Developers alter grand plans

This time last year, executives at American Asset Corp. were raring to build an ambitious, 12-story office building in northwest Raleigh.

It would be the first of four that would make up Brier Creek Town Center -- the centerpiece connecting a cluster of offices and shops that the Charlotte developer had built there in recent years.

But come spring, the slowing economy caused tenants to delay expansion plans. And cash-crunched lenders began requiring developers to pre-lease much of their planned buildings before offering construction loans.

"We took a step back, took a deep breath," Joe Dye, an American Asset vice president, recalled. And they thought: " 'A 12-story building is incredibly expensive -- do we want to push that out there, sensing that the market could change? Let's call time out.' "

The developer chucked its four-building plan and reconfigured the Town Center featuring six eight- to 10-story buildings.

The tweak meant smaller, less dramatic buildings in the core of the campus. But it made for buildings that were easier to finance in the near term. After all, leasing a smaller building is generally easier than leasing a bigger one.

The same calculus is being hashed out by developers across the country.

"Today's credit markets are being dramatically transformed," said Gregg Sandreuter, president of Hamilton Merritt, a Cary development company. "We've got a new economic reality facing us."

The credit crunch has stalled or canceled dozens of projects in the region. And most signs point to things getting worse before they improve.

For developers that are moving ahead, some are going back to the drawing boards, looking to break up big buildings that were planned in a frothier time into bites that risk-averse lenders would more easily digest:

* RP Realty is considering a less ambitious redevelopment of Waverly Place in Cary. The company is reworking the original $180 million redevelopment that called for 204,190 square feet of shops, including a Whole Foods grocery, 216,000 square feet of offices, a 120-room hotel and 200 homes.

That plan, hatched in early 2007, was to be completed in one phase. But it fizzled as a core of prospective tenants thinned and as lenders tightened.

By September, "the market wasn't going to support a deal that had that many food groups at one time," said Todd Zapolski, a partner in the group that sold the property to RP Realty.

RP may break the redevelopment into more phases.

* Empire Properties' plans for a 22-story mix of offices, condominiums and hotel rooms near downtown Raleigh's new convention center were being reshaped into a "a project that better fits these economic times," Greg Hatem, Empire's managing partner, said this summer.

Hatem has considered splitting the project into two phases: hotel rooms in one tower and later adding offices and condominiums in a second.

* Last summer, Sandreuter proposed Edison, a two-tower plan to include a 38-story tower with a mix of shops, parking, hotel rooms, and condos or apartments, and a 24-story cousin with 500,000 square feet of offices and parking to support it.

Soon after, Sandreuter bought neighboring tracts that would allow him to build four towers. Two would rise 39 stories, but all would be less voluminous and therefore easier to finance.

The decision to break up the project came before the lending crisis hit. But it echoes the caution that played out at Brier Creek.

"Even if the market is smoking, delivering 500,000 square feet in one building is a more difficult proposition than delivering it in multiple buildings in multiple phases," Sandreuter said.

"By having it go up, rather than go out, we're making it more achievable."