If you had the money, 2011 turned out to be a pretty good year to be a buyer of real estate.
Prices for most types of properties continued to come down while the number of willing and able buyers remained relatively small.
It's worth keeping this in mind as we consider the sweetheart sublease deal that Red Hat was able to get from Progress Energy. The details of their agreement were made public last week, and they likely looked pretty appalling to those who are having a hard time seeing how the merger of Progress and Duke Energy can be good for the state when it will result in hundreds of lost jobs.
There's even some talk that the sublease deal - which calls for Red Hat to receive at least $28 million from Progress over the next 25 years - could draw scrutiny from state regulators who are weighing the public benefit of the merger.
But from a real estate standpoint, the sublease agreement looks pretty much exactly the way you would expect it to.
In many ways, Progress' current situation is a lot like a homeowner trying desperately to sell a really big, and really expensive, McMansion in North Raleigh.
Only much worse.
The number of buyers in the market for a two-decades-long lease on a 19-story, 366,000-square-foot building are few. Actually, there's just one.
If Red Hat didn't sublease the building, Progress would have been forced to backfill the space in pieces. Most smaller tenants would not be interested in signing long-term leases, which would create even more uncertainty about Progress being able to keep the building filled until its lease expires in 2035.
So not cutting a deal with Red Hat wasn't really an option for Progress, which Red Hat executives surely knew all too well.
Remarkable timing
Red Hat is a notoriously frugal company and not the type of corporation that builds a $100 million headquarters just because it can. So the opportunity to move downtown into a single building for a fraction of the cost made an enormous amount of sense.
(And it was hard not to believe a deal was predestined after Red Hat announced it would stay in Wake County on the same day that Progress and Duke formally announced their proposed merger.)
Still, Red Hat was under no pressure to make a deal. The software company currently leases 188,000 square feet on Centennial Campus, two-thirds of which is leased through 2020.
If Progress tried to drive a hard bargain, Red Hat could have stayed on Centennial Campus instead of paying to build a new building somewhere in Wake County.
Keep in mind that building an office building downtown likely would cost upward of $30 a square foot, or roughly $9 million a year in rent on a 300,000-square-foot building. Factoring in the payments it will receive, Red Hat's sublease with Progress means it will be paying less than a third of that.
Returning to our earlier analogy, Progress is essentially paying for a complete renovation of the house and all the closing costs. Plus it's agreed to chip in for future renovations.
Did I mention it's a buyer's market?
