attempting to regulate rainwater as a pollutant.  Virginia won their case,  and the EPA elected not to appeal the decision.

Maryland’s response to the mandate should come as no surprise to anyone who lives here.

This past July, the Maryland State Legislature passed House Bill 987, titled the “Stormwater Management – Watershed Protection and Restoration Program.”  The law requires Maryland’s 9 largest counties (Anne Arundel, Baltimore, Carroll, Charles, Frederick, Harford, Howard, and Prince George’s) and Baltimore City  to establish a storm water utility fee by July 2013.

This “fee” is to be implemented on “impervious surfaces” such as roofs and driveways that prevent rainwater and melting snow from seeping back into the ground.  (Everyone from the EPA to local municipalities is adamant that this be called a “fee” so that it can’t be challenged as a disguised and unlawful tax.  But who are we kidding here.)

When faced with the gargantuan price tag, Governor O’Malley played “pass the unfunded mandate” without offering any meaningful plans or assistance to the 10 municipal administrations and staff tasked with raising funds to meet it.  “Please unleash that creativity” was about the only advice this presidential hopeful was able to muster.

What unleashed instead was a storm of controversy, as each of the counties named in the mandate began scrambling to find a way to make storm water management fees palatable in a state already burdened with taxes—or fight them altogether.

Frederick County Commissioner Kirby Delauter went so far as to say he would rather be jailed than impose this fee, but ultimately Frederick’s Board of County Commissioners voted to rebel by proposing a nominal fee of $.01 per year per eligible property owner across the board—thus meeting the letter of the law if not the intended spirit of the program.

The reluctance of Frederick’s county commissioners to adopt a more robust Stormwater Utility Fee structure as other Maryland counties have done isn’t a publicity stunt to fight more taxes from the O’Malley administration.  Maryland’s stormwater utility fee doesn’t make sense on a number of levels:

• It places an unfair burden on only part of our state, when all its citizens enjoy the fruits and recreation of the Chesapeake Bay.
• According to Frederick County Commissioner President Blaine Young, municipalities, which typically have a significantly higher percentage of impervious surfaces than non-incorporated areas within counties, are exempt from the state’s  regulation.  Mr. Young has a very interesting theory about why that came to pass, and it has nothing to do with saving the Bay from pollutants … more like saving the state from conservatives, he believes.
• It doesn’t regulate or solve the problem of massive amounts of pollution that flow into our waterways from states north of Maryland (I’m talking to you, Pennsylvania).
• Nonprofits and religious institutions were not exempt by Bill 987.
• In order for a “fee” to be regarded as a fee and not a tax, the government has to prove that the program cost is commensurate with the value of that service (which the EPA has failed to do, as there is no proof that reducing storm water runoff is going to generate the targeted reductions in nitrogen and phosphorus pollution) AND that the funds raised will be segregated for that program and not raided for other purposes (remember the raid of the Maryland Transportation Trust Fund?  Anyone? … Anyone?).
• There are no “opt-out” provisions for properties with large storm water management facilities on-site or credits for properties that don’t contribute to the public storm water system.

Rob Lang wrote an excellent explanation of how this bill was passed seemingly right under our noses. But how is it that a state with supposedly “the best schools and most educated workforce in the country” can’t develop a more equitably-funded and effective solution to phosphorus and nitrogen pollutants?

When you look closely at the holes in this program it begs the question:  is Bill 987 really about saving the Chesapeake Bay?  Or is it a political play that puts a bid for the White House squarely in Governor O’Malley’s sites?

After all, it would make more sense (and ultimately prove far cheaper) to develop a phosphorus-free fertilizer for use by the Eastern Shore farms.  Fertilizer run-off is a huge part of the pollution problem, yet southern Maryland’s huge farming operations are not being levied with fees under this program—that would be political suicide for the O’Malley administration and fiscal suicide for the farms themselves.

Why can’t the brilliant environmental scientists at the EPA come up with something more effective than attempting to corral the rain?

A public hearing will be held on Thursday, May 30, 2013 at 10 a.m. in Winchester Hall regarding the proposed Stormwater Utility Fee of $.01 for Frederick property owners.

Is agreeing to pay even a penny in “rain tax” sending Frederick down a slippery slope that will eventually put us all on the hook for millions, if not billions, of dollars of stormwater mitigation programs we cannot begin to afford?

Let your voice be heard, lest Governor O’Malley will be taxing the wind.  Oops…too late.

The authors: Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.  Kathy Krach is a commercial sales and leasing agent with MacRo.

Business was brisk in sales of historic downtown Frederick office and mixed residential/retail buildings.

Puxatawny Phil was off his game this year.  Despite his promise of an early spring for 2013, it arrived slowly here in Frederick, in fits and starts—much like the economic recovery.

Speaking of the economy recovery…after the first quarter of the dreaded sequestration, we crunched some numbers at MacRo to determine how Frederick’s commercial real estate market weathered the biggest cuts in defense spending in 60 years.

There is good news and bad news…whether the weather is partly sunny or partly cloudy we leave our loyal readers to decide.

The good news is that the number of commercial real estate sales transactions in Frederick during the first quarter of 2013 increased over the same period in 2012 by over 45%.   Buyers and sellers are finally beginning to see eye to eye.

The bad news?  There weren’t any deals over $1 million this past quarter, and the total dollar volume of sales transactions for Q1 2013 dropped to $18.6 million from $31.4 million during Q1 2012.

Overall, the first quarter of 2013 was heavily weighted with sales of historic downtown office and mixed residential/retail buildings—a total of 50% of all Frederick commercial real estate transactions were in this category.

We weren’t surprised, given that we’ve had numerous showings of MacRo properties this quarter to small- and medium-sized business owners looking to expand growing businesses into larger spaces.

Comparing Q1 2013 to Q1 2012, office leasing in Frederick County ticked down slightly on a total square foot basis (a little disappointing), but so did vacancies (which is good news).

Nationwide, office space use and design is experiencing a tectonic shift.  With office demand growing at only half the rate of office-using jobs, and major employers fleeing Maryland for tax-sheltered Virginia, there is some concern within Frederick’s commercial real estate community about the realistic leasing potential of large vacant Class A spaces in this market.

