When Dominion Realty Partners announced in April its plan to build an 11-story office tower on the Charter Square site in downtown Raleigh, CEO and President Andy Andrews declined to disclose his firm’s equity partner in the $54 million deal.
Last week the partner stepped forward, with Prudential Real Estate Investors announcing Thursday that it has formed a joint venture with Raleigh-based Dominion to develop the 236,000-square-foot building. The investment is being made from a $2 billion fund that invests in all types of property classes in the United States.
Dominion and Prudential are putting up about 40 percent of the cost of the project.
The Prudential fund’s involvement is noteworthy, in that this is just the second speculative office building that the fund has invested in since the recession sapped demand for new office space. The other project is in Houston, where the booming energy industry is driving demand for new space.
Soultana Reigle, a Prudential managing director and portfolio manager for the fund, said the Triangle is on a short list of markets that have the economic fundamentals to warrant such investments.
“We’re looking at those demand drivers – population growth, technology, educated workforce – all those things that are sort of the perfect storm for really having a platform for economic growth for the next few years,” she said.
Reigle cited several other factors that made downtown Raleigh attractive: The city’s support of downtown’s ongoing revitalization; the arrival of Red Hat and Citrix Systems and the addition of more residential units; and the fledging small-business scene now emerging.
“I find downtown Raleigh to be quite entrepreneurial in terms of some of the restaurants and small-business owners,” she said.
Dominion and Prudential’s joint venture is the first of two buildings planned for the Charter Square site, which is at the south end of Fayetteville Street. Dominion hopes to build a second, larger office tower on the north site next to the Bank of America Plaza building.
Although there’s been basically a moratorium on new office construction in the Triangle since the credit crunch hit in 2008, there are signs that there is now demand for new space. Duke Realty, which broke ground on a 206,409-square-foot building in Morrisville’s Perimeter Park in May, has already preleased more than 90 percent of the space.
Reigle said Charter Square expects to have a first-mover advantage by getting out of the ground before other proposed projects downtown.
Prudential also expects the building’s green credentials – the project hopes to be the first office building in the state to achieve a platinum certification from the Leadership in Energy & Environmental Designed program – will be a major draw for tenants.
“That’s another big trend we’re seeing in office nationally, and we want to build a building that plays right into what tenants are looking for,” Reigle said.
While moving ahead without leasing commitments carries risk, the project should benefit from the fact there are very few large blocks of space available downtown. The building is also relatively small.
Andrews’ relationship with Prudential dates to the 1980s. Prudential, through various funds, has been an active investor in the Triangle and currently owns the Oberlin Court apartments in Raleigh and the Southern Oaks at Davis Park apartments in Morrisville. The fund investing in Charter Square owns The Bristol apartments in Morrisville.
‘Mighty happy about it’
Andrews noted that the fund’s investment committee could have chosen to move ahead with a spec building in just about any U.S. market.
“I think it says volumes when the equity source – which is one of the largest investors in real estate in the United States – says they’re going spec in downtown Raleigh and are mighty happy about it,” he said.
Construction of the building is expected to begin in mid-November and take about 12 or 13 months. Andrews said interest from prospective tenants has thus far been better than expected.
“We’re really excited about the opportunity to lease this building quickly and then go right in to the north tower,” he said.