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Duke bid on tobacco warehouse could extend the university’s downtown footprint

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. 

~ ~ ~ ~ ~

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? 

~ ~ ~ ~ ~

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. 

~ ~ ~ ~ ~

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.” 

~ ~ ~ ~ ~

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. 



"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."

Lots of money goes into the pockets of Duke administrators, too. Here's bonus data from the 2008 IRS Form 990 that not-for-profits must file:

Duke Health Chancellor Victor Dzau ($983,654 bonus)
Duke Health CEO William Fulkerson ($318,799 bonus)
Duke Health VP Kenneth Morris ($264,691 bonus)
Duke Management Company's Neal Triplett ($729,749 bonus)
Duke Management Company's Anders Hall ($434,804 bonus)
Duke Management Company's Andreas Ritter ($434,804 bonus)
Fuqua Professor Dan Laughhunn ($1,031,673 bonus)

Are the bonuses given for finding tax-free business opportunities? Additional property tax revenue helps our low-income children. Who benefits from the bonuses?


Just read an interesting and related article in the NYT regarding cities seeking more cash from nonprofits occupying valuable real estate, especially including universities and hospitals ("eds and meds" as they are referred to by planners, according to the article).

Anybody know what kind of, if any, payments in lieu of taxes Durham is collecting from Duke at this time?

The GronBear

Duke has historically made some payment in lieu of taxes, but not anything near the tax payments they would make. Unfortunately the link that would display their impact seems to be broken:

I'm disappointed that Duke is snapping up this building. Seems like some developer/entrepreneur could have a use for it if given the opportunity and time to know it would be available. 10 days isn't much time to put a deal together in the private sector. Who is Kalkhoff referencing that has expressed interest? Have they been given the time and opportunity that Duke surely was before making this offer. Seems very fast.

Duke will continue to lease space downtown, but their impact would be much greater if they only leased from private landlords who pay taxes and continue to develop new buildings. I suppose even Duke is having to show fiscal restraint in office leasing.

In the end anything Duke does to promote growth downtown is value add, but like payments in lieu of taxes it may only be a fraction of the potential benefit.


i would think the future Durham Central Grocery Coop would be part of any group looking to invest.

Rob Gillespie

The co-op seems to be pretty settled on the location at Broadway and Mangum. They have an option on the property, initial plans, and their capital campaign is centering on that piece of land.

Duke currently pays $300,000 a year for fire protection services. Duke is also currently paying around $350,000 a year for the Bull City Connector, and gives money to different neighborhood groups through the Duke-Durham Neighborhood Partnership. Duke also pays impact fees associated with new construction on campus.

Duke owns property with a value of at least $450 million--I only added up properties valued at more than 1 million.

I understand that both Duke and DUHS are considered not-for-profit, but the health system pulls in about $250 million in "surplus" (read: profit) each year. Perhaps Durham could give a little bit more to help downtown revitalization and safety & security efforts in neighborhoods that directly abut Duke's campus. Increasing funding to both of these will benefit Duke by making the university a more attractive place to study, live, and work.

[as always, my comments reflect my personal opinion and not that of my employer]


Perhaps a bit of a stretch to make a connection here, but a pet peeve of mine on the DUHS end is their "hospital-based clinic" fees that they charge for visits to the Pickens clinic and others. Here they sit on (so much) taxable property that is off the tax rolls for Durham residents, who then face high property taxes in relation to other communities--essentially subsidizing the tax-free Duke properties--and then they turn around and hit people with these fees. If Durham "gave a little more to downtown revitalization & safety" I'm assuming it would be financed by even higher property taxes. Let Duke institute a discounted Durham resident rate on things like clinic fees, ticket/performance prices, etc. and we can talk about it. And yes, I'm waiting for pigs to fly.

Rob Gillespie

I meant to write that Duke should give some money to downtown revitalization and safety, not Durham.



mistakes happen


I didn't go to Duke. I don't work for Duke. I've always hated Duke's basketball team. But the notion that Duke University hasn't done enough for Durham is laughable. Durham wouldn't even exist without Duke. American Tobacco renovation wouldn't have happened without Duke. West Village wouldn't have happened. The DPAC wouldn't have been built without Duke's gift ($7.5m?) and the ADF would be in Raleigh, etc., etc.

Duke brings tens of thousands of people to Durham every year to teach, work, study, or receive treatment in the hospital. Those people all buy stuff here, eat at restaurants here, and pay a lot of taxes here. The University pays for the water they use and for City fire protection. They have their own police (who also patrol the neighborhoods around East Campus since the City wasn't doing it). They build and maintain their own utility infrastructure and streets. They have their own public transportation, and supplement ours. I really don't see what services the City is providing to Duke that aren't being paid for several times over.