The owners of the former Citibank building at 5280 Corporate Drive have refurbished the lobby, divided the building into smaller spaces for leasing to multiple tenants, and rebranded as Westview Corporate Center.  Will the vacant building in Frederick’s Bechtel campus receive a similar makeover?

The most notable sale of property in Frederick County during the first quarter was the historic Landon House in Urbana.  The property, which included the 6,000 SF mansion and 5.7 acres of land, sold for $850,000 in January.  The mansion had been converted to office space, but the buyers of the property are a group of doctors who plan to convert it into a medical building.

Given the office space conversions taking place in Frederick, we found it interesting that the largest commercial office real estate transaction in the U.S. during the past quarter will also result in a major office makeover.  The Sony Building on Madison Avenue in Manhattan sold for $1.1 billion ($1,290/SF).  The purchaser plans to convert the entire office building into apartments.

The authors: Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com. Kathy Krach is a commercial sales and leasing agent with MacRo.

A soft-spoken real estate agent with two apparent identities introduces a young agent to a dark side of the Land and Commercial Real Estate business.

In the first episode of Tales from the Darkside of Commercial Real Estate, I shared the an experience I had back in the late 1970′s.

This story continues into darker places:

Maybe I was just a naive rookie? 

Being a young agent five years into the business, an offer was delivered to me by a man claiming to be a real estate broker.  Over the phone in our initial conversation, he gave me his name as “Mr. Kelley,” but upon meeting him personally, he claimed his name to be “Mr. Burke.”

It was very odd, but after he exited my office, I was left to dissect the terms of the fully typed out (on an ancient device we called a “typewriter”) and properly executed offer.

Everything  appeared on the up and up with the offer written near the full price and a reasonably short period to close.  However, it was the clause relating to whom the brokerage fee was to be paid that I found very odd: no broker name, no company name … just an address to where the check was to be sent.

It wasn’t long before I reported my experience to my broker Charles “Rick” Wolfe.  I made him a copy of the offer (yes, back then boys and girls, we called them “Xerox” machines).

When I shared the part about the odd circumstance of the other real estate broker seemingly using two different names, we both agreed that something was very fishy.

Even though the issue of agency seemed to be questionable, the offer otherwise appeared to be made by a legitimate purchaser; so I was instructed to proceed and present to the seller.

While my client “Mr. Sugar” considered the agency matter something for the brokers to work out, he was thrilled with the price and happy to seal the deal.  That said, he did make a couple of very minor changes that required initials from the purchaser.

Calling in Scotland Yard!

Now, at the time Rick Wolfe happened to be the Chairman of the Maryland Real Estate Commission, and asked me if I was up for some undercover work.  “Oh, what the heck … sure, why not,” I said.

I pulled out the 1970′s version of a search engine (the Prince Georges County Yellow Pages) to look for all the Burke’s and Kelley’s in the real estate business.  On Rick’s end all it took was to call the administrator at the Commission to find a rap sheet on a Mr. Kelley, who actually met the physical description of Mr. Burke!

Seems that several years prior, a man by the same name had his real estate license revoked.  He had been convicted of absconding over $25,000 of purchaser real estate deposits from his escrow account.  While he had not refunded the absconded funds, Kelley served a short time in the slammer and was now back breathing the air of freedom again without a real estate license.

Hmmm …?

So all leads pointed to “Mr. Burke” and “Mr. Kelley” being one in the same.

But my visitor did leave me with a business card with Burke’s name and phone number on it!

Sorry, wrong number … 

Time for a bit more sleuthing on my part!  I placed a call to the phone number on the business card “Mr. Burke” had handed me and asked for … Mr. Kelley.

“I’m sorry no one by that name works here,” was the response from the receptionist.

“My apologies,” I said.  “Is Mr. Burke in by any chance?”

“Sure, let me transfer you now,” the friendly voice responded.

Within a few seconds I heard a very deep gravelly voice on the other end of the phone: “This is Mr. Burke, how can I help you?”

Not necessarily surprised, this was obviously not the same voice of the gentleman I had met with a day earlier in my office.

“Hi, Mr. Burke, this is Rocky Mackintosh.  Very nice to speak with you again,” I said confidently.  “I thought I’d follow up with you regarding the contract proposal for a farm purchase that you delivered to me in my office in Frederick yesterday.”

“Ahhhh … I’m sorry, let me get your number,” he responded with a touch of confusion in his voice.  “I’m going to have to call you back, good-bye.”

Good to hear your “voice” again!

The next day, “Mr. Burke” did call me back.  Amazingly, the gravelly tone I heard the day before was one again that of a soft spoken man.

Was I surprised?

I informed him that the proposal that he presented to me had been accepted, but there were a few initials that we needed from the purchaser on a couple of minor changes.  I explained the specifics and he did not believe that there would be a problem.

Just for the heck of it, before I hung up, I asked him if there was another number that I could call him.  “Oh, sure,” he responded. “Call me on my home phone …”

So, here’s where the shadows of the undercover operation began to darken!

After hearing my experience with the man (or men?) of multiple voices, Rick and the investigative team at the Real Estate Commission were now pretty confident that the person I had met was in fact the same Mr. Kelley who had been convicted of escrow theft.

Commissioner Wolfe asked me if I was up to play a role in a sting operation to catch Kelley in the act of “acting” as a licensed real estate agent in the state of Maryland.

“Well … okay … ahhhh … sure, why not!?!?” I responded with a hint of hesitation.

Go deeper … really?

Sorry, wrong number … Again?

Rick wanted me to set a meeting at his Gaithersburg office; so I called “Burke” at his home number this time.

An elderly lady answered, and I asked if he was in.

“I’m sorry, but you must have the wrong number …” she said.

“My mistake, I meant to ask for Mr. Kelley,” I replied.

“Oh, yes, that’s my son!” she proudly responded. “He’s out back, let me get him for you.”

This guy can’t be that stupid, I thought.

