Grubb Properties and Philadelphia-based real estate investment firm Rubenstein Partners recently partnered to acquire a vacant 467,000-square-foot office property in Research Triangle Park that was built by telecommunications company Ericsson. The two firms spent $26 million to acquire the two-building development, and they plan to spend an additional $10 million on renovations and campus upgrades.
This is the second deal Grubb and Rubenstein have done together in the Raleigh-Durham market. And in Charlotte, Rubenstein previously owned the NASCAR Plaza office building uptown with Trinity Capital Advisors. The two firms sold the building almost a year ago to Parkway Properties after signing Chiquita Brands International to a 138,000-square-foot lease.
I recently caught up with Daniel Doyon, a vice president and director of acquisitions at Rubenstein who covers North Carolina and Florida for the firm, to get his investment perspective on the Charlotte and Raleigh markets and why selling NASCAR Plaza was bittersweet.
What appealed to you about this Ericsson property?
We love buying excess corporate real estate and then repositioning it for the third-party market. We like the fact that this is the largest contiguous block of Class-A space in the market by a wide margin. If a big user comes into the market, they’re basically looking at us or a build-to-suit. We love North Carolina, both Raleigh-Durham and Charlotte. If you look at the employment and population trends, they’ve been some of the strongest, if not the strongest, in the country over the past 20 years. It’s good population and good employment growth, the kind that you want for office. The problem with North Carolina is not on the demand side. On the supply side there’s virtually no supply constraints. But since the past recession there has been an unprecedented pause in new construction in Raleigh-Durham. The demand is great, and it hasn’t yet been hit by a supply response, which is what makes investing in Raleigh-Durham right now so compelling.
Back in 2010, you purchased a big block of vacant space with NASCAR Plaza as well.
And that block in the building was not lower floors. It was good upper-middle bank floors that had great views of the city. Our whole premise going in was that we had this huge vacancy, and there’s a shot that corporate relocations to Charlotte would resume and we would be able to compete favorably with Ballantyne or the suburbs. The sale of NASCAR Plaza was bittersweet. It was sweet in that it was a great deal and a great execution, and it was bitter just because we loved owning that asset and being landlords in downtown Charlotte. But we had to do what we had to do.
How do the Raleigh-Durham and Charlotte markets compare from your perspective?
I’m equally bullish on both markets in terms of the fundamentals — absorption, rental rates, things like that. I think that Charlotte may be ahead of Raleigh-Durham in terms of institutional capital looking at it. And as capital flows into a market, that just causes the pricing to push up. We’ve probably underwritten 20 deals there this year and gotten close on one or two. We’re still interested in Charlotte, we’re just trying to find the right deals.