Arrested development
Flames crackle and pop as they blacken skeletons of pines unlucky enough to have taken root in this patch of Wake County. Until recently, they flourished here, thanks to ample sunlight, water and human indifference. But there’s no room for them anymore. They don’t fit the new landowner’s plans and didn’t make the grade as timber. So men operating yellow excavators pick them up and feed two pyres sending white smoke and gray ash into a powder-blue sky. Tall green-needled survivors shiver behind shape-shifting columns of heat and curtain off the highways that helped change this land from pasture and cropland to prime commercial real estate.
Later this year, more men will come to smooth the dirt and install water, sewer and power lines. They’ll lay concrete foundations, erect a steel frame, install precast concrete panels, top it all with a roof and finish the interior. They’ll pave parking lots, add truck docks and turn on the electricity. Sometime in 2009, trucks and trains will start bringing food in and taking it out. At its 133,000-square-foot distribution center here, Irvine, Calif.-based Golden State Foods will employ 225 people supplying about 500 McDonald’s restaurants in the Southeast.
It will join four completed buildings — each about 125,000 square feet — and another that is nearly finished as Greenfield North takes shape on 228 acres near Garner. To an outsider’s eye, business parks near major roads seem to sprout like weeds in summer — predictably, almost inevitably. It was only a matter of time before somebody developed this tract, framed as it is by two major highways — Interstate 40 and U.S. 70 — and railroad tracks that run between the seaport in Morehead City and the state’s urban heartland. The I-440 Beltline girdling central Raleigh is five miles up I-40.
But Greenfield North was far from inevitable. A business park wasn’t the original plan for the site, and it took its developer most of the 20 years it has been in business to turn mild interest in the property into a partially finished business park. Assembling land for the original project, a controversial Oreo cookie factory, began a year before Craig Davis Properties Inc. even existed. But the plant was never built, and the site sat idle until 2001. After a slow start, the company scored some big hits — it landed the headquarters of poultry processor Butterball last August — and hopes to build out the park by 2015.
By then, it will have been nearly 30 years since the cookie factory was announced, nearly 20 since Nabisco approached Davis about a joint venture and 14 since it sold the land to Craig Davis Properties and an investor. By the time the park is finished, or nearly so, it will be time to cash out and use some of the proceeds for a new project, perhaps another of those business parks that just seem to spring up.
Nearly 60 years ago, Rogene Newkirk’s father bought 38 acres along the railroad tracks in southeastern Wake County and started raising tobacco. Kids sometimes played baseball in nearby fields. But in 1987, as the state Department of Transportation finished work nearby on an interchange at I-40 and U.S. 70, the days of farming and baseball ended. Steve Stroud, chairman of Raleigh-based NAI Carolantic Realty Inc., began buying land for a mixed-use business park being assembled by NCNB Real Estate Fund, a pension fund. “Obviously, being on the interchange of an interstate highway and a U.S. highway that serves the major markets of Eastern North Carolina would be an attractive location,” Stroud recalls. “They bought it with the anticipation of growth coming that direction.”
He ended up with about 1,000 acres fronting three sides of the interchange and gave the particulars to the state Department of Commerce and various chambers of commerce so they could tout the property to potential buyers. One quickly signed on. In early 1988, RJR Nabisco, which had recently moved its headquarters to Atlanta from Winston-Salem, announced it would build a $600 million cookie bakery and distribution center that would employ 600 on 152 acres northeast of the interchange. But it wanted government aid in preparing the site and muscled through the legislature a break on corporate sales taxes later referred to in the local press as the “RJR tax break.”
RJR Nabisco also needed an interchange on U.S. 70 just east of I-40 to provide access to the property and water and sewer service. Wake County and Garner spent $2.1 million on water and sewer extensions to the property, and the state spent $3.2 million to build the desired interchange in 1991. But it made the pension fund promise that if the plant weren’t built by June 1993, the fund would reimburse the state.
In 1989, New York-based Kohlberg Kravis Roberts & Co. bought RJR Nabisco for $25 billion, then the largest leveraged buyout ever. That sparked fears that the plant might never be finished, though Stroud received frequent assurances it would. Foundations were poured, but RJR Nabisco announced in early 1991 that it would delay completion of the bakery about 10 years, blaming a slowing national economy and the snack industry’s trend toward smaller batches of numerous brands. Stroud blames the buyout. “They apparently stripped all the capital out of Nabisco, and they stopped this and some other projects, I believe, because they didn’t have the funds to do them.”