When he came on the line and said, “Hell-o,” I responded quickly with: “Mr. Burke, it’s Rocky again, let’s schedule a time to meet …”

“Playing the role” … of the Stinger!

It was at 1:00 PM the next afternoon in the glass-enclosed conference room of Wolfe’s office, where I sat at the highly visable table and awaited the arrival of the man who liked using the name of another.

No less than five undercover Maryland State Troopers were lingering in and around the office that day … armed and ready to catch Mr. Kelley in the act of brokering.

It took only a matter of moments after Kelley sat down with me to review the changes in the contract before he was swarmed by the cops, handcuffed and thrown in the caged back seat of an unmarked car.

It was a thrilling experience, to say the least, to have played a part in nailing a bad guy.

But while this chapter was thrilling, the next role I was asked to play was that of testifying against this guy (and others) in court … and the incidents that took place up to that day were downright scary!

You won’t want to miss the final … and by far the Darkest episode of the darker side of this tale: 

“Is there a gun under his jacket,” I wondered … “This really can not be happening … but it is!”

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. His articles also appear in TheTentacle.com and Want2Dish.com.

Born of Irish Princes, she seeks to rule once more!

It seems that the Doherty Clann of County Donegal in northwestern Ireland has always been a proud and rebellious bunch.  Derived from the Gaelic O’Dochartaigh, the name has evolved over the centuries into many variations including (O) Dougherty, Daugherty, Docherty, and Doharty.

The name literally means “Our Heritage.”

Tradition has it that back in the 4th century a Doherty ancestor known as “Niall” was the Legendary High King of Ireland.

During his reign, it is said that Niall was responsible for raiding Britain on the coast of Wales … and during one episode he kidnapped the one and only Saint Patrick and held him captive in Ireland.

Niall set a family tradition of fighting relentlessly in the name of honor to uphold his cause.  The powerful clan continued into the early 17th century with his 21 year old descendant Sir Cahir, who served as the Alderman of Derry City.  The young lord became embroiled in conspiracies and sought revenge over confiscations of clan real estate.

O’Doherty’s Rebellion ended after he was slapped by the governor. Sir Chair then killed his superior and went on to ransack and burn his hometown to the ground.

As in the case of Niall, his numerous enemies eventually retaliated causing a fateful demise of the once powerful Doherty Clansman.

Fast forward now to the 21st century in the City of Frederick, Maryland, where resides another descendant of  the Legendary High King.  There you will find the proprietor of an Irish Pub known as Magoo’s.  Her name is Jennifer Dougherty, who proudly hails her heritage of the old country.

She too, once held high authority … not as an Alderman, but as the city’s Mayor from 2002 to 2006.  During her term, as the first female to hold Frederick’s highest post, Ms. Dougherty, like her ancestors, fought hard to get her way … but along that path, she made some of enemies.

Before she declared victory in November of 2001, it was 8 years earlier that Dougherty made her first stab at the coveted seat.  Her hopes were dashed to take on the Republican candidate Jim Grimes, when she lost to Gary Hughes in the September primary.

Her attempt at reelection in 2005 was dashed in the primaries.  It was just four years later that the relentless Dougherty once again met defeat in the primaries after she carried the family crest into battle in an another attempt to regain her rightful place in City Hall.

She met defeat again in a 2008 Congressional challenge against Republican Roscoe Bartlett.  Undeterred,  just months later she again raised her staff and entered the mayoral challenge a fourth time. Suffering another primary defeat, it appeared that she may have settled into a career of real estate agent and a pub owner.

But it was nothing more than a respite, as the Frederick entrepreneur has now risen again in 2013 as an unaffiliated candidate.

Knowing that the Democratic primary this time around will likely be a war of its own among the likes of two well-healed politicos Galen Clagett and Karen Young, Dougherty tenaciously hit the streets of the city knocking on more than 11,000 doors to garner over 1,400 signatures on a petition to earn the unprecedented right to skip the September primaries and prepare for the real battle against two competitors in November.

During her term in the power seat she accomplished several meaningful goals.  Of her lasting legacies, Dougherty boasts of:

1. Strengthening the city police force with the hiring of Kim Dine (who now serves as chief of the Capital Hill Police).
2. Establishing a Golden Mile Tax Credit to encourage property owners to make improvements to aging infrastructure along West Patrick Street extended.
3. Kick-starting the final phase of Carroll Creek Linear Park by selling off several city-owned sites in that area to private developers.
4. Gaining approval for a Hope VI grant from the Federal Department of Housing and Urban Development (HUD) to redevelop the decrepit public housing projects located at 7th and Bentz Streets.
5. Creating the Neighborhood Advisory Councils as a means of establishing a greater communication link between city government and individual communities.  For this she refers to herself as the “Mom of the NAC’s.”
6. Removing of the Jefferson Street night club, known as X-Hale, which the plagued the surrounding neighborhood with late night noise and wayward drunkards who often found unwelcome refuge in nearby backyards.
7. Championing an agreement with the likes of then Board of County Commissioner President “Lennie” Thompson and Lake Linganore to provide the city with an additional 4 million gallons of water a day once the Potomac River Water Line was completed.

As the months passed after her January 12, 2002 inauguration, many of the mayor’s early supporters found reason to abandon their allegiance to her army.  One writer in particular was long time Washington Post and later Frederick opiner: Roy Meachum.

Meachum, himself, has never been one to avoid an attempt to slash and burn those he finds disagreement with.  He and others grew furious with the mayor over a number of firings and dismissals of public employees.  Lawsuits piled up from these issues and other challenges around Ms. Doughtery’s interpretation of the city’s charter.

These battles, among others, were more often than not sparked by clashes with the three Republican aldermen: Bill Hall, Joe Baldi and David Lenhart.

Displaying her liberal leanings, Doughtery was unsuccessful in encouraging city worker’s to unionize, and she also fought against the changes in the application of the city’s Homestead Tax Credit.

While she gained a reputation of encouraging economic development through the private sector, many claimed that the controversial moratorium she imposed when the Frederick was fraught with a water shortage, was used to shut down growth.

She campaigned for an new era of open government, but her critics claimed many of her decisions were made behind closed doors and often usurped the authority of the board of aldermen.

