Real Deals

Durham’s Hill Building could become boutique hotel and museum

dbracken@newsobserver.com May 10, 2012 

— Standing in the old Central Carolina Bank boardroom atop the Hill Building, it’s easy to see why bringing this landmark structure back to life continues to hold such promise.

While the 1935 building’s art deco ornamentation makes it an architectural marvel, its location at the intersection of Main and Corcoran streets is just as important. Reopening the 17-story tower, also known as the SunTrust Building, would go a long way toward linking the core of downtown Durham with other redevelopment activity occurring nearby in West Village and American Tobacco Campus.

The latest – and by far the most unique – redevelopment proposal for the Hill Building emerged last week, when a Louisville, Ky., developer announced that it wants to turn it into a 125-room boutique hotel that will also feature a contemporary art museum and a restaurant and bar.

The proposal, which would require $5 million in public assistance from the city and county, is sure to rekindle debate over the proper use of incentives. It also represents an interesting test case of the ability for art to drive commerce in Durham and elsewhere around the Triangle.

Although 21c’s hotel concept may sound whimsical, it makes a lot more sense when you understand the company’s origins. Its founders, Laura Lee Brown and her husband Steve Wilson, are contemporary art collectors with very deep pockets. Brown is an heiress to the Brown-Forman liquor company, which owns both Jack Daniels and Southern Comfort.

21c operates a similar, and highly successful, hotel in Louisville – its signature feature is red penguin sculptures that pop up in different places around the hotel – and the company now has two other hotels under construction in Cincinnati and Bentonville, Ark.

Craig Greenberg, 21c’s president, said the company was approached by Greenfire Development, the Hill Building’s owners, a few months ago about redeveloping the property.

Since buying the building for $4.1 million in 2006, Greenfire has cycled through a number of prospective development partners, including two hotel operators. In 2010, Greenfire received $4.2 million in incentives from the city and $1 million from the county provided Greenfire began construction work by July 31, 2011, and completed the project by July 31, 2013.

Greenfire met the first deadline by obtaining demolition permits for interior work, but had demonstrated little progress until last week’s announcement. While the incentives are still technically active, it would be impossible for Greenfire to meet the completion deadline at this point.

Greenfire’s baggage

This latest deal calls for Greenfire to sell the Hill Building to 21c, which would also manage the hotel. Greenfire would then become a minority partner, with 21c coming up with the $40 million in financing needed to complete the project.

Fairly or unfairly, Greenfire carries a lot of baggage in Durham these days. Just last month city officials ordered the company to repair the southern half of its Liberty Warehouse, which saw a portion of its roof collapse a year ago in a rainstorm.

Greenfire is perhaps wisely letting 21c run the show as it seeks its own incentives package from local officials. Partner Paul Smith declined to comment, other than to say that Greenfire is excited about the project and believes it is the highest and best use for the building.

Greenberg said 21c also received generous incentives packages on its other projects in Louisville, Cincinnati and Bentonville, where its hotel is being built near the recently opened Crystal Bridges Museum of American Art. The company recently announced a fourth project in Lexington, Ky., and has plans to develop 15 properties over the next five to 10 years.

Greenberg ticks off numerous reasons why these deals require a public-private partnership: they involve hotels being located in historic structures; they are being done in smaller cities; they don’t involve a brand-name hotel.

“This type of project is one of the most challenging types of project to finance right now,” he said. “We think we have the unique ability to get this financed.”

Incentives questioned

21c closed on more than $80 million in financing for the two projects now under construction, and the wealth of the company’s founders likely helps in a risk-averse lending environment.

Greenberg said the company’s success in Louisville is proof that art can drive commerce. The Durham hotel’s museum would have a curatorial team and would be free and open to the public 24 hours a day.

“Unlike some other hotels that use art as decoration we’re a real museum,” he said. “Being a part of the arts community that we’re in is extremely important to us.”

Whether all this is enough to win over Durham officials remains to be seen. The downtown area is desperately in need of more hotel rooms, both to enable the city’s convention center to attract larger events and to meet the demand created by a growing office market.

In a recent memo to county commissioners, however, Deputy County Manager Marqueta Wilson said increased property tax revenues from the 21c project don’t warrant the $2 million the county would contribute. (21c is asking for twice the amount of incentives the county earlier approved for Greenfire to turn the building into a boutique hotel.)

21c counters that hotels provide other revenue – such as sales and lodging taxes – beyond just increased property taxes.

In the end, the deciding factor may not be the incentives. If officials are indeed wary of dealing with Greenfire, which remains one of the largest property owners in Durham, this offers a way to transfer ownership of a key property to another developer.

In Louisville and now elsewhere, that deep-pocketed developer is gaining a reputation for having a unique vision and executing on that vision. Durham of all places knows the benefits that can flow from such a combination.

Bracken: 919-829-4548

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