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Saturday, May 18, 2024

$3M annually to operate Thermo Fisher building, council debates what floors to occupy

City council is working on how to allocate its spacing needs in the Thermo Fisher building and associated parking deck on Front Street, if purchased. (Port City Daily/Amy Passaretti)

WILMINGTON — More details have emerged on the city’s potential $70-million purchase of downtown’s Thermo Fisher building, but disagreement arose on exactly where city staff should be located in its 12 stories.

The city will occupy 54% of the building, which assistant county manager Chad McEwen estimated would cost the city $3 million annually to operate. However, that can be offset by revenue brought in from leases.

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He provided an update at city council’s budget session March 31 and informed members phase one of due diligence is complete, including a preliminary plan on how to best use the space. 

Staff suggested the city occupy floors seven to 12. Yet, some city space will be on the first and third floors, as well as level 13 — not suitable for office space but equipped for mechanical operations. 

One city council member thought the city should occupy the floors least attractive to the open market so the city could receive a higher rate of return. Right now, McEwen estimates the leasable space to be available for rent at $32 to $35 per square foot, which is market value.

“To me, those are the lower floors,” council member Luke Waddell said. “We do that to get a higher dollar per square footage to the taxpayer.”

Council member Charlie Rivenbark and Mayor Pro Tem Margaret Haynes had the opposing view.

“We’ll be there forever; tenants come and go,” Rivenbark said. “We need to be up on the floors altogether.”

“We would lose out on tremendous money for decades to come,” Waddell responded.

The plan is to lease 120,000 square feet of unused space at market rate. It would bring in possibly $3.8 million to $4.2 million in revenue to the city.

Thermo Fisher has already agreed to rent space from the city and identified floors five and six, 57,292 square feet total, as the most suitable for its needs. This will rake in $1.8 million in rent payments.

“The reasoning is flawed for being on the top floors,” Waddell added. “It’s attractive to us, but I don’t see a return to the taxpayer if we have the opportunity to do it this way.”

As the city would require at least five floors, setting up in one through four would break up the flow of contiguous levels.

“We should maintain an open mind,” Waddell said.

McEwen said the city has spoken with 18 companies and organizations to potentially rent the lower floors. One plans to have a public-facing component, requiring lower access, and the other is drawn to the security setup provided on level two.

However, Waddell and council member Neil Anderson pointed out the city will have a presence on level one for conference space and council meetings, as well as common areas, such as a cafeteria, lobby and gym.

Also, McEwen told council the city clerk’s office would operate on level three, since there is a file storage system already in place.

“You talk about continuity, but you say we’ll need some on the first floor and the clerk’s going to be on three, so I’m just saying: There’s not going to be continuity,” Anderson said.

McEwen noted floors seven to 12 require the least expense upfront in terms of upfit to accommodate needs, and level 11 has an exterior patio the city would manage.

The patio would be offered as an amenity to tenants but controlled by the city.

McEwen urged council to come to a consensus and called space allocation a “critical path item.”

The city has received an estimate from LS3P for $48,000 to guide the upfit process for the space city employees will occupy. The company needs to know which floors the city wants to begin work.

City of Wilmington plans to put out a request for proposals to hire a third party commercial real estate firm that would help lease out the remaining space.

“It would assist the city with recruitment, marketing, rate determination, lease drafting and tenant management,” McEwen said.

Though the city has had some interest from organizations, McEwen said staff wants to “cast a broader net.”

McEwen also said companies inquiring about space at the Thermo Fisher building have led to interest in the city’s current-occupied buildings. Council voted in February to surplus nine properties and sell them at market value once the city moves into the Thermo Fisher building.

If the city purchases the Thermo Fisher building, it will no longer earn property tax; however, the nine city-owned properties that would be sold would return to the tax roll. Appraisals on those buildings are not being released to the public yet.

The 280,241-square-foot total allocation for the city’s floors also encompasses 88,396 square feet, or 63%, of parking space on two levels of the lot under the building. The remaining spaces would be allocated to tenants; 20 spaces per floor per renter.

The city has plans to subdivide the 3.4-acre surface lot as a separate tract from the building, to actively market it as a separate sale.

Rivenbark recommended subdividing the space even further to allow for multiple buyers. He also encouraged the city to retain a small section — no more than 1 acre — to build handicapped-accessible parking for Live Oak Bank Pavilion.

“We took a lot of heat for handicapped accessibility to the riverfront,” he said. “We could provide some accessibility to the pavilion we don’t already have.”

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McEwen said he would discuss it with parking manager Chance Dunbar and director of community services Amy Beatty to determine the feasibility.

Right now, a staff of eight runs the building, including front desk employees and security. The city is anticipating, at this time, to bring those positions in-house and encouraged those currently in those positions to apply.

Needed staff would include a facility manager, a facility coordinator, a general maintenance technician, a fire system technician, and an A/V technician. Two contract employees would handle the front desk and double as security, which is planned for around-the- clock.

The due diligence process also included a building condition assessment — which is done, but officials remain tight-lipped on it — and tax appraisal. McEwen said it has been provided to the Local Government Commission but remains confidential until the sale closes or the contract is canceled. 

The appraisal contains the whole value of the 12.5-acre Front Street campus, which comprises 929, 1001 and 1021 N. Front St. It also breaks down appraisals done for the four distinct areas: the tower of office space, the surface parking lot, an undeveloped tract and the associated parking deck.

Additional next steps in the due diligence process include an operations plan for the building and an ownership transition strategy with Thermo Fisher.

The LGC has to approve the financing arrangement to cover the building purchase, which would also include a 1.5-cent tax increase to residents. If all goes according to plan, the city plans to close on the purchase of the Thermo Fisher building July 13. The deadline for the government entity to secure the building is July 31. 

No decisions were finalized on the space allocation at the budget session.

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