Dougherty established a regular Tuesday morning press conference that was also called her time to issue her propaganda … but when her predecessor took office and disbanded the practice, he was lambasted for not being open with the press.

As she stepped back in for battle in 2009, Dougherty told the Frederick News Post in March of that year that she had learned from the “personality conflicts” that marked her mayoral term.  And today as she heads into the mayoral battle for her fifth time, she acknowledges the same.

She told Pete McCarthy of the News Post last February that “… city politics are better with less partisanship,” and after living it firsthand, it’s better to put “focus on the issues [and] less on politics.”

Unlike her other contender Galen Glagett, Jennifer openly admits that she has issues … that she believes that the City must address sooner than later.

In an interview that I had with her just last week over a Guinness at Magoo’s, she told me that she is very concerned about the lack of leadership in City Hall.  As a self-professed agent of change, Dougherty says that “tough decisions must be made” with the bulging post-employment benefit (OPEB) structure and pension obligations for current and former city employees.

“Government employees must feel the cost of government,” she stated.  Her goal would be to protect current employees using a vesting date to transition to a new plan. Otherwise if not dealt with soon, the financial burden will be overwhelming within “6 to 10 years.”

Dougherty also frets over the added costs that her successor (Holtzinger) left the city with the acquisition of the Hargett farm on Butterfly Lane … She would dive in to deal with this matter ASAP.

In terms of the city police, she says that the current administration has allowed vacancies in the force to grow, leaving that department “really stretched.” Immediate action is necessary, she claims.

As for the late night crime and safety concerns along Carroll Creek, the Linear Park is without a doubt the “Gem of the City,” and the mayoral hopeful would address the situation with the same heavy hand she used in expelling X-Hale from Jefferson Street.   She believes that new chief Thomas Ledwell is up for the task … “He just needs leadership” from the second floor in City Hall.

Knowing that her leadership style may have been perceived as brazen in the earliest part of this century, Jennifer seeks to build on her creation of the NAC’s and her Tuesday press conference schedule by introducing an interactive web-based concept she calls “Let’s Do Lunch.”  The plan grew from her experience as the president of the Carroll Creek Rotary Club, and would regularly bring together the likes of NAC representatives, State Delegates, business leaders and other key people in the city, including students, to discuss the pressing issues that should be addressed to continually make the city a great place to live and work.

There is no doubt that with Jennifer Dougherty now officially in the battle for the high seat in City Hall, it will be a very lively and press-worthy campaign.

I can already hear the chant of the clann as they march to November:

“Who so ever asks me of my birth…

I will tell them I am born of Irish Princes who ruled in Donegal

a thousand years ago; that I am descended from the High Kings of Ireland,

and my name is from the Clann ÓDochartaigh!”

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. His articles have appeared in  TheTentacle.com and Want2Dish.com.

For most commercial real estate brokers, if you get enough years under your belt of active duty in this crazy business … you can say you’ve seen it all.

About ten days ago I opened the local paper and came upon an article that struck my eye … and caused my jaw to drop.

Turns out a now former client had been arrested and plead guilty to conspiracy to commit a federal crime.

It had only been about two months ago that he had called to inform me that he would no longer be needing my services to sublease the extra space in the flex building his firm was renting … as he and his partner had abruptly “decided to shutdown the business.”

Not giving me any reason, he ended the conversation with: “That’s the way it goes … I guess.”

Hmmm…? 

All I can say now is that I wish his family the best, as it appears he could potentially spend up to 20 years behind bars.

Back in the mid 1980′s there was a TV show Tales from the Darkside that ran for four seasons.  It was an anthology horror series that followed the trail blazed by such shows as The Twilight Zone, The Outer Limits and Tales From The Crypt.

Each episode opened to the eerie sounds of an organ slowly grinding away as the narrator recited the following:

“Man lives in the sunlit world of what he believes to be reality. But… there is, unseen by most, an underworld, a place that is just as real, but not as brightly lit… a Darkside.”

There was one particular episode (21) in season 1 that told a story about real estate developer who lived with a guilty conscience that constantly caused him to make business decisions which caused harm to others. 

One day he learned of Chinese laundry that would “wash away sins.”

As with most of those 30 minute Tales, lead characters often sought a quick remedy to cure their transgressions by making a deal with the Devil … typically culminating in a unhappy ending for the sinner of the week.

It was the darkness of the newspaper article that triggered my memory back to a brush I had with another’s Darkside during my 5th year in the real estate business.

It was 1977, and I just taken a listing for a 150+ acre farm in southern Frederick County, Maryland.  The property had recently been perk tested and approved for a 49 lot residential subdivision, and the owner, a “Mr. Sugar” from Montgomery County, figured it was time to reap the rewards of his long held investment.

I was an eager 27 year old agent excited to earn a fee on this mega $400,000 +/- deal … and “Mega” it was back in those days.

Gathering all the information I could to create a marketing package, my primary focus was to attract a builder and/or developer to purchase the property.

My next move was to get a sign up on the property and make a list of builders and developers to contact.

It wasn’t long before I received a call on the sign from a broker in Prince Georges County, Maryland.  He said his name was “Mr. Kelley.”  He was working with a builder who was interested in completing the development of the farm and build new homes.

He told me that he had already shown the property to his customer and wanted to meet me soon to deliver a contract to me.

Of course, boys and girls, those were the days before document scanning, email and even fax machines; so you either relied on the U.S. Postal Service (today it is called “snail-mail”) or you hopped in your car and personally delivered the offer to the other party.

At this point in my career, I’d been exposed not only to real estate sales, but also construction and land development.  Above everything else, I learned that no matter what sandbox one played in, at the end of the day, business is all about dealing with people.

My new friend was tall, slender and appeared to be in his late 50′s.  He was soft spoken and displayed a pleasant  smile … right away however, something seemed just not right.

The man with the same voice I had heard over the phone now gave me a different name this time … Mr. Burke! 

Hmmm …?

I asked him what had become of “Mr. Kelley” … he sluffed off my query, by bluntly stating that he is no longer handling the transaction.

