Home to a successful minor league sports team and a vibrant mix of offices and restaurants, Durham's American Tobacco Campus has emerged as the kind of successful downtown revitalization project that other cities pine for.
Now, in the midst of a sluggish economic recovery when few companies are hiring, American Tobacco's owner, Capitol Broadcasting, is showing just how confident it is about the development's future.
The Raleigh company, which also owns WRAL-TV, plans to move ahead this spring with construction of a 130,000-square-foot office building beyond the left field wall of the Durham Bulls Athletic Park.
Capitol is going ahead with the project despite the fact that no tenants have committed to take space in the building.
While construction of speculative office buildings was common during the boom years, it has become nearly unheard of in the Triangle in recent years because of a lack of financing for such projects and because the weak economy has sapped demand for new office space.
Capitol isn't saying how the project is being financed other than to say it won't be an issue.
"There are a lot of ways, obviously, to finance buildings, and we haven't decided which route we're going to take," said Michael Goodmon, Capitol's vice president of real estate.
He said the company's goal is to have shovels in the ground no later than April 1, with the building opening sometime in mid-2013.
The five-story building will be called Diamond View III, named like the two existing office buildings that now overlook the ballpark.
It will include about 15,000 square feet of retail, most likely restaurants with outdoor seating and views of the ballpark.
It will not include any additional parking.
Capitol's decision to build Diamond View III speaks to how well American Tobacco has performed during the economic downturn despite charging some of the highest rents in the Triangle.
At 6.1 percent, downtown Durham had the second lowest vacancy rate in the Triangle in the third quarter, behind only downtown Raleigh, according to Karnes Research, a Raleigh firm that tracks commercial real estate trends.
The market is particularly tight for newer office space. Many companies used the recession as an opportunity to move to nicer digs in better locations as landlords were forced to offer discounts to keep their buildings leased.
Even the departure of one of American Tobacco's original anchor tenants, Glaxo SmithKline, failed to slow the complex's momentum.
In May, GSK vacated about 88,000 square feet as part of its efforts to consolidate local operations and cut costs.
Within four months of the drugmaker's departure, Capitol had signed leases for all but about 6,000 square feet of the space.
The new tenants include Taiwanese cellphone maker HTC, Health IT Services Group and Wireless Generation, an educational software provider based in Brooklyn, N.Y.
Less than 2 percent of the 850,000 square feet of office space Capitol owns in American Tobacco is now vacant.
Prospects for tenants
Part of the reason Capitol is willing to move ahead with Diamond View III without an anchor tenant is because it expects that many of those existing tenants, which also include the advertising firm McKinney and the skin care company Burt's Bees, will soon need more space.
"We have a lot of high-growth tenants at American Tobacco," Goodmon said.
And it's hoping to develop more with American Underground, the 26,000-square-foot space on the lower levels of the Strickland and Crowe buildings that caters to startups.
It's currently home to two incubators, Joystick Labs and Groundwork Labs, that allow entrepreneurs to lease space a fraction of what it would cost elsewhere on the campus.
Also in the pipeline
Goodmon declined to disclose the estimated cost of Diamond View III, though it will be considerable. Craig Davis Properties is now building a 150,000-square-foot speculative office building on N.C. State University's Centennial Campus that is expected to cost $35 million.
Capitol has also filed expansion plans with the city of Durham for two other new buildings next to the Performing Arts Center, which sits directly behind the Diamond View II office building. Those projects remain in the planning stages, Goodmon said.
"We've always thought about this building as completing the ballpark and adding that last piece to the ballpark to make that experience world class," Goodmon said.
"It's the dead center of the campus, so it's a really important building for us."
