The string of high-dollar sales in the Triangle’s hot office market has continued into the new year with the $19.9 million sale of a new office building in Chapel Hill.
The developers and capital partners behind the new Station at East 54 project have sold the 48,000-square-foot building to Durham investor Mattie Equity.
The deal is valued at more than $416 per square foot, making it one of the priciest in the Triangle in recent years. The new Midtown Plaza office building in Raleigh’s North Hills sold less than a year ago for $385 per square foot, while Durham's Hock Plaza I building sold at the end of 2017 for $434 per square foot.
East West Partners developed the Station at East 54 building, with Northridge Capital serving as a capital partner. For East West Partners Development Director Lee Perry, the sale indicates the demand for office in Chapel Hill, despite the market’s reputation as being a difficult place to develop.
“If you can get it built, it leases up,” Perry says. “There’s investor demand for it. I think it speaks to the strength of the submarket here.”
HFF broker Scot Humphrey, who represented the sellers in the deal, says it shows that prominent office sales are approaching the price tags seen in comparable markets, such as Charlotte and Nashville.
Rents at the building are at about $36.50 per square foot, near the top of the Triangle market, he says. The deal could also grease the wheels for other high-price transactions in the region. “It will hopefully make things easier for office developers to rationalize developing new buildings, knowing they can exit at a price above $400 per square foot,” Humphrey says.
Efforts to jump-start Station at East 54 date back to 2014, when the town of Chapel Hill issued a request for proposals seeking a partner to redevelop a fire station site on Hamilton Road.
Once the town selected East West Partners as its partner, the fire station was demolished to make way for the office building and a new three-bay fire station.
Under the terms of the public-private partnership, East West Partners agreed to contribute $1.8 million to the town to help with construction of the new fire station, while the town provided the land for the office building development.
The project opened in September and is located two miles from the UNC-Chapel Hill campus. The building, which rises 6 stories, counting two levels of parking, is already fully leased to two tenants: TrueBridge Capital Partners and coworking provider Spaces, a subsidiary of Regus. With 33,000 square feet, Spaces occupies a majority of the building.
The sale also shows that investors are willing to pay a premium, even when a coworking provider occupies a significant portion of a building. As Spaces and competitor WeWork have risen to prominence, developers and analysts have raised questions about how the coworking providers will fair when the economy hits a rough patch. In the case of the Station at East 54, Spaces' large presence in the building didn't stop an investor from paying top dollar.
The project overlooks the UNC Finley Golf Course and is next to the walkable East 54 mixed-use development, which includes retail shops, apartments, luxury condos and a 130-room Aloft Hotel. East West Partners also developed East 54 and still owns the office and retail components of the development.
The buyer, Mattie Equity, lists Kathleen Schneider as its manager. Schneider has been behind a number of real estate investment deals throughout the Triangle, including the development of the Indigo Apartments on Page Road, which sold for $59 million at the end of 2018.
In the Station at East 54 deal, the HFF investment advisory team of Humphrey, Ryan Clutter, Chris Lingerfelt and Zack Drozda represented the sellers.