Monday, December 4, 2023

City could pay up to $500K to CF Commercial for TF building leasing services

Cape Fear Commercial was hired by the city to market and manage leases for future tenants at the former Thermo Fisher building. (Port City Daily/Amy Passaretti Willis)

WILMINGTON — It’s been two months since the city hired a firm to handle its leasing services at the newly purchased downtown campus, but the work has just begun.

READ MORE: No new tenants yet for former TF building as city transitions to new headquarters, takes top floor

City council signed off Aug. 1 on a contract with Cape Fear Commercial to handle the legwork on finding and procuring tenants for the 12-story former Thermo Fisher building. The company secured a 24-month contract — with the option to renew up to seven consecutive 12-month periods — and could receive up to $500,000. A note on the signed contract says it’s not to exceed that amount.

Executed Sept. 19, the contract outlines the city will pay CFC 4% of all annual leases; the fee will increase to 7% if the tenant is working with a broker and then that broker and CFC would split the commission. The team handling the city’s leasing services will be broker Paul Loukas as the lead project manager, Lindsey Hess and Julia Lackey assisting with leasing and marketing, and Karrie Westphal will oversee management services.

The realtors are responsible for showing the property, negotiating with potential tenants, collecting rent and collaborating with Wilmington Downtown Inc., the Wilmington Chamber of Commerce, and other city partners to market the space. Its first two months also include collaborating with the city to identify objectives and discuss pricing strategies. 

However, CFC confirmed no new tenants have yet to be signed.

“Real estate and leasing of office space is a long-term proposition so it’s difficult to predict when we will land our first tenants,” Loukas told PCD. “Though we’re really excited about the amount of interest we’ve received thus far, including the number of physical tours we’ve already had.”

He said the company would not share specifics on potential renters or proprietary intel, “out of protection” of the client — the taxpayer.

“Our goal is to use our skill sets to generate the most amount of income for the City of Wilmington,” Loukas said.

Determining that value comes in a variety of ways, but rental rates will start at $26 per square foot, he confirmed. This is similar to what the city was leasing out space for in the Harrelson building on North Third Street, now up for sale as a surplus property one year after being purchased. Its rental market rate was $25 to $28 per square foot. It currently has six tenants, aside from city staff who are currently transitioning to Thermo Fisher.

“As with any property, many factors determine the market rent, including amount of square footage, length of the lease, possible upfit requirements, market conditions, etc.,” Loukas said.

Of the 371,015-square-foot Thermo Fisher office building, there is roughly 120,000 square feet of unused space to be occupied by future tenants. It’s unclear how many tenants that could include, based on the space needs of each, but CFC’s proposal indicates it plans to target larger companies.

The city will occupy space on floors one, three, 10, 11 and 12, totaling 280,241 square feet. Thermo Fisher will retain operations on floors five and six — 57,292 square feet. Its lease is secured for at least three years at $1.8 million annually, with the option to extend for two 12-month periods.

Thermo Fisher also will have access to 40 spaces under the building, per its 30-page lease agreement, and 20 spaces within the parking deck, free of charge.

Along with offices, there are 240 parking spaces available under the 12-story building. The city plans to occupy 88,396 square feet, or 63%, of the underneath parking with remaining spaces allocated to tenants at 20 per floor per renter.

As well, there are 1,022 spaces within the adjacent parking deck for tenants. It’s also being outfitted with gated technology and pay stations for public accessibility

Conflict of interest?

CFC scored the highest among three submitted proposals for leasing services at the city’s new headquarters. 

The company also assisted global real estate firm Cushman & Wakefield as the brokers on the transaction to sell the former Thermo Fisher building. Owner River Ventures was responsible for covering the broker’s fees, noted at $2.7 million per the closing sale documents. Following the closing July 13, River Ventures paid the city $4,838 per day for 19 days in rent for the remainder of the month.

The city and River Ventures shared escrow fees and the preparation of closing documents to Chicago Title Company, LLC at $750 each. The city was responsible for the $74,035 payment to Chicago Title Company for the title search, exam, and enforcement. 

CFC was chosen in August to oversee leasing due to its track record of large office space leases in the Wilmington market, according to city economic development director Aubrey Parsley.

According to its submitted proposal, the company completed 13 of the 16 largest office transactions in Wilmington last year, including the New Hanover County government center, offices at Mayfaire, Northgate Business Park, and University Corporate Center.

CFC also had the highest rated proposed project strategy, Parsley added. The company’s proposal said it would leverage its relationships with local, regional, and national brokers and economic developers to maximize exposure for the property and educate potential tenants on how the building can maximize business.

