Real Estate News

2 years and counting: Crane marks spot of Raleigh project in limbo

In June 2015, a crane went up along Hillsborough Street across from N.C. State University to help builders erect a 7-story apartment building.

The crane was supposed to come down a few months later when the building, called Hillsborough Lofts, was ready for students to move in for the fall semester of 2015. But almost two years later the crane is still there, and the building isn’t.

All that has materialized of Hillsborough Lofts is a one-story concrete shell. Since late 2015 the site has been quiet, and the roughly $8.3-million project is stuck in legal limbo as arbitrators begin to take up the case in July.

This stretch of Hillsborough Street near campus has been the site of many successful redevelopment projects in recent years, including the Aloft Raleigh boutique hotel and student housing projects Valentine Commons and Stanhope Center. The Lofts project, developed by Hillsborough Lofts LLC, is a rare and visible disappointment, said Jeff Murison Executive Director of the Hillsborough Street Community Service Corporation.

“It’s 100 percent the exception, it’s the 1 percent,” he said. “It just happens to be a very visible 1 percent.

Hillsborough Lofts manager Cary Joshi was active among business owners on the street and strongly advocated for the project, said Mitch Hazouri, owner of Mitch’s Tavern a few doors down. Hazouri, who opened his bar and restaurant in the 1970s, said he supported Joshi’s plan to go up seven stories, where only five was permitted.

The project required a rezoning from the city, and as it worked its way through the city’s Planning Commission and City Council, neighbors in nearby University Park neighborhood resisted, Hazouri said. But he said business owners on Hillsborough Street and members of the neighboring West Raleigh Presbyterian Church were supportive.

The 54-unit project was expected to stand 75 feet tall and have 10,000 square feet of ground-floor retail space. In 2014, Hillsborough Lofts LLC bought and razed the buildings next to The Alley bowling alley – soon to become a Target – that housed a few businesses, including Two Guys Pizza. Hazouri said the crane and the concrete shell are a constant reminder of the unsuccessful project.

“It’s been a disappointment to see this project languish like this, instead of adding vibrancy to the street,” Hazouri said.

The crane

What Hillsborough Lofts has added to the street is a landmark in the form of the crane that towers over the site and periodically swings into different positions. The movement is likely not an operator’s doing, said Leon Skinner, Raleigh’s Chief Building Official, because crane arms typically are left so they can move in the wind to prevent damage.

“They probably left it in a free-spinning state, and you may see it move depending on the strength of the wind,” he said. “I don’t know that anybody has been on that jobsite.”

The Pecco crane was rented from Morrow Equipment Company and certified in June 2015. Morrow’s Ted Simpson, who works out of the company’s Atlanta office, said putting up a crane can cost $100,000.

Rent on the crane was $13,877.50 each month, said Matthew Bouchard, the attorney for Wright Construction Services, which was contracted by Hillsborough Lofts to build the project.

During initial demolition and construction, the City of Raleigh inspectors regularly approved construction allowing it to continue, but no official had inspected the property between October 2015 and January 2017.

An inspector visited the site in January after a News & Observer reporter inquired about the project, Skinner said. The inspector found some of the perimeter didn’t have fencing, and Hillsborough Lofts has since sealed the area with fencing and a lock so people can’t easily walk into the site.

So far, three separate companies have obtained permits and paid the city about $30,000 in fees to occupy the sidewalk and five parking spaces in front of the project.

When work restarts it will be treated like a new construction project, and city inspectors will have a meeting with contractors and owners to make sure plans have not changed, Skinner said. The crane will also need to be re-certified by inspectors to make sure it is safe.

Suits follow suit

Hillsborough Lofts terminated the contract with Wright Construction Services in December 2015 and immediately began arbitration against the contractor, said Hillsborough Lofts’ attorney John Mabe.

Arbitration is a legal process replacing a judge and jury with arbitrators. Proceedings and outcomes are typically private and legally binding.

In March 2016, Wright filed a lien against Hillsborough Lofts and filed to enforce it in May 2016. Several of Wright’s subcontractors also filed liens in connection with the project, and most of those claims have been resolved, Bouchard said.

A second lawsuit, filed by Wright in September 2016 in Wake County Superior Court, alleges that company officials were misled into working with Hillsborough Lofts. It also alleges that Hillsborough Lofts made progress impossible by firing both the design firm and construction manager and not following through on things such as moving power lines.

Wright tried to make progress but had design questions, Bouchard said. Since designer Olive Architecture had been fired, questions weren’t answered quickly and that slowed progress. The contractor was then blamed for the delays and fired, and Hillsborough Lofts took control of the site and everything on it, Bouchard said.

For its part, Olive Architecture says it ended its work on the project because it wasn’t being paid and has filed suit seeking payment.

Hillsborough Lofts believes Wright’s claims are untrue, and the allegations are related to the fact that Wright did not have a North Carolina license to act as a general contractor when it entered into the project, said Alkesh Shah, also a manager of Hillsborough Lofts.

“The allegations made by the contractor are untrue and, frankly, just don’t make sense,” Shah said in a statement. “None of these allegations were made until after the problems arose with their performance.”

The parties Hillsborough Lofts, Wright and bond company Liberty Mutual are expected to begin private arbitration in July. Construction could resume this fall, Shah said.

Joshi did not want to comment for this story, said Mabe, the company’s attorney.

Half built

While legal issues work themselves out, Joshi is working on building and running a vodka distillery in an old power station in Kinston. City Manager Tony Sears told the Kinston Free Press in June 2016 it would sell the property to Social Beverage Company for $500.

The N.C. Department of Commerce said in a December release that Social Beverage will create 34 jobs and invest $5.8 million in Kinston over three years. If the company meets its hiring and investment targets, it will qualify to receive a $68,000 grant from the One North Carolina Fund.

No state incentive funds have been paid so far, said David Rhoades a Department of Commerce spokesman.

Meanwhile, parishioners and employees at West Raleigh Presbyterian Church eagerly await progress on Hillsborough Lofts. John Baker, a church elder, was trustee president when he appeared before the city planning commission and city council to speak in favor of the project, which shares an alley with the church.

“We felt like it would benefit the immediate area behind our church and that part of Hillsborough Street,” Baker said.

Hillsborough Lofts also vowed to host a pay-what-you-can cafe, A Place at The Table, in the new development. The cafe is led by people who participated in the church’s campus ministry. The cafe is now trying to find space elsewhere.

Instead of the cafe, the crane has become the church’s neighbor, even appearing prominently in a photo of the church on its website.

Pastor Katherine Rick-Miller said the church community is ready for the project to be finished.

“I think our position remains that the health of the neighborhood needs the health of that building and the completion of that building,” Rick-Miller said. “I don’t think it benefits anyone to have it half built.”

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