Deep Dive: City of Wilmington considering $68-million purchase of Thermo Fisher building
Next week, City Council will vote on whether to put down a refundable $500,000 deposit and enter a 120-day period to consider the pros and cons of the purchase. Officials say the purchase is a bargain based on the appraised value of the property — although there are also potential drawbacks.
On paper, the city has a prime real estate opportunity on its hands: $68 million dollars for the tallest building in Wilmington, 375,000 square feet of office space, roughly 1,500 parking spaces, and over 12 acres of property — with the whole property, including furnishing, valued at over $140 million.
The property would allow the city to consolidate offices currently scattered across the city, some miles away from City Hall. Some of those facilities are in need of considerable upkeep and the city is facing millions of dollars in upkeep costs.
According to city staff, the potential purchase of the Thermo Fisher building was not part of its long-running search for appropriate facilities. Until recently, a leading plan from a 2021-2022 needs study was the redevelopment of the city building at 305 Chestnut Street, a $90-96 million project.
But when the city caught wind of Thermo Fisher’s desire to sell the building — for considerably less than many had expected — plans changed. When Thermo Fisher bought PPD in 2021, the $17.4 billion acquisition came with PPD’s 12-story headquarters. But industry moves towards more remote work, accelerated by the pandemic, made the nearly 400,000 square feet of office space less necessary and in April the Greater Wilmington Business Journal reported that Thermo Fisher was exploring a sale.
Ned Glascock, senior director of communications and public affairs at Thermo Fisher, told WHQR the company is still "committed to Wilmington" as an employer and corporate citizen. Regarding the downtown Wilmington property, he noted that "[i]nterest in the property has been high, with a number of proposals received from interested parties, including from the City of Wilmington. Our business is evaluating various proposals, but no agreements have been signed at this time."
Pros, cons, and double-edged swords
While the sale would solve many of the city’s facilities problems, it could also present other issues. If city council votes to move ahead, evaluating those pros and cons is what the city plans to do with its 120-day consideration period. If the deal is as good as some believe it to be, the city could move forward with acquiring the building; if not, the city will be refunded the full $500,000 earnest money deposit.
Wilmington Mayor Bill Saffo called the potential Thermo Fisher deal a "tremendous opportunity," but said staff had a lot of work to do before a deal could go forward.
"We've got 120 days now to really take a look at it, to dive into it, to assess it, to answer the questions not only from [city] council, but from the general public and the Local Government Commission is also going to be weighing in on it," Saffo said.
As Saffo noted, a next major step would be approval of the project by the Local Government Commission, part of the State Treasurer's office that reviews major purchases by municipalities and counties. The LGC is far from a rubber stamp, and in the past has sent back projects from New Hanover County for revision and, in the case of Project Grace, stopped it cold.
Saffo said he believes the city has a good relationship with the LGC, and conversations are already underway.
"I'm very respectful of them, I understand their parameters, I understand what they're looking for. They're very conservatively run. That's why most of the cities in the state of North Carolina don't have financial problems, because we set up the LGC in the 1930s to ensure that local municipal governments and county governments are run properly, and they've done a good job," he said.
The city has been considering consolidation for some time, and the process was understood to be expensive. According to an internal document featuring comments from deputy city managers Thom Moton and Chad McEwen and Economic Development Director Aubrey Parsley, the $68 million Thermo Fisher building price is a powerful ‘pro’ — coming in at roughly half the assessed value and roughly 2/3rds of what redeveloping a new facility might cost.
At 18 years old, the Thermo Fisher building is newer than many city facilities, but it would likely require some upfits and renovations to move city staff in — the cost of that is something staff would look at over the next several months. There would also be a 'learning curve,' as some staff have put it, to operating in the new building.
It’s also not clear what impact the purchase would have on the city’s other planned capital projects. That potential impact, including possible delays to other planned projects, would also have to be investigated by staff.
"I know our staff is going to come back to us with a number of options that we can take a look at. If we do this and we hold the tax rate, we may have to hold on [certain projects] until we divest ourselves our property," Saffo said.