“Okay,” I thought, “I’ll play along.”

He really didn’t have much more to say after that, as he bid me farewell, I asked for a business card.  He fumbled through his wallet and produced a tattered and dog-eared card displaying Mr. Burke’s name and number.

This unfolding story requires two more posts in the MacRo Report Blog to complete a cops and robbers saga of stupidity, intrigue and a near Goodfellas’ Tommy DeVito (Joe Pesci) moment!

What was the enticing line that those shows ended with each week to lure the audience back for more?

“You won’t want to miss the Next Exciting Episode” of Tales from the Darkside of Commercial Real Estate!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. His articles have appeared in  TheTentacle.com and Want2Dish.com.

The Panama Canal could save Hagerstown, but will it boost Frederick’s industrial real estate values?

Michael Pugh of Pugh Real Estate Group is one of Frederick County’s leading commercial real estate appraisers, and he recently shared his perspective of Frederick’s CRE market with a group of commercial agents and brokers at the Frederick County Association of Realtors (FCAR).

Appraisers are on the front lines of the commercial real estate market, so we were very interested to hear his impressions of recent activity in Frederick’s market.  Following is an overview of Michael’s presentation to FCAR’s commercial Realtors on March 27, 2013.

Overview of Frederick’s Commercial Real Estate Sectors

Housing:  Local homebuilding activity has a significant impact on Frederick’s commercial real estate, so it makes sense to begin there.  Housing starts this past September were up 25% from August.  Big national homebuilders have not been this optimistic since 2004.  Lot sales to builders for homes in the $350,000 – $400,000 range have increased from last year as a result.

Unsold homes and foreclosures may throttle the housing recovery, however.  Home prices have fallen 24% from their peak during the second quarter of 2007, so there are still many homeowners underwater on their mortgages.

Flex:  There is good reason that the next Matan project planned for Frederick is apartments, not flex.  Frederick County still has about 800,000 square feet of flex space available for sale.  A significant amount of that inventory is sitting on the market today because the owners either don’t seem to understand that there has been a recession, or believe that somehow their property values alone were unaffected by it.

Office condominiums:  During the recession, office condos held their value longer than any other commercial real estate in Frederick—the rate of sales slowed considerably, but the values held, mainly due to medical owner/users.  Prices for office condos in Frederick have remained relatively flat as a result.  There is currently only about 60,000 square feet of office condominium space on the market.

Office buildings:  Frederick has seen a decline in the value of office buildings, and marketing times have lengthened as well.  (MacRo Report has covered the reasons behind that decline extensively.  Office use in general is in transition, and large employers like Bechtel are leaving for more favorable business climates like northern Virginia.)

Retail:  Retail property values for lower quality assets (i.e. strip malls) in Frederick and Washington counties both took a huge hit during the recession.  There is a big price differential between lease rates in Frederick’s high quality retail assets—like Market Square and Clemson Corner—and lower quality assets—like older, dated retail properties on the Golden Mile.  The difference is as much as $40/square foot in the most extreme cases.

Retail development projects at Clemson Corner and Market Square on Route 26 have been a resounding success.  Look to Brunswick Crossing for the next big retail venture:  the town has approval for 300,000 square feet of commercial development, and an economic development team that is doing everything right to change the culture there and revolutionize the town.

Proposed retail development at the hotly-disputed Monrovia Town Center could also do very well, as the population in Urbana has exploded but there is relatively limited retail there.

Industrial:  A vacant industrial lot is the poorest-performing commercial real estate asset in Frederick County right now.  Manufacturing jobs, the life-blood of industrial real estate values, declined in Frederick during the recession and they don’t appear to be making a comeback any time soon.  Maryland is not high on the list of places for manufacturing businesses to locate.

However, the Panama Canal may succeed where Annapolis has failed—and save Hagerstown in the bargain.

The Panama Canal is undergoing a large expansion and will soon be able to accommodate super tankers for the first time.  There are only three deep water ports on the entire east coast that can also accommodate massive transport ships, and Baltimore is one of them.  That means Baltimore, and by extension, Hagerstown, is very well positioned to experience significant growth as a distribution hub.  Sites at the intersection of Interstates 70 and 81 would make great locations for warehouses.

Frederick County sits right on the path leading there.

Frederick’s Commercial Real Estate Market: 2013 1^st Quarter Impressions

Leasing activity for quality commercial assets picked up, and sales activity during the first quarter of 2013 increased over the 1^st Q of 2012.  For the first time in years, commercial appraisers in Frederick have comps that are less than one year old.

Cap rates are moving down—the better the asset quality, and the better the tenant, the steeper the slope.  Banks have been holding caps rates up a bit.  Two years ago, no commercial bank would finance above a 70-75% loan-to-value ratio; today, commercial banks are getting comfortable again with 80% LTVs.  As a result, cap rates are coming down to 4-4.5% for good quality assets in Frederick.

Commercial banks are chasing loans for medical offices and apartment buildings.  Most commercial bankers will tell you that there are not a whole lot of people (or businesses) in Frederick County with the capacity to qualify for a commercial loan right now.  If you want a good client, your best bet is to find a doctor.

Michael P. Pugh is a Certified General Real Estate Appraiser with the Pugh Real Estate Group, LLC., in Frederick, Maryland.  He specializes in the appraisal of improved and unimproved commercial and industrial real estate.  He is an Associate Member of the Appraisal Institute and has nearly completed work on his MAI certification. 

The authors: Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.  Kathy Krach is a commercial sales and leasing agent with MacRo.

There are only a couple of weeks to go before Uncle Sam gets his share of your hard earned money … so we thought we would rerun one of our more popular and taxing articles from 2011

To capitalize or to deduct property development costs?

Land and real estate developers, regardless of size, are faced with tax issues that can have a significant impact on their resources and profits. Some of these issues relate to tracking and capitalizing property development costs. It is important for any real estate developer to be familiar with basic tax concepts regarding capitalization, in order to ensure they are following the required tax rules and are not taking deductions for costs that should be capitalized.

