Tower of power
The landmark Reynolds Building is the latest piece of the tobacco empire downtown developers want to renovate.
By David Mildenberg
Nearly three decades after Ross Johnson called Winston-Salem too bucolic to attract young professionals, out-of-state developers are poised to prove the former RJR Nabisco Inc. CEO wrong. Johnson saw untapped value in the tobacco-and-snacks conglomerate and departed with a $60 million payout ($115 million in today’s dollars) after moving company headquarters to Atlanta, sparking a $25 billion leveraged buyout and shaking the confidence of North Carolina’s fifth-largest city. Now developers see fortune in the physical remains of the Reynolds empire, their hopes tied to a vibrant downtown arts and restaurant scene and the nearby Wake Forest Innovation Quarter research park.
At the research park, San Diego-based BioMed Realty Trust Inc. has invested about $250 million to convert old R.J. Reynolds Tobacco Co. factories and warehouses into laboratory space and offices where about 3,000 people work, most for Wake Forest Baptist Medical Center or Inmar Inc., a local e-commerce company that moved 900 employees there this year. Other developers are betting some of those workers — and perhaps many more to follow — want to live as well as work in relics of the Twin City’s industrial past.
Ron Caplan, president of Philadelphia-based PMC Property Group Inc., is tackling the most glamorous project, renovation of the 22-story Reynolds Building into 120 apartments and, on lower floors, a 211-room hotel operated by San Francisco-based Kimpton Hotel & Restaurant Group LLC. PMC and Kimpton bought the building in June from Winston-Salem-based Reynolds American Inc. for $7.8 million. That’s less than the $10.5 million compensation paid last year to Reynolds CEO Daniel Delen, who retired in May. After more than $50 million of work, developers plan to reopen the building by 2016. The cigarette company, which hasn’t used the building in five years, sought an owner who would help make downtown Winston-Salem more attractive to tourists and business travelers, Andrew Gilchrist, president of the R.J. Reynolds Tobacco Co. subsidiary, said at the press conference announcing the sale. Greensboro-based Quaintance-Weaver Hotels LLC considered buying the building before backing off in 2012.
Architects cite the Reynolds Building as one of the nation’s best examples of art deco skyscraper design, and it was the model for the Empire State Building in New York City. When it opened in 1929 as the tobacco company’s headquarters, it was the tallest building between Baltimore and Miami, a testament to the power of Reynolds, the nation’s largest cigarette-maker for much of the last century.
“That building is the grand old lady of Winston-Salem,” says Nancy Holder, 83, who worked there about half her 40-year career as a Reynolds travel, food and meeting planner. She recalls white-gloved elevator operators and CEOs who discouraged executives from driving to work in any car fancier than a Buick, and ate hot dogs at lunch with working stiffs at Bobbitt’s Pharmacy in the lobby.
Reynolds employs about 900 downtown and more than 3,000 in the region, compared with more than 15,000 in the 1960s, when a fifth of the city’s workforce was on its payroll. With demand for downtown housing soaring, the buildings give Winston-Salem an edge over cities that never had landmark structures or, worse, tore them down, says Caplan, whose company’s largest project is a 345-unit apartment complex in a million-square-foot cotton mill built in Columbia, S.C., in the 19th century. “As you travel the world, the places that have been the most responsible have saved as much of their fabric as possible. To really create a vibrant downtown, to really change the way people view urban America, you need the history of the community. This is hugely important for the identity of Winston-Salem.”
While PMG converts mahogany-paneled executive offices on the top floors of the Reynolds Building into living space, Chris Harrison has started collecting rent nearby in a former tobacco factory. Following four years as an offensive tackle for the NFL’s Baltimore Ravens and Detroit Lions, the University of Virginia graduate started a company in 1999 to redo old buildings around Washington, D.C. In 2011, he joined Durham developer Tom Niemann in the $7 million purchase of Plant 64, comprising five former Reynolds buildings. They vowed to open 243 apartment units by late 2012, but plans stalled when Niemann dropped out, bedeviled by lawsuits and wrangling over downtown projects in Durham and other cities. After many unsuccessful calls, Harrison persuaded Philadelphia-based PennRose Properties LLC to back him. “If I were talking about Charlotte or Raleigh or Durham or Chapel Hill, people would be clamoring to be involved,” says the developer, whose C.A. Harrison Companies LLC is based in Bethesda, Md. “But when you talk about the secondary markets, people have to understand the vision of what is going on downtown.”
PennRose and Harrison are spending about $50 million on Plant 64 because Winston-Salem is poised to lure more college graduates born in the 1980s and 1990s, says Kyle Speece, a PennRose development officer. More than 20 leases are signed, and in late June the first renters moved in. “The presence of a growing number of young millennials is a real advantage, and downtown Winston-Salem has a real revitalization feel. As close as Plant 64 is to the Innovation Quarter — within a city block — we saw a real advantage.”
Herb Coleman saw the potential eight years ago when he converted a former P.H. Hanes Co. knitting mill into Winston Factory Lofts, an 171-unit apartment project. He compares the city with Virginia’s capital, where he lives. “Richmond has been going through a renaissance for 10 or 20 years, and adaptive reuse is a pretty well-understood game. When I was thinking about coming to North Carolina, I just traveled around and familiarized myself with the different cities, and I just fell in love with Winston-Salem. It has a small-town feel but a terrific downtown.” His Clachan Properties LLC is rehabbing the old Forsyth County Courthouse, which sat vacant for 20 years across the street from 29-story Winston Tower, former headquarters of Wachovia Corp. Clachan bought the building in March from the county for $700,000 and plans to turn it into 57 apartments that will open next year.
Making the new developments pay off requires attracting more people and jobs, which hasn’t been the city’s strength since Ross Johnson’s caustic comment. Winston-Salem’s list of corporate headquarters — which includes Reynolds American, BB&T Corp., Hanesbrands Inc. and Krispy Kreme Doughnuts Inc. — is the envy of most cities of similar size, but it hasn’t scored a big relocation in many years, says Andrew Brod, a former UNC Greensboro economics professor who tracks local economic statistics. Winston-Salem’s population has grown 65% since 1990, while Charlotte’s and Raleigh’s have doubled. More shops, restaurants and lofts are nice, “but you need new jobs,” says John Reece II, managing partner of Winston-Salem-based Commercial Realty Advisors LLC. He’s developing 751 W. Fourth St., a five-story office building that is downtown’s first new multitenant structure since 2002. More than 75% of its space is leased, and key tenants include two local institutions, money managers Atlantic Capital Advisors LLC and The Winston-Salem Foundation. “What’s been driving the market of late is a reshuffling of the deck among local tenants and not true job creation,” Reece says.
Much of Winston-Salem’s hopes rest on the Innovation Quarter, which is riding a hot streak after Inmar’s move. “We wouldn’t have thought there was this much growth in a city the size of Winston-Salem,” says Dan Cramer, senior vice president for development at BioMed’s Wexford Science & Technology division. “It has exceeded our expectations and accelerated faster than we expected. Yes, I mean financially.” BioMed plans to spend $130 million over four years because it expects Winston-Salem to attract more biotech and information-technology companies. “We’ve created a superb location with energy, and we are now on the map,” says Eric Tomlinson, a Wake Forest Baptist Medical Center administrator who is president of the Innovation Quarter. “But the next phase is to attract those marquee companies to come to Winston-Salem.”
Related: Buying a brand
Reynolds American is acquiring Lorillard in a $25 billion deal that, in essence, boils down to buying Newport, by far the nation’s most popular brand of menthol cigarettes.