7 people taking BONUSES of $ 4,200,000.

working for a tax exempt entity.

and the special knowledge they hold which makes them so valuable is not being shared as a public service?

Understandable. Please, there's nothing to see here, move along.


@RWE: I did go to Duke. I do work at Duke. And I do love Duke basketball. But I also live in Durham--and while Duke is doing better at stepping up to the plate and being a part of the Durham community, your picture of town-gown relations is pretty one-sided. Just start by taking a look at how much Duke-owned property in Durham is off tax rolls. A LOT of acres--university, medical center, forest, hotel/golf-course--a LOT of property. You bring up streets--what streets do you think all those Duke employees drive on to get to their jobs on campus or to their parking lots (many of which are strewn about in neighborhoods around campus)? We just passed a bond referendum to maintain & repave Durham streets--that will be paid for by Durham residents . . . . Did Duke chip in? Public transportation? Bull City Connector aside (it is new, and there was a lot of internal pressure on Duke to provide transportation for its employees to its strung out administrative & financial offices--so it wasn't all motivated by a desire to serve Durham), Duke has done very little to support public transportation in Durham or to encourage & enable its employees & students to use public transportation to get to & from work. Public transportation subsidies? Staff discounts for public transportation? Parking: It used to be that Duke opened its gated lots at 5 PM and people coming to campus for events could park free in the gated lots. Now--those lots are closed all the time so people have to pay to park in the Bryan Center garage--filling Duke's coffers and making it far less attractive for residents to attend on-campus events. Meanwhile, they foist their lack of adequate employee parking off on surrounding neighborhoods, even as they're undertaking a massive building & expansion project at the hospital. Where will all those new employees/patients/visitors park? Probably in some new surface lots they'll create in neighborhoods around campus. So who will host the visual eyesore of acres of parked cars? You won't see it at Duke--it will be Durham neighborhoods. And who will pay for things like the degraded water quality from runoff from those lots, street maintenance from increased traffic to & from those lots. Right. Durham citizens. Despite repeated calls from Durham businesses & neighborhoods for Duke to revise its flex & food-on-points policies to allow students to spend flex dollars in restaurants & businesses around campus, Duke has resisted--so they could keep the 15-20% charge they make off of food on points deliveries to themselves and discourage students from frequenting businesses near campus and in downtown Durham. And Duke police? Please! They mainly police Duke events and run interference for Duke students so they're not prosecuted or punished for their actions.

John Schelp

Duke has been working very hard to improve town-gown relations with Durham. In particular, Duke's Office of Regional Affairs has made much progress over the past 3-4 years. But there are silos at Duke. And there's room for improvement in some of those silos...

Opinion: Undermining Duke's genuine efforts to improve town-gown relations
By John Schelp, Herald-Sun, 19 Nov 2009

Duke is reviewing executive vice president Tallman Trask's performance and they're soliciting feedback from relevant constituencies. I offer this input as a member of the Durham community actively involved in working with the Duke-Durham Neighborhood Partnership and others to improve town-gown relations.

Duke has been working hard to build stronger bridges with Durham. Many at Duke are doing wonderful things in the community.

At the same time, Trask is deliberately undermining the university's genuine efforts to improve town-gown relations.

This summer, the community asked Duke to keep its promise not to demolish historic mill village buildings on Central Campus. Duke had agreed to give $5000 towards the moving costs of each house. We held up our end of the bargain by generating a list of people interested in moving the mill houses.

Trask knew the community wanted to save the historic buildings. Instead, he deliberately allowed them to fall into disrepair.

Then, without even telling Duke's vice-president in charge of Durham affairs, Trask ordered the 100-year old buildings demolished. As Trask left town for Labor Day, bulldozers leveled the Garden Street store and nearby mill houses. (The Site Plan that Trask submitted to local planning officials didn't even list two of the demolished buildings.)

This isn't the first time Trask has undermined efforts by the community to work with Duke. In 2003, after Duke officials met with partnership neighborhood presidents, Trask went behind everyone's back and quietly tried to change Durham's zoning ordinance and get "unlimited retail" at Duke.

Trask insisted on "something for something" in his dealings with Durham. Both The Herald-Sun and the News & Observer called the deal that Trask brokered for Anderson Street a quid pro quo. The problem is quid pro quo is a violation of state law. (N.C. statute bans giving regulatory approval in return for money, something that doesn't seem to bother Trask.)

