The two biggest corporate and real estate stories in the Triangle converged Thursday as software maker Red Hat agreed to occupy one of Progress Energy's two downtown Raleigh office towers.
The deal will bring hundreds of high-paid technology workers downtown and help offset the job losses that are expected to occur as a result of Progress' merger with Charlotte-based Duke Energy.
Attracting a fast-growing tech firm downtown would ease some of the sting from losing Progress, which will shift its headquarters to Charlotte, and from the looming buyout of RBC Bank, another big downtown employer.
Red Hat plans to relocate all of its Raleigh workers, roughly 600 people now on N.C. State's Centennial Campus, into the Two Progress Plaza building at Davie and Wilmington streets.
Progress, which employs 1,050 people in the building, will consolidate in a single office tower, the Progress Energy Building, a block away on Fayetteville Street.
Red Hat executives announced in early January that the company would move to a new headquarters somewhere in Wake County, and that it would create 540 high-paying jobs over the next nine years. State officials promised Red Hat incentives worth more than $15 million if it meets hiring and investment targets.
Red Hat considered constructing a building on several sites in downtown and around the county. That possibility would have supported hundreds of construction jobs, but it became much less likely after Progress and Duke announced plans to merge.
Progress suddenly found itself needing to be rid of a long-term lease on a 366,000-square-foot building owned by J.P. Morgan Trust Co.
Red Hat, meanwhile, was in the market for between 300,000 and 400,000 square feet of space.
"I'd say this is probably the worst kept secret in the real estate community," said Jack Dunn, a managing partner with Chartwell Property Group in Raleigh. "If you look at the real estate landscape, it's probably the thing that makes the most sense for both Red Hat and Progress."
Red Hat, he said, saves a lot by subleasing an existing building instead of constructing one. And Progress finds a single tenant to take over a lease that runs through 2035.
"It was a one-in-a-million fit," Dunn said.
When Progress will depart and Red Hat will move in has not yet been determined.
The Progress and Duke merger is expected to close by year end but has yet to be approved by regulators. The agreement between Red Hat and Progress is not a lease but a nonbinding letter of intent, Red Hat spokeswoman Leigh Day said.
Progress out in 2012
"We're just waiting to complete the lease and once we're able to move forward we'll have a better sense of a timeline," she said.
Progress employees are expected to start moving out this year and could conclude the move by December 2012.
The company, which employs about 1,900 people downtown, expects to finalize the number of staff reductions that will occur in Raleigh by late September, Progress CEO Bill Johnson said this week. Progress and Duke will offer early retirement buyouts and take other steps to eliminate redundant positions.
Red Hat will put its name on One Progress Plaza and possibly make other renovations to reflect the company's culture, Day said.
The software company's move downtown will be a big loss for Centennial Campus, where Red Hat leases 188,000 square feet. Two-thirds of that space is leased through 2020, and Day said Red Hat would work with NCSU officials to market the property to other tenants.
The Red Hat and Progress deal is also a missed opportunity for a number of office projects in downtown that require an anchor tenant to move forward.
But the addition of a thriving technology company, and hundreds of free-spending employees, to downtown already has city boosters giddy.
"Having Red Hat downtown in a visible building helps us establish our case as a vibrant, growing, dynamic community," said Harvey Schmitt, president and CEO of the Greater Raleigh Chamber of Commerce.
Staff writers John Murawski
and David Ranii
contributed to this report.
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