Brokers that acquire real estate with the intent to resell it in a short period of time as well as developers that acquire real estate with the intent to build, improve or develop the property can incur costs that may not be deductible in the current period. Such costs will be recouped either through depreciation deductions over time or recovered upon sale by increasing the cost basis of the property.

What types of costs are subject to capitalization?

Costs incurred to produce the property are not currently deductible. Taxpayers must capitalize all the direct costs of producing the property and the real property’s allocatable share of indirect costs. “Production costs” include the cost to construct, build, develop or improve real property. Processes such as grading and clearing of land, excavating for the purpose of roads, laying foundation or lines for utilities, plumbing and/or electrical work, qualify as production costs. Labor costs such as standard wages, overtime, employee benefits or payroll taxes are also included in direct costs. All indirect costs allocatable to the construction activities, such as rent, repairs and maintenance, insurance utilities and depreciation, should be capitalized as well.

There are costs a developer may incur in the pre-production phase that are also subject to capitalization, if it is more than likely the property will be subsequently developed. Some of these costs include property taxes, government permits, zoning variances or engineering and feasibility studies.

Marketing, selling and advertising costs, although very important to the sale of the property, are not considered construction related costs and can be expensed in the year incurred.

Internal Revenue Service (IRS) regulations may also require the capitalization of interest on debt incurred with respect to a property during the production period. The production period is considered to begin on the first day that any physical production activity is performed (i.e. clearing, grading, demolition, etc.). Production ends when the property is ready to be placed in service or is ready for sale. Completion date can be a problematic subject for those involved in the construction of multi-unit buildings. From a tax perspective, each unit is considered to be independent of others as long as each unit is not contingent on another in order to be sold or placed in service. Capitalized costs, in this case, must be allocated to particular units using some reasonable method accepted by the IRS.

There are other considerations that brokers or real estate developers should take into account before investing.  Knowledge of the capitalization rules and regulations should be a priority for companies as these rules affect the timing of deductions with regards to income taxation.

Article provided by Anca Stradley, MKS&H.

About: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick, Maryland.  MKS&H helps owners and organizational leaders become more successful by advising them regarding their financial, technology and management needs. Please visit www.MKSH.com for more information.

Observing what the 2013 Frederick mayoral candidates bring to the table

As most readers of the MacRo Report Blog know, I have not been a fan of Maryland Governor Martin O’Malley.

From PlanMaryland to his administration’s unfriendly policies toward business (and just about everything in between), the man who obviously has his sights on 1600 Pennsylvania Ave. continues to contrive new methods of extracting our hard earned money to feed the state’s addiction to increasing the power and scope of government.

That stated, this post is not about Martin … However it is about one of his advocates in the Maryland House of Delegates — Galen Clagett, who has recently declared his candidacy for the position of the Mayor of the City of Frederick.

Since his 2002 campaign victory to represent District 3A (which includes much of the City of Frederick), Clagett has gained a strong reputation of the man who can deliver funds, grants and programs that bring home benefits county-wide.

His political skills have earned him key leadership positions on the House Appropriations Committee, the Capital Budget Subcommittee, Oversight Committee on Personnel, and the Joint Audit Committee, among others.

According to his mayoral campaign website, in less than 10 years Clagett has been instrumental in delivering nearly $1.7 billion of funding and support to Frederick County for such things as Direct State Aid, health and social services, public school construction, and any number of capital projects for local public and nonprofit organizations.  Impressive … and very true!

One could say his accomplishments have been so impressive that he has gained the title of Frederick County’s political Godfather in Annapolis.

His reputation as the man who makes proposals that “can’t be refused” began in 1978, when Clagett won a seat on the Frederick County Board of County Commissioners. There he would serve two terms and eventually become president of that body, as well as gain strong experience in attracting new businesses to our county and thereby playing a key role in growing the job base.

In the early 1980′s Galen entered the world of commercial real estate, and would eventually establish and grow Clagett Enterprises, Inc. into a well recognized brokerage, development and property management firm in Frederick County and its surrounds.

So here’s a question for city voters this year: Is Clagett the best choice among the growing list of candidates for Mayor?

With a little more than 5 months before the September 2013 primary, should one consider more than Galen’s power of bringing home the bacon from his trips to the state capital?

Clagett’s voting record has run very close to the O’Malley party line.  Over the years in our conversations regarding controversial legislative issues, he will often claim that while he did not agree with the position of his majority party, since he knew the bill ”was going to pass anyhow,” he cast his ballot with his democratic colleagues, so as to not fall out of favor with the O’Malley administration … and to “get something for Frederick.”

Consider his recent vote favoring legislation to increase Maryland’s gasoline tax to replenish the state transportation fund.

Being a master political strategist, Clagett has shown that while standing up for principle is one thing, maintaining power broker status with key State House alliances is another.

Several years ago, I traveled with Galen and a small band of concerned citizens to Annapolis to meet with the Secretary of Transportation.  The mission was to discuss the concept of crafting a public/private partnership (PPP) to widen Interstate 270 into three and four lanes north of Germantown all the way to its intersection with I-70 in Frederick.  While none of us had a dog in the race, we were there as local business leaders to support Galen’s idea.

That idea spawned some interest, but as things often happen in bureaucracies, it went dormant.  That said and to his credit, Clagett has continued to be a promoter of the PPP concept, which has proven to be a method of expanding public services and programs … while at the same time save tax payer dollars.

Speaking of saving tax payer dollars, this raises another question.

Consider the following:

The City of Frederick is in the throws facing some serious fiscal challenges — particularly in addressing its post-employment benefit and pension obligations, among many other issues.

We all know that the culture in Annapolis is to solve all fiscal dilemmas via raising taxes and/or robbing restricted fund accounts.  Case in point: the now familiar state transportation fund that was consistently drained to balance the State Budget and the proverbial Annapolis addiction spending.

The concept of actually cutting spending to the vast majority of our state elected officials is as foreign to our governor and his allies as a Sicilian is to Nome, Alaska.

So what about that question, you ask?

One may wonder: Does Clagett have the capability to break from his decade of being part of the “spend, then tax” culture in the State House to one of “cut and consolidate” in City Hall?

