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Old is New in Durham As Tenants Jazz Up Warehouses

Old is New in Durham As Tenants Jazz Up Warehouses

How does a company make a dramatic statement with its commercial real estate property at a time when little credit is available for new development? One way is to adapt an old building to a new use with a snazzy, high-tech rehab.

In Durham, N.C., where the tobacco industry once thrived as factories rolled out cigarettes and warehouses stored the aromatic tobacco, Capitol Broadcasting Co. has developed a massive, mixed-use development, American Tobacco Campus. The company has converted dilapidated warehouses and an abandoned factory to state-of the art office and retail buildings.

The buildings feature wireless technology and electronic monitoring systems so that they can be managed remotely, says Michael Goodmon, vice president of real estate at Capitol Broadcasting, a Raleigh-based communications company that owns several television stations in North Carolina, as well as the Durham Bulls baseball team. The lighting system uses a high-tech and energy-efficient design that takes advantage of natural light.

The developer’s efforts have paid off handsomely. Capitol’s 1 million sq. ft. portfolio in Durham is 98% leased, and the company is making plans to develop three more buildings in the city. Most of the portfolio is comprised of office space with old world exteriors and state-of-the-art interiors.

The newest tenant for Capitol Broadcasting Co.’s $250 million office and retail redevelopment project in Durham is the law firm of James Scott Farrin, based in Raleigh.

The law firm has leased 50,000 sq. ft. and will move in on Nov. 1, says Goodmon. “They’re doing a spectacular upgrade. It’s not what you would think of as a mahogany boardroom law firm outfit. It’s very creative, very open.”

The factory that closed in 1987 formerly produced Lucky Strike cigarettes. Now its strengthened walls and interior are in demand by companies that don’t want the typical office tower or mid-rise. On the tobacco campus, the youngest building was built in 1954 and the oldest, in 1874.

Today, Capitol’s Durham warehouses rank as Class-A space and command $23 to $25 per sq. ft., the top of the market in the three-city research triangle, which also includes Raleigh and Chapel Hill, N.C.

In retrofitting, architects are careful to retain a sense of the building’s original purpose and appearance, since tenants clamor for sites that provide a sense of the authentic, historical structures. They don’t want new buildings designed to look old. “You can’t recreate the feel of an old wooden tobacco park,” says Goodmon.

Goodmon, whose favorite software program and management tool is Excel, plans to upgrade the structures with new smart building technology, and to improve the entire portfolio with state-of-the-art standards for energy efficiency, using current environmental guidelines.

If a landlord doesn’t take steps to improve its environmental profile, the consequences could hit the company’s bottom line hard, says Goodmon. “People will stop leasing with you, people will stop lending to you. I don’t think anyone will be interested in buying unless you do those things.”

Capitol just extended the lease of another key tenant, McKinney advertising agency, which has contracted through 2021 for about 60,000 sq. ft. Previously, McKinney’s lease was set to expire in 2014. Before moving to the American Tobacco Campus in 2004, McKinney occupied more typical, multi-story office space in Raleigh.

Five years ago, to lure the ad agency, Capitol Broadcasting provided a hefty tenant allowance to help McKinney convert the space to its needs, says Goodmon. The more flamboyant design and an upgrade two years ago have helped the agency become more competitive, says Goodmon.

“They compete against huge advertising firms on Madison Avenue. When they look for talent, they’ve got to have a type of space that attracts that type of talent.”

About 850,000 sq. ft. of Capitol’s 1 million sq. ft. Durham portfolio consists of offices, with the rest dedicated to retail — mostly restaurants. Roughly 600,000 sq. ft. is former warehouse space.

Goodmon anticipates that it will take up to six more years to complete its historic district projects in Durham. “We have probably three more buildings to build. We’re growing quick.” Eventually, the portfolio square footage will likely reach 1.5 million sq. ft., he says.

As the project progresses, the developer walks a fine line between preserving the historic structures and providing the latest technology. “You want to feel like it’s modern and trendy and new but also celebrates the old at the same time.”

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