Owning the Thermo Fisher property would also allow consolidation of multiple departments spread across 305 Chestnut, 315 Chestnut, Thalian Hall, the United Bank Building, a second-floor unit at 414 Chestnut, and the Wellington Avenue engineering services property — although City Council meetings, the mayor’s office, and some city services could (and likely would) stay at Thalian Hall (the city’s fire and police departments would not be relocated).
That consolidation would allow the sale of existing city facilities. While there are constraints on how government entities can sell property that make estimating the potential revenue tricky, internal estimates have hovered around $30 million.
Bottom line: it’s not clear if the city would be able to finance the $68-million purchase without a tax increase. Internally, top staff have suggested it could require an increase of up to 3 cents per $100 of property value. That’s one of the key issues staff will work on during the consideration period.
Buying the Thermo Fisher building would remove over $90 million of real property from the city’s tax base. That would translate into a loss of approximately $360,000 from tax revenue.
In addition, it would mean roughly $60,000 less in revenue for the city’s Municipal Service District, which funds Wilmington Downtown Inc. That represents about 10% of WDI’s annual revenue — and it’s not immediately clear what impact that would have, or how Wilmington might adjust for it.
However, selling the city-owned properties would put them back on the tax roll, increasing revenue for both the city and the Municipal Services District. Divesting the city-owned property would also create the potential for redevelopment. In addition to substantially changing the look and feel of the downtown area around City Hall, redeveloping the city-owned properties could increase the tax value of the area.
A massive property
The Thermo Fisher building has space to handle all of the city’s needs. In fact, it has far too much. Early estimates of the city's needs have been ballparked around 130,000-135,000 square feet, and Saffo said the city might take as much as half of the available space, around 185,000 square feet. But until staff have the chance to study the building layout and consider other factors, the total space needed remains unknown.
It is clear, however, that the city won't need all of the space in the building. It's likely 150,000 square feet or more will remain open — something that could be both a pro and a con.
According to city staff, Thermo Fisher has agreed to a $2 million-a-year annual lease for three years, which could be extended to five.
That still leaves considerable space in the building. That could provide additional revenue for the city, but it could also saddle staff with being a landlord for a significantly-sized office space at a time when many employers are looking to streamline office overhead and embrace flexible remote working models — case in point, Thermo Fisher’s desire to downsize.
Parking, on the other hand, remains a hot commodity. The median cost of the 1,000-space parking lot would likely be north of $17 million today. The increased demand for events parking at Live Oak Pavilion and ongoing developments on the waterfront and north side of downtown are increasingly pushing parking into residential areas east of North 3rd Street — a situation the city would like to ameliorate.
A more minor issue is that with a large building comes a lot of stuff — millions of dollars for property from office furniture to window blinds that could potentially create a glut at auction if the city needed to dispose of that property.
The Thermo Fisher property includes two vacant lots covering roughly six acres which staff consider to be highly marketable. One is located diagonally across from the convention center, the other is between the Live Oak Pavilion and city-owned land that’s been assembled for a future public-private partnership, potentially the return of the ‘Gateway project’ with developers East West Partners, who previously partnered with Wilmington on River Place.
In addition to providing additional land that the city could leverage on a larger public-private partnership, it’s likely the city would also inherit the ‘architectural covenants’ granted to PPD when it initially developed the land. Those are clauses in the property deeds that gave PPD the final say in the design of surrounding properties covering an area roughly stretching from the Convention Center to the Isabell Holmes Bridge. This could remove an otherwise frustrating legal hurdle to developing the Gateway properties.
Based on internal city documents, McEwen and Parsley both voiced concern that purchasing the building (even with considerable space still available for lease) would remove it as a major economic development recruitment site. A related concern is the public perception that Wilmington’s economic development partners could not effectively attract companies and jobs to fill the office space, pushing the city to step in.
On the other hand, given shifting workplace models, smaller portions of the building could be more attractive to companies looking to establish a smaller footprint.