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Credit Crunch Delays UNC Chapel Hill’s Research Campus; Alexandria Halts Work

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The credit-market freeze is slowing down the University of North Carolina at Chapel Hill’s effort to develop an expansive technology research campus in its namesake town over the next 50 years.
 
UNC’s top administrator disclosed late last month that Alexandria Real Estate Equities, the university’s partner in a planned 85,000-square-foot “Innovation Center” designed to house university startups, has suspended work on the project.
 
The innovation center was planned to be the first building in up to three phases of development for the nearly 9-million-square-foot campus, dubbed Carolina North. The center was designed to address what UNC-CH has said is a shortage of space within and near its campus to house a growing number of startups formed by its faculty to commercialize life science technologies and other innovations developed at the university.
 
“With today’s challenging economic climate, we anticipate that funding for initial Carolina North construction likely will be delayed,” UNC Chancellor Holden Thorp said in a Nov. 19 post on his blog, available here.
 
Thorp added that Alexandria “has put new projects on hold, although they have affirmed their interest in our project.”
 
Just what the extent of that interest might be, Alexandria isn’t saying publicly. An Alexandria spokesman reached by BRN said the developer would not comment on the issue, citing requirements that details of REIT operations be disclosed to all investors.
 
Alexandria’s decision is in line with a corporate policy announced Nov. 3 by its chairman and CEO, Joel Marcus. Citing the near-frozen credit markets wrought by the economic upheaval, Marcus told analysts at the real estate investment trust’s quarterly conference call that Alexandria would halt work on all projects in its development pipeline that had not already broken ground [BRN, Nov. 3].
 
That policy has effectively halted work on several Alexandria projects, including two new buildings that won commitments from an undisclosed number of tenant prospects at the Mission Bay campus in San Francisco; two projects in the Boston/Cambridge, Mass., region [BRN, Dec. 1]; and the C$300 million ($231 million), 750,000-square-foot phase of the MaRS Discovery District research-office incubator campus in Toronto.
 
In Chapel Hill, Alexandria and UNC-CH have spent the past four years planning a facility to nurture university spinout incubator- and post incubator-stage companies, both in the life sciences and other tech specialties. UNC-CH has agreed to contribute land to the venture, which Alexandria would lease at $1 a year for 40 years. Alexandria would export to the campus an Innovation Center similar to centers the REIT operates in Seattle and has planned for the University of Florida’s Gainesville campus [BRN, Dec. 10, 2007].
 
Like the Chapel Hill project, the Gainesville innovation center project “is on indefinite hold,” UF spokesman Ron Wayne told BRN last week.
 
Speaking with BRN in February, W. Mark Crowell, UNC’s associate vice chancellor for economic development and technology transfer, estimated the facility would cost $20 million to $22 million to build: “It’s an accelerator. Some people want to call it an incubator. I call it an incubator on steroids.”
 
Alexandria’s suspension may prompt the town of Chapel Hill to end its fast-track review of a special permit being sought for the Innovation Center under its current zoning, Town Manager Roger Stancil told BioRegion News last week. Chapel Hill’s Town Council late last month agreed to continue a public hearing on the permit request to Jan. 26, 2009.
 
Until now, the town had separated its permit review of the center from a slower, ongoing process of hammering out an agreement with the university to cover one or more phases of Carolina North. The town had proceeded faster with its review of the innovation center because UNC-CH and Alexandria had planned to break ground on the building late this year [BRN, Feb. 11].
 
Instead, the town is considering combining the innovation center and development agreement reviews into a single process, Stancil said. But the town won’t act, he said, without first waiting to hear from Alexandria and UNC-CH about their timetable for resuming work on the innovation center
 
“It’s a matter of Alexandria and the university deciding what they’re going to do. We, meaning the town, don’t know what will happen,” Stancil said in an interview. “In all likelihood, the deferral of the project would cause the innovation center, the Alexandria project, to just become part of the development agreement for all of Carolina North. It wouldn’t be treated separately, like it is now.”
 
Carolina North spokeswoman Susan Houston told BRN last week via e-mail: “Alexandria continues to express interest in the Innovation Center project, but it is not clear when the project will proceed.”
 
The town is striving to meet a timetable for reviewing Carolina North that calls for a Town Council decision on a development agreement, and a zoning text and map to accommodate the project, by June 22, 2009. “If approved, development agreement [will be] executed and recorded” on July 6, according to the Detailed Target Timeline for Town Review of CN Development Proposal, available here.
 
That’s slightly later than the late 2008 conclusion initially contemplated for the end of the review process, though the town and UNC-CH had not agreed to a target date until fall 2007.
 

“The university is facing the same economic crisis everybody else is facing.”

“The June deadline was geared toward construction being something that might happen on maybe the first building in 2010, but the university is facing the same economic crisis everybody else is facing,” Stancil said.
 
As it has with its other innovation centers, Alexandria has sought at least one private partner to co-develop the Chapel Hill project. Chapel Hill isn’t the only project for which Alexandria has sought a private partner lately. In New York City, Alexandria has said, it has spoken with prospective partners interested in forming a joint venture with the REIT to build part of the East River Science Park, whose first phase is under construction.
 