“This building creates a unique opportunity to attract and procure a new kind of prospect — one that may not have been a candidate for downtown and or even our region,” the proposal states.

CFC is meeting with the city and LS3P to discuss logical and most efficient subdivisions of floors, to accommodate multiple users, if necessary, and beginning a marketing plan. By November, marketing efforts will include online postings, direct calls and emails, outreach to national brokers and working with local economic development organizations.

Partner Brian Eckel initially told Port City Daily Aug. 30 he was not involved in the contract, but the submitted proposal said he would be overseeing strategy, planning and execution.

“As a co-founder of Cape Fear Commercial, I do play a role from time to time on helping to guide our team’s overall strategy as well as providing input when asked on the best ways to attract tenants,” Eckel told PCD last week in reference to the RFP.

However, he added, Loukas, Hess and Lackey would be handling day-to-day activities regarding lease execution. Meaning despite concerns city council member Charlie Rivenbark may be involved, he is not.

In recent months, a lot of attention has been shone on council member Charlie Rivenbark’s involvement as a senior vice president at CFC; the contract does not list him as financially benefiting from any lease transactions. 

He confirmed as much to PCD in August after recusing himself from the city’s vote to approve the company to handle Thermo Fisher leasing services.

“I will have no involvement in the leasing of any space in the newly acquired city building,” Rivenbark wrote in an email to PCD. “I also did not have any involvement in the RFP that the city sent out, nor did I have anything to do with the selection process at the city.”

He said his recusal was an effort to avoid perception of a conflict, which seemed to be of concern to some residents and officials.

One person wrote to city council July 28 ahead of the Aug. 1 meeting:

“Normally there would be no need to question, but the city continues to work with Cape Fear Commercial, LLC especially in relation to the Thermo Fisher building,” Carrah Faircloth wrote in an email. “I’m going to be honest, Council: it’s not a good look.”

While he didn’t give a statement ahead of the vote for CFC’s leasing services, Rivenbark spoke on June 6 when the city council voted to enter into a $68 million purchase and sale agreement for the Thermo Fisher property. He read aloud a prepared statement addressing the company’s reputation.

“[I]t is important to me and the people I work with at Cape Fear Commercial that there is never any question about my integrity as a public official or about the integrity of my colleagues at Cape Fear Commercial,” he said then. “I have also been informed by the city attorney’s office that because I do not have a conflict of interest under North Carolina law and will receive no benefit whatsoever from this transaction, it is my duty as a member of this council to participate in the consideration of this matter and to vote on whatever the motion might be.”

Rivenbark voted four times for items involving Cape Fear Commercial during the city’s due diligence process to purchase Thermo Fisher: on Jan. 24 to approve the city manager enter into a contract with River Ventures for the purchase and execute $750,000 for a deposit; March 21 to enter into a financing arrangement to fund the purchase; April 18 when the public hearing was held; and June 6.

UNC School of Government assistant professor of public law and government Kristina Wilson confirmed it’s an elected official’s obligation to vote, according to North Carolina G.S. 160A-75.

“This duty to vote means that council members and commissioners must vote in all cases unless there’s a legally recognized conflict of interest,” Wilson told PCD. “They cannot be excused for merely the appearance of a conflict — it must be a conflict recognized under law to justify recusal.”

She said the financial interest conflict is tied to any related outcome, not necessarily a direct monetary benefit or detriment, to be excused from a vote.

Rivenbark’s conflict of interest was brought up as well at the Local Government Commission — which had to agree to the city’s financing plan for Thermo Fisher — in June. State Treasurer and LGC Chair Dale Folwell questioned the councilman’s involvement.

“How does the city allow someone like that who works for the company representing the seller and there’s no buyer’s agent, to even vote on that at all?” Folwell asked in June.

Rivenbark assured he’s an independent contractor and stands to gain no financial benefit from the property’s sale. City manager Tony Caudle also explained the statute doesn’t require Rivenbark to abstain unless a financial interest is involved, to which some LGC members agreed.

“He has a duty to vote on the issue,” Caudle said. “Many times board members will recuse themselves simply because of the appearance of impropriety.”

Rivenbark said because of all the chatter about his position at CFC, that’s exactly what he wanted to do during the leasing services vote — avoid the appearance of conflict. City council members can seek city attorney advice, but do not answer to city staff and ultimately hold the final say over choosing to abstain from a vote. 

“It’s obvious that regardless of which way I go, people question it,” Rivenbark told PCD.

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