Last year, Trask's people testified to Durham's City Council that Duke had no plans to block Maxwell Street. Yet, Trask already had a 10-day old Site Plan on his desk -- clearly showing three gates across Maxwell.

Trask has deliberately misled partnership neighborhoods, other Duke administrators and elected officials. John Hope Franklin said it best: "You can't have a high standard of scholarship without having a high standard of integrity, because the essence of scholarship is truth."

For an institution that's so worried about its image, why is Trask still calling the shots? Duke can do better.


This is an excellent example of why we need to reconsider non-profit status across the board. The reality is that there is too much money to made at the upper echelons of the non-profit world for the executives to allow the change to happen.

We still have the same issues in the for-profit world of executives raking in the money but at least (tax breaks and incentives notwithstanding), there is a chance of the company paying some tax to the local city or town it's located in.

It's a tough argument to enforce against Duke when you have UNC-CH and its health system creating the same issues for our neighbors in Chapel Hill. Public or private shouldn't be the issue when both deliver the same products (education and healthcare).

Todd Patton

GJS - Well said.

Duke holds a billion dollars plus worth of property off of the tax rolls, causing a higher corresponding property tax rate (both City and County) for everyone else in Durham.

I would much prefer to see the Carmichael warehouse go to a private developer. If Duke wants to lease it from whoever is paying the property tax, then more power to them.

But seeing another chunk of property removed from the tax base forever is the last thing Durham needs.

John Schelp

>> "Durham wouldn't even exist without Duke."

While we may hear this sentiment from time to time, it's important to know that this statement is false.

In fact, one could easily say that Duke wouldn't exist without the generosity of Durham citizens.

Near the end of the 19th century, Trinity College president Braxton Craven was arguing strenuously for moving his struggling school from Randolph County to an urban center. Craven appealed to the Methodist Conference to "deliver Trinity College, this child of Providence, from the bondage of its birthplace and thus lead it out into the open world of grander opportunity."

According to William K. Boyd, Duke professor of history, the "college was in bad financial condition, and there was talk of closing its doors" in the late 1800s.

By 1892, Trinity's new president John Crowell shared the belief that if the school were to survive the rapidly changing conditions of the new South, it had to move from its old campus -- which was at least five miles from the nearest railroad, telegraph, and telephone.

Durham resident Julian Shakespeare Carr was one of those who "came to the rescue." Carr was perhaps the most important person in the early history of the college. In fact, Carr, along with two others, "assumed entire financial responsibility for the institution."

"In such a way," wrote Professor Boyd, "the institution was saved from complete collapse."

In 1892, Carr donated his racetrack and park for what is now East Campus. Durham resident Washington Duke donated money.

Thus, Trinity College arrived in Durham in a railroad car carrying the old college bell, clock, office safe, and several books. A handful of students and faculty also made the trip. (The college’s cow arrived later.)

Had the little school remained in Randolph County, it would likely not have survived the unexpected national economic depression of 1893. With a "newer outlook" and the generosity of Durham residents, the college grew. Its monetary value easily increased over ten times after its relocation.

After the move to Durham, the editor of the Trinity Archive wrote of the college's "incomparably greater advantage to all concerned than ever before."

Indeed, the faculty and student body expanded. As the college grew, Durham citizens took up a collection to pay for Southgate dorm, in memory of the Durham businessman.

Then, in 1924, another son of Durham, James 'Buck' Duke, gave the college $40 million and created the Duke Endowment. The college changed its name to Duke University and started building West Campus. The Duke Endowment continues to support the university to this day.

In recent years, thanks to funding from Buck Duke's endowment and others, the university has made efforts to improve its relationship with Durham. Many administrators (but not all) are working to improve town-gown relations, especially over the past 3-4 years.

From time to time, Duke puts out a press release about its economic impact on Durham. No doubt about it, Duke has grown and expanded -- and has taken advantage of its non-profit status.

It's worth noting the previous comment about Duke keeping a billion dollars plus worth of property off of the tax rolls -- which means Durham citizens have to pay higher property tax rates. (Duke doesn't pay property taxes on its golf course -- or on its hotel/conference center across the street, where rooms have been advertised to travelers at $99/night.)

So, while we may still occasionally hear that Durham wouldn't even exist if it weren't for Duke -- let us not forget that the struggling college was saved, and prospered, because of the generosity of Durham citizens.

Notes: The Boyd quotes are from his book, 'The Story of Durham' (Duke Press). The Trinity Archive quote is from 'Trinity College' (Duke Press).

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