Durham County is putting the old Carmichael warehouse up for sale, Ray Gronberg reported in Tuesday’s Herald-Sun, following Duke’s submission of a $6.8 million bid for the building. What does that mean for downtown Durham?
Good things, according to Bill Kalkhof, the impresario of downtown Durham and the president of Downtown Durham Inc.
“The county has a very solid offer that I think is a very fair offer for the property,” Kalkhof said. “And it’s being made by a great institution, and the offer can only get better from here.”
The statutory process by which the property is being sold gives other interested parties 10 days from the date a formal notice of sale is published to submit upset bids. Such a bid must exceed the preceding offer by 5 percent. Each upset triggers a new advertisement and a new 10-day window for further bidding.
The county is not obligated to complete a sale.
A transfer of the Carmichael, a tobacco drying and storage warehouse built by Liggett and Myers in 1926, has been brewing for years. The space is currently occupied by part of the county’s Department of Social Services. By 2013, those offices should be set to move into the finished Human Services Complex on East Main Street, which is already partially occupied.
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The county has owned the two-story building since 1996, when it purchased the structure from the tobacco company that built it. Part of the building — which was home for a time to baseball card maker SkyBox International — consists of office space. A portion remains a warehouse, which lacks heating and cooling.
The latest property tax assessment valued the 93,000-square-foot building at just over $3 million and its nearly five acres of land at just under $2 million.
At the request of County Manager Mike Ruffin, Kalkhof evaluated the building’s worth last year. He said it could bring between $6 million and $7 million on the market.
“Duke certainly was interested and put a very nice offer on the table,” Kalkhof said. “But we have had inquiries from other groups. I don’t know how they would react to a $6.8 million offer.”
He speculated that the building’s value might be as high as $7.5 million were it not for the extensive refurbishment the space will require.
If a private developer is able to top Duke’s bid — and that’s a sizable if, this correspondent suspects — the county would be able to return Carmichael to the tax rolls. Duke’s ownership, given the university’s nonprofit status, would keep the building and its land from generating annual tax revenue for city and county coffers. Of course, Carmichael is off the books currently, since government entities don’t pay property taxes.
All of which begs this question: What does Duke want to do with the Carmichael warehouse anyway?
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Bull City Rising asked that of Duke’s associate vice president of capital assets and real estate.
“It will be probably either office space or lab space,” Scott Selig said.
Since there’s no set time frame for completing a potential acquisition of the building, and since a new owner probably won’t have an empty structure ready to undergo renovation before late 2012, Duke hasn’t set a use for Carmichael, Selig said.
The university hasn’t even determined exactly how it might go about allocating the space. Studies that Duke (and other large institutions) regularly conduct will likely influence the process.
There’s no question, however, as to why the Blue Devils have a hankering for Carmichael.
“It’s got a great location,” Selig said. “We already have a number of people downtown. It’s very near our Bull City Connector, so it’s connected almost immediately to Duke through the free Bull City Connector ride, and it’s a very flexible building — well-built, flexible building.”
Kalkhof had envisioned Carmichael becoming either a mixed-use or commercial building. It’s a bit out of the way for retail, he said, and a developer would likely favor business over residential uses because the downtown still has relatively few available Class A offices.
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The university’s acquisition of Carmichael, should it occur, won’t lead to Duke conducting a major consolidation of its downtown leases, Selig said, although some offices may be shifted to the warehouse.
“Duke has a continual expansion need, or has historically, and there’s not significant available space out in the market currently,” the vice president told us.
The university is a significant force in the Durham real estate market. Selig estimated that Duke leases some 500,000 square feet in 10 locations scattered around the Bull City’s downtown. At an average rent of $22 per square foot, Selig said, that’s $11 million a year that the university pumps directly into the pockets of local landlords.
Both Selig and Kalkhof say that the Blue Devils have been a major factor in downtown’s revitalization.
“We know that by putting people downtown, it brings disposable income downtown, which ... helps to feed downtown’s economy,” the university associate VP said. “And Duke’s leasing has been one of the economic redevelopment of downtown.”
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When Kalkhof was hired at Downtown Durham Inc., perhaps his biggest imperative was to get the university to sign on as a tenant. At the time, Duke leased about 1,200 square feet and had fewer than 10 workers in the Bull City’s center. As of last year, some 2,000 downtown employees drew university paychecks.
Duke has been indispensable, Kalkhof said, as the city’s prime creditworthy leaser — a tenant whose commitment can enable a developer to finance construction. The university signed on to deals out of enlightened self-interest.
“If downtown’s good, it helps them recruit students and staff and all that, and we saw it as a great business opportunity for us to be able to develop some of these buildings if Duke would be that creditworthy client,” Kalkhof said.
Downtown Durham would have made progress without the university, the head of Downtown Durham Inc. insisted, but it certainly would not have gone as fast.
Changes to this patch of the downtown quilt won’t go all that fast, either. By the time the sale and redevelopment of Carmichael is complete, today’s incoming freshmen could be juniors.
But given the fairly formidable bid Duke has put in, and given the university’s history of involvement in central Durham, it seems safe to say that one way or another, the institution will continue be a major force downtown for years to come.