DOT said it planned to recoup what it had spent. RJR Nabisco countered that it had agreed to pay the pension fund $1 million for the interchange and already had fulfilled its commitment. In 1992, the pension fund reimbursed the state, but it felt burned by RJR Nabisco. “They sort of left the pension fund holding the bag,” Stroud says. “Neither the state nor the pension fund would have built that interchange had Nabisco not guaranteed they were going to build the plant.”
The property sat in limbo for years. RJR Nabisco kept an armed guard there and continued to insist, Stroud says, that it would build the plant. Davis followed the saga in the newspaper. After starting his company in 1988, he had made a name for it by developing Research Tri-Center, 2.2 million square feet of warehouses and office space next to Research Triangle Park. He had made casual inquiries about the RJR Nabisco site when the project stalled. But it wasn’t until a planning retreat in Boston in 1994 that the company decided to zero in on the I-40/U.S. 70 interchange, strategically located between Raleigh and Johnston County. “From a cost standpoint and a labor standpoint, that just jumped out at us,” Davis says. “You had tremendous growth projected in Johnston County. You had wages that would attract some of these distribution companies.”
The property southwest of the interchange was already in play and would become White Oak Crossing shopping center. Northwest of the interchange were smaller parcels. “You had too many people that had different opinions and valuations, so you really couldn’t assemble all of that quickly,” Davis says. Elevation changes southeast of the interchange would make high-density development of distribution space too costly. “You couldn’t put a big warehouse there. You could build one or two. If you go over there today, you can see there are some distribution facilities, but it’s not as cohesive a master plan as what we’ve got.”
Davis decided that the northeast quadrant offered the best potential return. In 1996, a Nabisco consultant approached him about a joint venture. “After we went through the process — we said we’d give them a business plan for it, master-plan it and all that — they came back to us and said, ‘We’ve thought more about it. Why don’t you just buy it from us?’” Davis liked the location, the price and the business-friendly vibe he was getting from Garner. In 1999, Craig Davis Properties contracted to buy the RJR Nabisco site and began conducting its due diligence. Among other things, it looked at soil conditions, the cost of grading and market demand.
It quickly discovered that it would need to buy 76 acres between the interchange and the RJR Nabisco property. The pension fund wanted $70,000 an acre in a part of Wake County where office and industrial land was going for about $40,000. Stroud says it had an unwritten agreement to allow RJR Nabisco to use a road on its property but never dedicated it as a public thoroughfare. Davis balked at the extra cost, and negotiations dragged out more than a year. He could have walked away but eventually decided it could still work and bought the parcels in May 2001. “The pension fund probably got some of its money back for the interchange when it sold the front property,” Stroud says. “The pension fund felt like Nabisco owed it, so through one means or another, it eventually got its money back.”
Together, the two tracts averaged about $45,000 per acre, Davis says, with the one from the pension fund costing nearly twice as much per acre as the RJR Nabisco site. The delay cost him a few tenants, including Trane, a Piscataway, N.J.-based maker of heating-and-cooling systems. “Trane and some others had to have buildings built prior to the time we could deliver.” Davis had worked with his investor, GE Pension Trust, for 10 years on other projects, including Research Tri-Center, which was sold in 1997, so each had a good idea what to expect from the other. What they didn’t count on was terrorists flying jetliners into the World Trade Center and the Pentagon on Sept. 11, 2001, and the economic malaise that would follow. “When 9/11 hit, everything just died a little bit for a couple of years,” he says.
The company got to work refining its site plan, getting regulatory approvals and making necessary road, water and sewer improvements. The town of Garner — eager for jobs, investment and progress on the property — came through with $1.3 million in tax incentives. As the company was finishing its improvements, the state tightened water-quality rules, forcing it to increase the capacity of a retention pond to capture more runoff. The company was talking to prospective tenants but didn’t find any takers in a sluggish market.
