by Elizabeth Heubeck

For Doug Schmidt, the “ah ha!” moment came while brokering a deal for the sale and redevelopment of a dilapidated old soap factory on Fleet Street in Baltimore City that was built in 1915.

The deal called for the 34,000-square-foot building near Fells Point to be turned into a modern mixed-use office and retail space, and it wasn’t easy to make happen. The equation included tax credits, historical building restrictions and parking and zoning issues.

But the negotiations also invigorated Schmidt, who was then in his 16th year as a broker with CB Richard Ellis Inc.

“I felt like I was creating something that would be long-lasting,” he said. “It was complicated but very interesting.”

Shortly thereafter, in early 2005, Schmidt and CB Richard Ellis colleague James P. Lighthizer left the large brokerage firm to start Chesapeake Real Estate Group LLC.

Entrepreneurial stories similar to Schmidt’s are playing out in several corners of Greater Baltimore’s commercial real estate industry. Bolstered by a strong local market and encouraged by their contemporaries’ success, more corporate lifers are deciding that now is the time to go out on their own.

Late last year, longtime broker and developer Ira Miller and former Coldwell Banker Commercial broker Mike Bender launched Miller Investments LLC. Another former Coldwell Banker Commercial broker, Greg Friedman, went on his own to form AGM Commercial Real Estate Advisors.

One of the latest examples is GT Property Group, LLC, a venture formed by David Phillips – previously of Prime Retail – and Nathaniel Tower, who was chief investment officer for Phillip Edison Co. Phillips and Tower plan to pursue about $250 million worth of retail properties.

A ripe market

“It’s going on only in some markets that appear to be doing well.” – Scott MacIntosh, National Association of Realtors

The strength of Baltimore’s commercial real estate market makes it easier for some seasoned local industry professionals to take the plunge.

The office market is hot in Anne Arundel County, fueled by a growth in the defense contracting industry and businesses’ desire to be located near Baltimore/Washington International Thurgood Marshall Airport.

New office and retail properties in Baltimore City are attracting more businesses and residents, and commercial development in parts of Harford and Howard counties have turned those areas into more than just bedroom communities.

All of this means there is a lot of commercial real estate business – from sale and lease deals to financing and development – to be done throughout the region.

“There’s a lot of economic opportunity in Baltimore, and a lot of good talent,” Phillips said.

Said Clare Berrang, a tenant representative with Baltimore’s MacKenzie Commercial Real Estate Services LLC: “Because there has been so much residential growth downtown in recent years, it’s driving all the retail that’s coming, and interest in office space. It’s all a good thing.”

In Baltimore, the vacancy rate for retail space is about 6 percent, compared with a vacancy rate of about 8 percent nationwide, according to the National Association of Realtors. Meanwhile, office and industrial vacancy rates stand at about 13.5 percent in Baltimore.

Scott MacIntosh, senior economist with the National Association of Realtors, said Baltimore’s commercial real estate market can support the surge in start-up activity. But, he said, what is happening in this region isn’t necessarily happening throughout the country.

“It’s going on only in some markets that appear to be doing well,” MacIntosh said.

Business connections

Still, a strong local market isn’t the only crutch real estate professionals have to prop up their entrepreneurial ventures. Many of them have Rolodexes or Blackberries full of former clients, colleagues and competitors who they can go to for advice, or potential business.

When Greg Friedman formed AGM Commercial Real Estate Advisors in February, he sought the counsel of former mentors Ira and Mickey Miller, formerly of Miller Corporate Real Estate and Coldwell Banker Commercial. In addition to teaching Friedman some of the financial aspects of running his own firm, the Millers gave Friedman that confidence to start his business.

“As much as anything else, they said, ‘Listen, we know you can do this,’” Friedman said. “They encouraged me to take the chance.”

Friedman said he continues to call on the Millers and Mike Bender when looking for new business or just seeking advice.

“Strong industry contacts are a key piece,” Phillips said.

But MacIntosh cautioned against leaning too much on business relationships. “There is some information,” he said, “that a former client or mentor can’t give you to help close a deal.”

“Not every transaction is made on the golf course,” he said. “What you don’t have [with a small startup] is the research, the data you get with a large company. Sometimes you need that meat in a transaction. You don’t often get that when you’re out on your own.”

Getting started

On the other hand, some aspects of starting a new small business have been easier than anticipated, some real estate entrepreneurs said.

For example, start-up costs for a real estate business can be kept low. Some small firms don’t have office space; the entrepreneur works out of his home or car. And there isn’t much overhead needed; a computer and a receptionist can be the extent of your staff.

“It took shockingly very little to get the business up and running. The total amount was less than $10,000,” said Friedman, who is subletting a small office space in 500 E. Pratt Street downtown and didn’t have to purchase a new phone system or other office equipment.

Schmidt and Lighthizer were able to cut down on start-up costs by choosing a wireless Internet system for their office’s computers and subleasing space.

“We were very concerned about our start-up budget,” Schmidt said. “But we were able to hire a couple more people than we thought we could.”

Phillips and Tower – of GT Property Group – also manage to keep overhead low by working out of their respective home offices. The company’s sole employee, an intern from Johns Hopkins University’s real estate graduate program, will earn a stipend and, depending on his performance, a bonus.

Scott Graham contributed to this report.