From an economic development perspective, while the City has gained its share of new businesses, many avoid moving within the Frederick city limits due to the simple fact that the total real estate tax bill is nearly twice that of a similar property located in the county … So for this reason alone, the city can not bear an increase in the property tax rate.

If anything, the city rate should be lowered.

Candidate Clagett brings a very interesting skill set to Frederick’s 2013 Mayoral race:  the political power of a godfather, who also has valuable private sector experience, but also one who has earned a voting record of increasing taxes and spending to expand government.   On top of that he also has the wisdom of knowing the value of public-private partnerships and appreciating the necessity of having a healthy economic development program.

Some may say that these conflicting approaches to governing don’t bode well for the average candidate seeking higher office.  But Galen is no ordinary politician.

As of this writing Mr. Clagett has a very thorough and impressive mayoral campaign website posted for the public to view.  The only tab however that lacks anything other than “… check back regularly …” is the one labeled Issues.

Could it be that there will be no issues of concern … if the Godfather succeeds in gaining the power seat in City Hall?

After all wasn’t it Don Corleone who told Johnny Fontane: “… Now, you just go outside and enjoy yourself, and, uh, forget about all this nonsense. I want you, I want you to leave it all to me.”

Stay tuned for further thoughts on the Frederick’s mayoral race in future posts.

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and for Want2Dish.com.

MacRo shares a campaign platform wish list from a commercial real estate perspective.

In “Mayor, Mayor, on the Wall, Who’s the Strongest of Them All?” I gave an overview of the candidates for the 2013 City of Frederick mayoral election.  This is the second part of that post.

In follow up, here are the goals I believe the next mayor of Frederick should pursue:

1.  Bring the City of Frederick’s fiscal house to order.

Post-employment benefit and pension obligations: This line item is a tremendous burden on the budgets of municipalities across the country. While the current administration has made adjustments during the past year—by  increasing participant contributions, changing the calculations for retirement age and salary basis, increasing the age of early retirement, and dropping a several hundred thousand into the city’s OPEB and pension funds—it seems to me that there is a lot more work to do to tame this albatross.  This is one Can that can not be kicked any more.

Tax equity between the city and the county: A reasonable effort was made between these two jurisdictions over the issue of the double taxation of city residents and businesses for services provided by the county for the benefit of the city.  While a tax-differential calculation is a good concept, is a $0.04 reduction in property taxes enough to resolve this issue?

Merge city and county services where appropriate: For several years I wondered if there was a cost efficiency to local government if the city were to annex all of Frederick County in under its umbrella, a strategy adopted by many cities throughout the country—Jacksonville, Florida and Indianapolis, Indiana to name two.  But after further review, I realized that creating bigger bureaucracy does not necessarily make for a more efficient government.  That said, the idea of merging the departments of the city and county water and sewer services, among others, could make sense.

2.  Serious pursuit of economic development.

We all know about the plans to complete the next phase of the Carroll Creek Linear Park, and hats off to the current administration for finding the funding to do so, but that alone is a mere fresh coat of paint to what else could be done.

Adjust expectations on hotel/conference center: The city has placed a great focus and expense on laying out guideline to attract a hotel/conference center for downtown.  And while studies that have been produced show how a 200 plus room hotel and 15,000 square foot conference center  will bring tremendous economic benefit to downtown, from the commercial real estate developer perspective none of the studies prove something of that size to be a worthy investment risk.  Lowering the sites on what is feasible now will make sense.

Complete airport runway expansion: According to my calculations, nearly $20 million has been invested in tower construction and property acquisition around the airport … not including the costs associated with the extension of Monocacy Boulevard.  That’s more than a big investment.  But still nothing has been done to complete acquisition of the easements required to lengthen the runways.  Imagine the economic benefit and revenue boost the city will gain from expanding Maryland’s second busiest airport!  This may be a challenge giving that the FAA is facing cuts from sequestration, but still worth pursuing.

Resolve unrealistic land use plans: Back in 2005 (I like to refer to the years around that time as the “Fantasy Years”), the City adopted a masterful novel called the Land Management Code.  Upon reflection and subsequent application (or lack thereof), it has become clear that many parts of that volume established unrealistic expectations that do not work for the new world order.  Consider the residential density formula for vacant downtown parcels … from a multifamily development perspective an increase could be warranted for certain core areas of downtown, which could provide the additional benefit of bringing more workforce housing to Frederick.

Better use of parking meters and decks, and onsite parking requirements: I could and should devote an entire blog post on this issue.  Meager efforts have been made in addressing how to generate enough revenue from meters to be able to finance the parking structure planned behind the headquarters of Frederick County Public Schools.  Imagine the incredible boost in property tax revenues the City of Frederick could realize from expanding development along the Carroll Creek … and the secret lies in two things: density and parking.

Resolve the sewer and water tap fees issue: Water and sewer tap fees are a significant hurdle to new service-sector businesses trying to locate downtown. Every commercial real estate agent in Frederick knows this is a common roadblock the stops prospective tenants and buyers cold. Even restaurateurs with the clout of Bryan Voltaggio struggle to overcome the expenses involved in opening new locations downtown.

3.  Fearless leadership and decision making:

For far too long the proverbial can has been kicked down the road from City Hall.  Much has been said about what has been accomplished; our next leader must be willing to truly address issues head on as the very fragile recovery continues.

At this point, I will give Mayor Randy the benefit of the doubt as a first term elected official, but I do think that he could have taken a stronger position on several of the issues listed above.  I believe that of this year’s crop of declared and would-be candidates all have the ability to lead.  But as the campaign gets more heated and the blood bath begins, let’s hope the strongest and best leader will emerge!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com and for Want2Dish.com.

It seems more often than not people return home from a vacation with a “You Won’t Believe What Happened” story. 

Over that the last few years since I began the MacRo Report Blog, my steady stream of Land and Commercial Real Estate posts is occasionally interrupted with tales of my travels.

Week before last my wife Nancy and I flew to Florida to part-take in what many northerners do this time of year:  Freeload off friends and family.

This year we expanded our freeloading to four destinations in the Sunshine State.  With parents and in-laws on the east coast, we were invited to hang out  with friends in Bonita Springs as well as Sanibel Island.

