Chesterfield rehab takes big step forward with bond sales complete; April '11 construction start planned
It's two days before the end of the year deadline for financing the rehabilitation plans for downtown Durham's Chesterfield building -- and, it appears, Josh Parker and his team have pulled off the real estate equivalent of a Hail Mary pass.
A press release from Parker's team this evening reveals that their bond advisors have completed the sale of $63 million in stimulus-funded recovery zone bonds, the linchpin of a $90 million rehab of the structure into more than 150 apartments along with ground-floor retail and office space.
It's a stunning end to a few short months' work by Parker, the twentysomething Durham native and former member of the West Village development team, who's teamed up with one of the financing partners behind the original project effort to gain control, and now financing, against what some observers thought were pretty long odds a few months ago.
But instead -- after rumored interest from developers like Scientific Properties, and after public saber-rattling by original but beleaguered WV developer Christian Laettner -- the announcement of bond funding two days before the crucial federal deadline for stim-bond sales addresses the final hurdle standing in Parker's way.
Ladies and gents, it's time to deal in a hand for Mr. Parker at the downtown development table.
~ ~ ~ ~ ~
We've followed the fate of the hulking downtown structure for some time, as cracks appeared in the façade of the Laettner/Davis partnership at West Village in recent years.
Rumors of a sale of the massive mid-century cigarette factory to new investors percolated around the N&O last summer, and were followed by the developers' surrender of a deed in lieu of foreclosure in December 2009, only eighteen months or so after the Phase II development of West Village wrapped up.
Deedholder Select Capital Management spent much of 2010 in negotiations with Charlottesville, Va.-based Octagon Partners, a developer that seemed legit -- so much so that Durham's own city manager reportedly did some checking out of the firm's work when in C-Ville recruiting that town's CIO away to the Bull City.
But the due diligence dragged on, and on, and on, with word coming out in the summer that the building seemed to be back up for discussion by other entrants.
Out of nowhere, it seemed, Parker -- who went from high school in Durham to New York for college, followed by a B-school stint at NC Central -- was stepping forward with an agreement to purchase the Chesterfield, contingent upon lining up recovery zone financing.
Laettner speed-dialed the local press, suggesting his own intent in acquiring the property, and raising the specter of parking difficulties; his team still controls the Fuller St. parking deck that was intended to fill up with cars from the Chesterfield's tenants, before the recession (and before lawsuits from investors) sidetracked Laettner and Brian Davis' work to rehab the final section of the West Village project.
Durham's county commissioners, whose votes were needed to approve the stim-bond issuance even though no public dollars were at risk, noted their interest in getting answers to parking. But Parker's team did their own version of basketball's pick-and-roll, "pick"ing an alternative surface lot location where tenants could "roll" their vehicles to rest.
Even with BOCC approval, however, Parker and crew had a very short window in which to work.
NC's Local Government Commission approval for the bonds came on Tuesday, December 7, leaving Parker's company less than a month to get the bonds sold before a federal deadline that seemed unbending, particularly given changing power in Congress and a public mood increasingly distasteful of economic stimulus efforts.
BCR checked in with Parker a couple of times in the intervening weeks and heard positive feedback on the effort, led by muni-bond issuance specialists Stone & Youngberg Holdings.
And tonight came word of the successful bond issuance by Parker and company, wrapping up a frenetic few months -- barely -- of work to get the building under control and rehabbed.
~ ~ ~ ~ ~
Parker notes that work will actually begin in April 2011, a few months later than an originally hoped-for wintertime beginning. As the developer notes in the press release:
Chesterfield Partners executed an agreement to purchase the Chesterfield Building in October 2010 with intent to issue Recovery Zone Facility Bonds before the December 31, 2010 expiration. Acquisition of the building and construction was originally slated to begin as soon as the bonds were issued. Given the year end volatility in the municipal bond market, under the guidance of Stone & Youngberg, Chesterfield Partners elected to issue the bonds into escrow in an initial interest rate period until April, and convert the bonds to a fixed rate early next year when the market is more stable. Chesterfield Partners executed an extension of its purchase agreement with current building owner, Select Capital Management, until the end of April 2011. The proceeds of the bonds will be held in escrow for approximately 100 days at which time they will be released, the building will be purchased and construction will begin. The additional time to close on the building and start construction allowed the bonds to be issued under the deadline and create a structure that affords the project the best possible interest rates.
From a feasibility perspective, the project inherits existing building plans and Barnhill Construction, the firm originally lined up to renovate the building -- and in writing off the original plan for a light well in the building's center, lowers the complexity of the build-out significantly.
The release adds that the project is qualifying as one of the largest overall recovery zone bond sales in the entire state of North Carolina -- and that it was able to earn finds even when other projects in the Tar Heel State didn't.
No word on where Greenfire stands with its bond sales efforts around the proposed Spark boutique hotel in the Hill (SunTrust) Building downtown; the developer signaled a few weeks back their plan to hold off until 2011 on seeking bond issuance (and continuing to seek alternative financing). It's not clear whether there'll be any extension of stim-bonds programs, though one also wonders about the odds of even such tax-incentivized programs getting interest from buyers given the overall weak market for hospitality projects nationwide.
Not so multi-family, which has seen a renaissance nationally of late.
The tough housing market means those relocating from other areas within or outside the region are more likely to rent if they're still stuck with a property back home, or if they're just nervous about setting down more permanent roots.
Add to that the continuing interest in downtown areas generally, and Durham's own downtown renaissance, and you're seeing the center of much of the Bull City's recent residential activity. From Trinity Commons down by Duke, to the just-announced apartment plans across from Station Nine at Ninth Street, and the word from developers that they can lease up downtown apartments as fast as they're being built -- and, well, you see where there's such interest in apartments.
The Chesterfield, post-rehab, will house more than 150 apartments, along with 50,000 sq. ft. of office space and 10,000 sq. ft. of retail -- the latter of which will nicely fill in the last gap of streetfront retail downtown, and creating a "complete" pedestrian experience almost the entire way from Duke's East Campus to east of Roxboro St.