RALEIGH -- A Triangle developer wants to scale back plans for one of the region's most ambitious urban development projects - an indication of how the Triangle's once-robust real estate market has changed during the prolonged economic slump.
Developer Gregg Sandreuter proposes a $30.6 million, six-story mix of apartments and shops near Progress Energy's downtown Raleigh headquarters.
It's the latest incarnation of Edison, a mixed-use project slated to eventually encompass most of the downtown block bounded by Blount, Davie, Wilmington and Martin streets.
The new plans represent just the first phase. They also represent a broader trend: Developers are rethinking - and downsizing - enormous projects that seemed possible when the economy was humming and jobs were plentiful.
In 2007, near the peak of the Triangle building boom, Edison's blueprints included a 39-story tower on the northern third of the block.
The new plans focus on the southern third, where Sandreuter once envisioned a 24-story office tower. The offices were key to financing the project. But the recession sapped demand for offices, and few investors have since been willing to finance such projects without commitments from big tenants.
Companies such as Radio Shack, Red Hat and the law firm of Smith Anderson heard Edison's pitch for corporate offices, according to a Raleigh Budget and Economic Development Committee report.
But Radio Shack stayed in Texas. Smith Anderson remains in the Wells Fargo tower on Fayetteville Street. And Red Hat, which seemed the most plausible candidate for Edison, chose to move into Progress Energy's headquarters once the public utility decided to merge with Duke Energy.
In 2007, when companies were clamoring to move to the Triangle, Sandreuter might have waited for the next big fish to build an office tower.
"The question is: Does the next Red Hat come in 2012 or 2022," Sandreuter said in an interview.
Rather than wait to find out, he revised plans for the southern section of the block to include 239 apartments and 18,000 square feet of stores or restaurants. No offices.
If that big corporate fish comes, Sandreuter said, there's still the northern part of the block, where an office tower could be built. "It's a smaller project," he said. "It's suitable to the times."
And that may make it more suitable to lenders.
Apartment financing
Because lenders also have tightened up on home mortgages, fewer people can buy homes, boosting demand for rentals. And these days, apartments are about the only type of new commercial development lenders will consider financing.
In central Raleigh, demand has been steady. More than 93 percent of inside-the-Beltline apartments were leased at the end of July - up from about 88 percent two years earlier, according to Carolinas Real Data, which tracks the Triangle apartment market.
Developers have taken note. Beginning in late 2012, downtown could see more than 600 new apartments finished within a matter of months - a scenario sure to challenge investors' rosy outlook for the sector.
The 140-unit St. Mary's Square, planned by Ravin Partners, could be the first to open in Glenwood South late next year. Meanwhile, Southern Land Co., a Tennessee developer, plans 250 units nearby. And Faison & Associates of Charlotte is expected to break ground Monday on a 249-unit project just west of West Morgan and Hillsborough streets.
Sandreuter, too, is deep in the scrum. In addition to Edison, he submitted site plans with Raleigh in August seeking to build up to 153 apartments next to West, a 17-story condominium building he developed near Glenwood South.
Parking spaces
Sandreuter, who also developed the Dawson on Morgan condo project in downtown Raleigh, hopes to finish the new phase of Edison by the middle of 2014, provided the plans pass muster with city planners and financing falls into place.
A parking deal with Raleigh, which the City Council approved unanimously this week, is key to getting the project off the ground.
A 1,224-space parking deck divides the block on which Edison would be built. Highwoods Properties built it in 2008 and set aside 528 spaces for RBC Plaza, the gleaming tower Highwoods built across the street. The remaining 696 parking spaces are owned by the city. Sandreuter has an option to buy them.
But because this newer version of Edison is smaller - and therefore won't bring in as much money - Sandreuter worked out a rent-to-own deal with Raleigh officials. He'll lease 300 spaces for now, giving the city $8.3 million over 20 years, after which Sandreuter would own the spaces.
Under this week's deal with Edison, the city also would be able to collect parking fees from the spaces in the Highwoods deck during hours when many residents are at work, which would help Raleigh eat into its parking revenue deficit.
"It's a step forward for the Edison project as well as downtown," Mayor Charles Meeker said. "Having more people live in the center city is always a good thing."
Staff writer Matt Garfield contributed to this report.
