Real Deals

Credit union tower's a safe bet

Work on downtown building could start this fall

Staff WriterMay 28, 2009 

To get a building out of the ground these days, a developer needs a slam-dunk project, some experience, lots of cash and a good relationship with a willing lender.

And these days, four out of four is as rare as a $2 bill.

Turns out, the group behind one of downtown Raleigh's newest projects may have all four, and probably a few $2 bills.

The State Employees' Credit Union is planning a 12-story speculative office building at 119 N. Salisbury Street, hoping to expand its presence near the State House, where many of its 1.5 million members work.

The project, to take the place of a recently demolished credit union building, has been in the works for years. But more details emerged last week, when the credit union filed preliminary site plans with the city.

The 240,000-square-foot building would include a six-story, 177-space parking deck wrapped with a credit union branch and about 77,500 square feet of offices that will be reserved for prospective renters. Current plans call for the offices to be topped with several dozen extended-stay hotel rooms. But there's a chance that portion may change.

If the plan is approved without a hitch, ground will be broken this fall, says Jim Blaine, the credit union's bank.

Blaine shies away from the "developer" label. But that's essentially the role the credit union is playing, and he's confident in that role.

"One of the reasons we feel so good about this building is it's so uniquely located," Blaine says. "Also, we're sure to grow into it despite the economy."

If this were any other developer, skepticism would abound. After all, lending for commercial projects has tightened in recent years -- especially when it comes to speculative projects, or those that don't have commitments from prospective tenants.

But the rules are a little different when the one with the plan also is a big financial institution carrying $18 billion in deposits and no debt. And the credit union's strategy is a proven one, rooted in the past, present and future.

Until the early 1960s, the credit union resided in the basement of the N.C. Department of Agriculture building at Edenton and Salisbury streets. In 1962, it built a 15,000-square-foot office building on the L-shaped, half-acre lot across Salisbury. Moving out of the basement was part of an effort by the bank to have its own, above-ground presence. And at the time the credit union, then with less than 75,000 members, took up only one-sixth of the building. It leased out the excess to state agencies, eventually filling the building as the union grew.

Same deal this time. The credit union, a private nonprofit cooperative that has since grown to 1.5 million members served by 224 branches throughout the state, plans to occupy a 13,000-square-foot branch in the new building and rent out the excess until it can grow into it. The new building replaces the old one.

So far, there have been no commitments. And fewer prospects abound in this sluggish economy. But building now, and doing it downtown, may have its benefits.

For one, construction costs are coming down as other projects are shelved. And finding prospective renters could be easier in downtown Raleigh, where the office vacancy rate is a Triangle-low 6.9 percent. The regional average is 15.4 percent, according to Karnes Research of Raleigh. Indeed, state agencies, lawyers, even a charter school have inquired about leasing from the credit union.

The construction schedule could be more easily coordinated with the projects that make up the Green Square Complex off two Jones Street blocks.

That's where another capable developer -- the state -- is building a Nature Research Center, offices for the Department of Environment and Natural Resources, an addition to the N.C. Museum of Natural Sciences and a skywalk connecting the museum to the nature center.

Until the new credit union building is finished, those members who bank downtown get to glimpse the past. The branch, homeless again, is in the basement of the agriculture building, Blaine says. "We've gone full circle."

Highwoods Properties raised $125.1 million in a stock offering this week -- among the latest offensive moves geared at helping the Raleigh real estate investment expand its empire.

The company sold 6.1 million shares at $21.50 each, raising proceeds that will help it pay down much of its debt due through 2010.

By doing that, the company can easily avoid the hairy refinancing debacles plaguing REITs that borrowed big during the boom. Many are having a hard time refinancing in a world of frozen lenders.

Indeed, an improved balance sheet could help Highwoods, the biggest suburban office landlord in the Southeast, pluck properties from distressed sellers.

The company has compiled a wish list of properties in the markets that make up its portfolio. "We are ready to pounce if a deal looks good," says Tabitha Zane, Highwoods' vice president of investor relations.

To be sure, the strategy comes at a near-term cost to existing shareholders, as stock sales dilute the value of existing shares. Highwoods announced the sale after the market closed Tuesday. Shares of Highwoods shares fell 7 percent to close at $21.66 on Wednesday.

jack.hagel@newsobserver.com or 919-829-8917

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