Written by David Bracken | TRIANGLE NEWS & OBSERVER
RALEIGH — A long-stalled project that is a key component of Raleigh officials’ efforts to revitalize downtown is finally moving ahead.
Dominion Realty Partners expects to break ground this fall on an 11-story office building at the south end of Fayetteville Street. The $54 million project would be the first of two towers planned for the now vacant Charter Square site next to the One Bank of America Building.
The city sold the land for Charter Square more than four years ago, but the development group behind it has been unable to pre-lease enough space in either of the towers to secure financing.
Dominion and a silent equity partner are putting up $20 million to get the first tower built. The move is particularly noteworthy because the building is speculative, meaning most of the 225,000 square feet of space has not been pre-leased.
“It’s a really big statement,” said Andy Andrews, Dominion’s president and CEO.
Andrews said the recent decisions by Red Hat and Citrix Systems to relocate their offices downtown have made other companies eager to follow.
“People like to be around successful companies,” he said.
Dominion also hopes to take advantage of the fact that downtown Raleigh has the lowest vacancy rate of any area in the Triangle at 6.2 percent, according to Karnes Research, a Raleigh firm that tracks commercial real estate trends. The downtown area is particularly short on larger blocks of newer office space.
“That has a lot to do with why we are coming back downtown,” Andrews said. “Out of all the submarkets, we like this the best.”
Dominion is well-known in the Triangle, having built numerous condominiums, apartments and office buildings. The company developed the Genworth Financial building in North Raleigh and also partnered with Highwoods Properties on the condominiums at the top of the PNC Plaza building in downtown Raleigh.
Charter Square was among several office projects in downtown that were delayed indefinitely as a result of the recession, which caused demand for office space to dry up. Banks have also become much more skittish about providing financing for such projects, often requiring developers to pre-lease much of the building or put up 40 percent or more of the total cost.
The site where Dominion’s tower is to be built was originally conceived as apartments or condominiums, with the much taller north tower containing the bulk of Charter Square’s office space. Russell Allen, Raleigh’s city manager, said the change to offices should benefit both downtown and taxpayers.
“Having the office space there on Fayetteville Street I think is a much better, higher use,” he said. “It’s a higher value in the tax base. It creates huge amounts of things that create the rest of the downtown.”
Andrews, who declined to name his equity partner, said negotiations about Charter Square began earlier this year and came together quickly. Other partners in the project include Craig Davis Properties, White Oak Properties, East-West Partners and Beacon Street Development.
That group paid the city $5.28 million for 1.75 acres on Fayetteville Street in November 2008. The group also constructed a 550-space underground parking deck on the site, which the city purchased for $25.5 million.
Under its original deal with the city, the Charter Square development group had five years from the sale date of the land to build two towers valued at $100 million.
The Raleigh City Council later voted to amend the Charter Square development agreement to give the developers more time and flexibility.
Allen said the council will likely have to approve some changes to the deal as a result of Dominion’s involvement.
The company hopes to begin construction of the first building in November. One of the advantages of the Charter Square site is that all the preliminary site work is complete, meaning construction is only expected to take 12 months.
Dominion has already secured commitments from four tenants who are expected to occupy about 35,000 square feet. Three of those tenants – Dominion, JDavis Architects and the real estate firm CBRE – are involved in the design and construction of the building. The fourth is Eschelon Hospitality, which expects to open a restaurant on the first floor.
Eschelon already operates three other restaurants on Fayetteville Street.