Nancy and I met up in Ft. Lauderdale, while she was visiting her parents Dick and Sandra Haas.  Upon my arrival we headed across Alligator Alley across the Everglades to our western destinations.

After a few days of west coast freeloading, I dropped Nancy off at Fort Myers international to fly home.  I then headed back east to visit my mother in Vero Beach for a few days of cherished one-on-one Mother-Son time.

To complete my vagabond adventure, I purchased a ticket to a major league baseball spring training game between the Washington Nationals and the St. Louis Cardinals in Jupiter.  It was right on the way back to Ft Lauderdale, where I’d spend my last night with the Haas’s before I caught my flight home.

A few weeks before I was Florida bound, I bumped into an acquaintance of mine from Northern Virginia named Charlie.  I told him that I was headed to Florida soon and hoped to attend at least one Nationals’ Spring Training game between my planned destinations.

Charlie told me that he would be in Jupiter during that time, and planned to purchase a ticket online for that March 2nd game.  He suggested that I do the same and meet up.  I checked my schedule and saw that it would work out perfectly.

He had no idea where he would sit, and neither did I, so we exchanged phone numbers and agreed that I would call him that day to find out where he was seated.

Well, that day arrived and as I drove south from Vero, I called Charlie a couple of times, only to get his voice mail.

After entering the stadium, I wandered on to my seat …  I was actually pretty excited I had bought a ticket that put me right behind home plate in Section 115, Row 6, Seat 3.

As usual, I arrived a bit late and most of the fans were already in the stadium.  As I looked down Row 6, I saw that Seat 3 was waiting for me … just six rows from the netting.  I excused myself as I squeezed past the a couple of Cardinal fans occupying Seats 1 and 2 — never catching their faces.

Once settled in my seat I decided to place another call to Charlie from my cell … Before I pressed the send button, the man sitting directly in front of me turned around to watch a foul ball rocket over our heads and onto the roof of the press box.

You can imagine how startled I was to find that Charlie was that man in front of me!

Here we are in Roger Dean Stadium next to the campus of Florida Atlantic University which seats over 6,000 fans, and there’s Charlie right there in Seat 3 of Row 5 in Section 115.

After an inning or two we saw that there were a couple of empty seats in Row 3 below us, so I once again asked the people in Seats 2 and 1 to excuse me as I found my out.

Charlie and I spent the rest of the game talking about the prospects of the Nationals repeating their 2012 playoff run this coming season.

Not only did our team take a sizable early lead, we looked around and noticed the Nats’ General Manager Mike Rizzo sitting just a few seats away from us.

Being the avid fans we are, we walked over chatted a bit with the mastermind of major league baseball’s draft … and I asked Charlie to snap a picture of me with my new buddy Mike.

It was a beautiful day, and the Nats’ 6 -2 victory made the drive south easy … but most of all I couldn’t believe that Charlie and I had randomly purchased our seats one right behind the other.

What are the odds of that, I thought!?!?

I had a chance to check my voice mail, and there was a reply message from Charlie that I missed from earlier that day.

About forty-five minutes later into the drive to my in-laws, Nancy called me from Maryland.

I couldn’t wait to tell her about the amazing coincidence that I experienced at the game, but before I could get started, she blurted out, “You won’t believe what I’m about to tell you!”

Okay, I thought … How can she top my story?

So with more curiosity than enthusiasm I said, “Go ahead, I can’t wait!”

Nancy told me that she had just received a call from her mother, telling her that one of her childhood/family friends and his wife had stopped by on a whim to say Hell-O.

They were vacationing in Florida from the cold weather of the Haas’s original hometown of 45 years ago — St. Louis, Missouri.

Nancy went on to say, that so many years had passed since they’d seen each other, her parents didn’t even recognize Clyde when they answered the knock at the door … but quickly became reacquainted.

Clyde, Nancy reminded me, was her childhood sweetheart … Her first love!  … and she was upset that could couldn’t be there to see him.

I had to interject quickly to ask if he and Jane were happily married … and asked if I should be concerned.

To ease the pain of not being there in person, I suggested that once I arrived I would pull up the FaceTime app on my now famous iPad, so she and Clyde could see what Father Time had done to their childhood complexions.

Of course, I got a typical female response … “But I’m not wearing any make-up!”

“Well, you have about ten minutes to resolve that issue,” I said.

Then she told me the other crazy thing … Clyde and Jane were at that same baseball game I attended in Jupiter!

“Can you believe that?” she said. “What are the chances that the two of you would be at the same game?”

Piggy backing on the day of coincidences, I told Nancy of my amazing seating experience with Charlie.

How odd, I thought after I signed off on my cell and pulled into her parents’ driveway.

I’d seen several pictures of Nancy and Clyde from their preteen years in old Haas family photo albums; so I was able to place the face as we greeted each other.  Within a few minutes, as promised, I called Nancy on her iPhone from my iPad so the two faded star crossed lovers could reconnect.

While they talked, I took Jane aside and asked her if we should be concerned about this reunion.

With Clyde still dawning his Cardinals’ windbreaker and me in my Nats’ t-shirt and cap, I told him about my crazy meet up with my friend Charlie.

We left the iPad on while all of us talked about the strange coincidence of being at the same baseball game in Jupiter  just a couple of hours earlier.

I happened to mention that we were sitting behind home plate …. Blah, blah, blah.

Clyde then said, “That’s funny, we were also seated behind home plate.”

“No kidding?” I said.

Clyde then asked me which section I was seated in.

“115,” I responded.

“That is where we were sitting! …. What row?” he questioned.

I quickly shot back the number “six.”

With Nancy looking on from my iPad, Clyde then pulled his ticket from his pocket and showed me that he was also seated in Row 6 of Section 115.

I also produced my ticket stub, and we placed the two together on the table in total amazement.

Incredibly, Clyde had been sitting in Seat 2 in Row 6 of Section 115 …. Right next to me in Seat 3!

What are the odds of that?

As my mother-in-law said, “This is one for Ripley’s Believe it or Not!”