It broke ground on its first building in 2003, hoping to find tenants during construction. Pergo, a German flooring maker that had opened across U.S. 70 in 1996, was looking to expand. Negotiations took about nine months, but in mid-2004 it moved into Greenfield North. By then, Craig Davis Properties had started its second building. “Our process is to keep 125,000 to 150,000 square feet in inventory at any one time,” Davis says. When Jack Dunn joined the developer as chief investment officer three years ago, Pergo remained the only tenant. “Probably in 2004, you start to see the market firm up,” says Dunn, who became president of Craig Davis Properties last year. “And as rents returned to the level that would be consistent with those that someone would charge for new construction, our activity picked up substantially here.”
Two more tenants moved in during 2005, another in 2006, two in 2007 and one, so far, this year. In late 2006, Virginia-based Smithfield Foods and Goldsboro-based Maxwell Farms bought Butterball for $325 million and moved it from a Chicago suburb to Mount Olive, best known for its pickle factory. Not long afterward, a broker approached Craig Davis Properties about moving the headquarters to Greenfield North. Butterball also was evaluating sites in other states and elsewhere in the Triangle. “We went through probably five or six months of inquiries and negotiations before they ultimately elected to relocate here,” Dunn says.
In its headquarters, Butterball wanted two kitchens where it could hold classes and broadcast cooking demonstrations, he says. “We’ve got a grease trap you would normally find in a large restaurant.” The developer also had to make Butterball happy with the architecture while making it fit with Greenfield North’s other buildings — big boxes of white concrete with touches of gray. “If you’ve ever been to Research Tri-Center, one of his first projects, it looks identical,” says Brian Reece, managing partner of Raleigh-based Karnes Research, which tracks the Triangle real-estate market. “He’s taken basically the same product and placed it in a different location.”
The Butterball headquarters has more than just four sides and angles wider than 90 degrees but keeps the white-and-gray color scheme, and much about the building resembles the others in the park. Though Butterball wasn’t planning a distribution center, Greenfield North’s location was important — close to its owners and closer to Raleigh’s amenities than Mount Olive, Dunn says. “This was as far west as all the Eastern North Carolina people wanted to go, and this was as far east as all the big-city Chicago folks would go.”
Butterball announced its move in August, and the building should be done this month. About 70 will work there. The town gave it property-tax rebates worth up to $100,700 over three to five years — partly for the jobs, partly for the boost in tax base over undeveloped land and partly for the prestige of having the headquarters of a well-known brand.
For Craig Davis Properties, office space means higher rents. Offices use more glass, and the interiors cost more than distribution space, Dunn says. “Obviously, if somebody has a concrete floor and nothing but a bunch of racks and boxes, there’s a lot less involved there than there would be in an office environment, where you’ve got carpet, lights, air conditioning, heating, etcetera.” Attracting a high-profile tenant such as Butterball makes it easier to sign others. “Corporate parks are not that different from neighborhoods. Once you start to attract a certain demographic, they tend to find comfort in the fact other Fortune 500 companies or other prominent private businesses are there.”
Earlier this year, Golden State Foods announced it was coming to Greenfield North. It also got about $100,000 in tax breaks from the city, and it, too, required a structure built to suit its needs. “They probably have roughly four times the amount invested in that building as you would find in one of these other distribution buildings,” Dunn says. “A lot of sophisticated conveyor systems. A lot of refrigeration/freezer-type stuff.”
After sputtering its first few years, Greenfield North is building steam. Despite the sluggish economy — some say it’s a recession — Reece says the signs point to success. “We’ve got low vacancy rates and rental rates that are increasing. Typically, when you see those two in the equation, you’re going to start looking at speculative builds. But we don’t have a lot of product in the pipeline.”
So far, the partnership has put about $40 million into the project. Total investment probably will max out at $120 million, Dunn says, and it will probably grow to 2 million square feet. The joint venture will own most of the buildings and lease out floor space while it builds out the park, but not all companies will rent. Gregory Poole Equipment, for example, a Raleigh-based vendor of construction equipment, bought 45 acres and will move in during the next three years.
As the park nears completion, the joint venture will start looking harder at a specific exit strategy, including selling to a landlord that’s just looking for rental income, Dunn says. “Then we’ll redeploy the assets and go do it again.”