Confirmed: Greenfire purchases SouthBank building

Well, it's official: Greenfire Development has confirmed that it is purchasing the SouthBank building in downtown's Five Points area, at the northwestern edge of the Downtown Loop. The Herald-Sun reported Greenfire's official announcement of the buy in this morning's edition, confirming the reports that initially appeared at BCR on September 7.

According to the H-S article the plan for the time being is to continue to operate the building as a commercial property, with about 75% of its space leased by SouthBank and other tenants. I suspect that eventually we'll see a higher use for the site than the current office building, especially given the Loop and West Village connection.

In fact, the bigger question with yet another purchase lies in this being the next step in what Ross Perot might have called a "giant sucking sound" hovering over Bull City's downtown. Gary has some thoughtful opinions over at Endangered Durham, including asking the question that has bedeviled so many of us who watch Durham: exactly what is Greenfire's end-game with all this?

Greenfire's done a quality job with properties like the Baldwin and Kress buildings, but have been notoriously less-than-transparent about their long-term goals. Over time, the financial sources of Greenfire's funding have become clearer, representing a mix of out-of-region and increasingly within-region investor dollars supplemented by bank financing post-site control. (The "green" in the word Greenfire may not be merely a reference to conservationism -- it can also be read as an allusion to Ireland, reportedly the ancestral home of one of Lemanski's early investor partners.)

Financing aside, what does Greenfire stand to gain by owning so much property? We tread into the murkier ground of speculation at this point, but bear with me for a moment as we look at four reasons this mass investment seems to make some sense.

I'm convinced at this point that some of my early fears -- particularly around this being an opportunistic land assemblage packaging -- weren't justified. (Assembling multiple parcels of land for a higher and better use is a difficult and expensive process; imagine owning nine of the ten properties you need, for instance, and trying in turn to buy the last one. An expensive prospect if the seller knows the leverage they have.) No, the care paid to renovating and marketing the Baldwin and Kress, and now in place over at the Rogers Alley fire station, have alleviated the concerns of at least this observer.

So if that's not your position, why else invest this deeply? One feasible explanation is the ability of Lemanski/Webb and their investors to secure and multiply the return on their investment. There are two sub-aspects to this:

• #1: Protecting the investment: Given the state of decay of downtown Durham as recently as ten years ago, broader site control could help Greenfire by ensuring that they control the destiny of neighboring properties. No one (well, their customers excepted) wants to see another Teaser's Men's Club go in downtown. Greenfire has a greater control over their destiny by controlling the uses of adjacent properties.
• #2: Broader impact of appreciation: Again, as an early investor in this round of downtown improvement, Greenfire will certainly help improve property values throughout the district. By having bought up more properties at earlier, lower prices, Greenfire's investors will capture more of the economic externalities of their property improvements.

Of course, there's another advantage Greenfire gets: #3 leverage, of the sort that Capitol Broadcasting has enjoyed tremendously with American Tobacco and the Bulls/DBAP empire, and which Blue Devil Partners and especially Scientific Properties seem bent on achieving, too. Namely, the leverage of scale.

Want to move along the gears of government with Planning, or Inspection? Improve your chances with the City Council to get project improvements, or public investment?  It helps if you're a major player in the property and investment game, since you hold the key to improving the tax base and bringing the city's tax base -- a notorious challenge for Durham.

If Greenfire only owned a couple of properties downtown and renovated them, they'd have far less leverage over process and outcomes than they will as the major landholder in the district. And as the city plans for next phases in downtown redevelopment and particularly transportation changes, Greenfire will certainly want a front-row seat for this change.

Of course, there's one other explaining factor: To the extent that Greenfire's financing does come from long-held, likely very patient family money, the Durham opportunity to grab everything in sight makes a great deal of sense. The Triangle is one of the fastest-growing, hottest regions in the U.S., with great economic and employment fundamentals.

Within that regional backdrop, downtown Durham's underperformance is largely thanks to poor public investment/urban "renewal" decisions and a suburbanization trend over the past thirty years. The first problem has reversed itself in Durham's case, and the second is reversing nationally as cities and density become a popular trend. And, of course, to an image problem that, at last, gives glimmers of subsiding.

Ultimately, it's what you might call #4 a real-estate arbitrage situation. Downtown Durham property should be worth a lot more, fundamentally, than it has been -- if you compare to Raleigh and Cary and other markets. So investment here presents a chance to significantly earn above-market returns... especially if you own enough property that you really and truly control your own destiny, and if your pockets are deep enough to let you be really patient.

So am I happy that SouthBank is under new ownership and, just ever so possibly, the bulldozers have moved one millimeter closer to this monstrosity? With minor reservations, yeah. I'm not as concerned as Gary is about not knowing their plans, and though more openness there would be great (and hey, BCR is always looking for scoops, guys), I think there are enough rational reasons why they're heading down the Pac-Man investment strategy path to not be too concerned.

Messrs. Lemanski and Webb, and your investor friends: please don't prove me wrong.

Comments

[GK]

Kevin

Great in-depth analysis of the situation. I probably was too harsh in saying "who cares" if Greenfire is just another landlord. It certainly is better to have local ownership of our downtown buildings - simply because they have greater vested interest in seeing it improve. The downside to large-scale property control, in my mind, is that it dampens competition - good for Greenfire, but not necessarily good for us. Probably not as big a concern for something like Southbank than it is for smaller renovations, but in-the-loop increasingly will develop at Greenfire's pace, and with Greenfire's program. Maybe that will turn out to be great, maybe not.

I felt more comfortable with that until the NC Mutual Building. It's an intriguing move, along with Southbank. To me, the improvement of Southbank is of such importance (I think the impact of an active to-the-sidewalk frontage on W. Main and Morris could be incredibly transformative) that I hope they are thinking improvement, rather than just control.

GK

[orulz]

I don't know what Greenfire has planned for the building but if I were them, I'd at least wait until the city is ready to start construction on the Loop two-way conversion.

I would guess that this project is for the moment, fairly far down the on their list of priorities (the CCB building, for which they already have a concept of what they're going to do).

But please, Greenfire, PLEASE do something with this block. Please!

[Bull City Rising]

Gary, Orulz - thanks for the comments. To the latter point, I think that yeah, this is probably down the line. It's got decent occupancy at this point, so they can just live with the cash flow for now. Five or ten years down the road, the price would be a lot higher. But yeah, I think it's definitely in their interest to plan this around the Loop reconstruction (something they may now have a bigger say in.)

As I alluded to a few weeks ago, I think it's going to be interesting to see how the more diversely-owned sections of downtown (like the DAP district, or the eastern part of downtown) redevelop in comparison to Greenfireland.

[seth vidal]

Well, the west end of downtown needs a community garden area like Seeds on the eastern side. I think the southbank lot would make a lovely spot for community garden plots. Maybe greenfire really wants to emphasize the 'green' in their name.

[KH]

I don't understand the urgency for knocking this building down versus other buildings in downtown. Do I think it will ultimately be redeveloped for a higher and better use?...yes! Greenfire as a PRIVATE company is going to make the best decisions for their investors (and probably for our community). There is a huge amount of office, retail and residential space that will be coming online in the next year or two. Why would you evict a tenant that is covering 75% of your lease to demo the building?

Is the building that ugly? Maybe nobody has used imagination on how this building could be rehabbed and expanded. I see this building and the Mutual building as several phase redevelopment efforts that will take many years to complete. New window and exterior color treatments would go a long way...think Self-Help's building on Cocoran/Main...