Monica Chen over at the H-S has an excellent and comprehensive story today on Scientific Properties' closing their purchase of the Heritage Square shopping center for $4 million -- the cheapest part of Scientific's total planned $155 million investment.
The numbers are truly staggering in scope for the area -- 325,000 sq. ft. of retail, 235,000 sq. ft of commercial office space, and 220,000 sq. ft. for residential on just ten acres. By comparison:
- Diamond View II, the prominent commercial office building rising behind the DBAP and next to the Performing Arts Center, is significantly smaller (150,000 sq. ft.).
- University Marketplace, the mixed-use redevelopment of the old Kroger plaza by South Square, will have 115,000 sq. ft. of retail space (one-third the Heritage Square amount) on 14 acres, along with 300 residential units.
What's the value of all this space? Let's ballpark some numbers here, starting on the low-end for rental rates and assume $16 per sq. ft. for commercial (far less than the asking rates at Ambacco) and $10 per sq. per year for residential (assuming all apartments, which isn't the case, but the sale prices on condos would probably equate to the same day one present value. Retail is trickier, but let's be conservative and assume about $20 per sq. ft. based on asking rates for other mixed use developments in the Triangle.
Factor in a 10% vacancy rate and you're looking at about $13 million in gross revenue a year. Not too shabby on ten acres of soon-to-be-former shopping center space (especially one selling for just $4 mil today.)
The hundred-and-fifty million dollar question in all this, of course, will be whether Scientific can lease up the spaces, particularly the retail and, to a lesser extent, the commercial property. Although the new courthouse location next to the Jail seems likely to lead to an exodus of law firms from eastern downtown, they'd seem more likely to gravitate towards the property that Scientific owns at the Venable, American Tobacco, and any future development at the Johnson dealership site that Scientific Properties now controls. Similarly, how quickly will Scientific be able to fill up retail sites at Heritage Square -- and will these be new additions to downtown, or will they poach from the Hesters' property across the street and from Northgate?
It is upon this question that large sums of money rest. And it is likely also a factor in Scientific reaching out for a development partner to help fill and lease out the retail sites, similar to the West Village folks have done with Vanguard's involvement in their latest phase (though the latter is using Vanguard just as an agent, not a true development partner.)
Expect completion by late 2009 on the current timetable.