CHRIS SEWARD - 2002 NEWS & OBSERVER FILE PHOTO
Red Hat's lease on two-thirds of its Centennial Campus space runs through 2020, so the company will have to find a sublessee.
When a major tenant decides to relocate, you can expect that the landlord being deserted will do his or her best to spin the situation in a better light.
The loss, while disappointing, is actually an opportunity to bring in some new blood! You know, shades of economist Joseph Schumpeter, creative destruction and all that.
While this argument often strains credibility - particularly in a real estate market where few companies are expanding - it may have some merit in the case of Red Hat's recent decision to leave N.C. State's Centennial Campus for downtown Raleigh.
Red Hat, of course, isn't leaving its landlord with a chunk of space to fill. Two-thirds of the company's 188,000 square feet is leased through 2020, thus it will be Red Hat's responsibility to sublease the space.
But as Centennial's largest tenant, Red Hat's move marks a turning point for the public-private venture. And it comes at a time when the 1,125-acre campus in Southwest Raleigh has a number of projects under construction or seeking financing.
Across Varsity Drive from Red Hat's headquarters, Craig Davis Properties has begun initial site work on the long-delayed Alliance Center I, one of the very few speculative office buildings being built in the Triangle.
The $35 million project is being built entirely with equity from investors, Craig Davis said. No tenants have been announced for the 150,000-square-foot building, which is expected to be completed by the end of 2013.
Michael Harwood, associate vice chancellor for the Centennial Campus Development Office, said that while he's sad to see Red Hat go, he believes ultimately the move will be good for the campus.
It will allow Centennial to diversify its tenant roster by freeing up space for both existing tenants looking to expand and new companies, he said.
It's true that nearly all of the 1.2 million square feet of leasable space on Centennial is now taken, but having about 330,000 square feet of pricey space available in uncertain economic times will test any development.
"This is not the place for cheap real estate," Harwood notes.
It's also not the place for, say, a call center or some other old-economy business. Centennial signs long-term ground leases with developers who build on the campus, an arrangement that allows it to maintain a certain amount of control over who locates there.
The campus wants innovative companies, and prospective tenants must show how they will collaborate with the university. Such a requirement helps ensure that Centennial remains true to its original mission, but it also reduces the pool of prospective tenants.
Making the campus more attractive to employers in the long term also will mean adding more amenities, such as retail and residential options.
"We're trying to build a community of innovation, and you can't do that without the amenities," Harwood acknowledges.
While most people know about Centennial Campus, many never have a reason to visit it. Still others aren't sure whether they're allowed to visit, a misunderstanding that has been particularly problematic for the Lonnie Poole Golf Course.
That should change in the coming years as a number of other projects are completed, particularly the James B. Hunt Jr. Library and a 1,200-bed student housing complex.
Centennial has signed ground leases with developers for an apartment complex that would offer about 290 market-rate units, and a conference center and hotel near Lake Raleigh. Neither project has secured financing.
There's also Town Center, an area on the northeast shore of Lake Raleigh where there are nascent plans to add 400,000 to 500,000 square feet of retail and residential space, and perhaps a fitness center.
Centennial has hired a company to do a market analysis of the project, which poses unique challenges because it needs to be welcoming to students, visitors and employees of the companies on campus.
"That is really tough," Harwood said, noting that replicating existing shopping centers in the area probably won't work. "How do you not create another Waverly Place?"
Centennial's uniqueness stems from the fact that it is a place where the state, the university and the private sector all are financing different projects. The methodical build-out of the campus is a reflection of planners' concerns about getting that mix right.
"It is deliberate; we're not trying to get it all built at once," Harwood said.
He also wants to make opportunities for people who want to partner with the campus.
Thus far, Centennial has not had a problem finding employers who see great benefit in being on campus. The departure of Red Hat will test whether that continues to be the case.