The suspension of the innovation center plan explains why UNC-CH has publicly discussed launching the first phase of Carolina North with another project — a new 200,000-square-foot School of Law. While a university campaign raised $34 million for the law school, UNC-CH has also counted on using $11.5 million approved earlier this year from the state Legislature for Carolina North infrastructure and law school planning.
But the state has frozen that appropriation, part of a total $25 million the UNC has either seen cut or anticipates will be cut from the $574 million the university receives from the state, reflecting 22 percent of its total operating budget.
 
The cutbacks are a consequence of state officials scrambling to plug a budget shortfall projected at $320 million as of Nov. 21. The shortfall is being blamed on the weak national economy. “These are extraordinary economic times, and the global financial crisis and its ripple effects create uncharted territory for most of us,” Thorp said in a Nov. 6 message to faculty and staff, available here.
 
Like the innovation center was before, the new law school is among 1.5 million square feet of construction projects envisioned for the first of three construction phases of Carolina North, which would develop between 150 and 180 acres of the 1,000-acre campus, located 71 miles southeast of Winston-Salem.
 
The nearly 1,000-acre parcel includes about 600 acres over which the town has zoning jurisdiction. It was donated to UNC-CH in 1940 by Henry Horace Williams, a professor of philosophy at the university from 1890 to 1940, all but the last five of those years doubling as philosophy department chairman.
 
According to the Projected Program for Carolina North, a revised list of planned campus projects submitted to the town by UNC-CH late last month and available here, the first phase would include 720,000 square feet of research space consisting of a 200,000-square-foot research building, a new 155,000-square-foot School of Public Health, a 150,000-square-foot “Interdisciplinary Research Center,” and separate buildings of 122,000 square feet and 93,000 square feet, to be set aside for “centers and institutes.”
 
Also in the first phase: 200,000 square feet of new housing; 170,000 square feet of space for corporate partners; 75,000 square feet of support space for University Facilities Services; and 50,000 square feet for various retail, commercial, and civic services.
 
“The entrance road is envisioned to have active ground-floor uses including retail businesses and cafes that would attract graduate students, researchers, and employees, and serve the residents and visitors at Carolina North,” the project plan stated.
 
A two-lane “transit corridor,” consisting of two lanes envisioned for buses as well as cars, plus four parallel bicycle lanes, two on each side, would serve as a spine for traffic circulation within the campus.
 
The second phase calls for the same amount of space to be built, over the same amount of land. Among projects envisioned: Another 480,000 square feet of space for corporate partners; a third centers and institutes building of 150,000 square feet; 200,000 square feet of office and classroom space; and 200,000 square feet of patient care and office space for the UNC-CH Health Care System.
 
Phase 2 also calls for another 450,000 square feet of new housing, and another 20,000 square feet of retail, commercial and civic services space.
 
Those numbers differ in a few respects from those submitted to the town by UNC-CH last June. According to the university’s original 2007 Carolina North Plan, named for the year the university developed the proposal and available here, the first two phases were originally contemplated to include 125,000 fewer square feet of corporate partner space; 50,000 fewer square feet of centers and institutes space; 30,000 fewer square feet of research space; 30,000 more square feet of retail, commercial, and civic services; and 150,000 additional square feet of housing.
 
At a combined 3 million square feet, the first and second phases are 21 percent denser than the 2.475 million square feet of space originally proposed by UNC-CH in its original Carolina North plan.
 
The third phase would entail the development for unspecified uses of between 5 million and 6 million square feet of space over an additional 100 acres.
 
One key question yet to be decided by the town: How many phases should be subject to the development agreement being hammered out by UNC-CH and Chapel Hill officials?
 
“The question for both parties to agree on is: What is the length or the area covered by the development agreement? It could be less than one of the phases, the same as a phase, more than a phase, the whole thing. That’s what’s got to be decided,” Stancil said.
 
Another key question at issue is the future of the university’s general aviation airport now occupying part of the Williams parcel. UNC-CH plans to close the Horace Williams Airport as part of Carolina North. Yet the airport is needed by emergency services workers who transport emergency patients by helicopter through the state Area Health Education Center’s MedAir program.
 
“It's the flattest part of the tract and, therefore, the best place to build Carolina North. So we have to close it,” Thorp said in his blog post.
 
Houston, the Carolina North spokeswoman, said UNC has a three-stage plan for shutting Horace Williams Airport. Short-term, she said, the airport will remain open “until its continued operation would impede development at Carolina North.”
 
When that happens, Houston said, MedAir will move to a new hangar to be built at Raleigh-Durham International Airport: “That will ensure no interruption of AHEC services around the state.”
 
Long term, she said, the state Legislature authorized the UNC system's Board of Governors to create an airport authority to assemble information and resources needed to locate, build, and operate a new airport in Orange County.
 
“When it's formed, the new airport authority will conduct its own study to assess needs and identify potential airport sites,” Houston said. “Even with a site identified after appropriate community input, we expect considerable challenges in securing support from funding sources — including the state and federal government — and addressing a host of other operational, environmental and safety issues. We expect this process will take several years to complete.”
 
Chapel Hill has no representation on the authority board since a new airport is unlikely to be located in the town, Stancil said.
 
A Chapel Hill resident active in town issues, Will Raymond, told BRN the town should condition any approval for developing Carolina North, or any piece of it, on an agreement directing UNC-CH and partners to pay for infrastructure and other improvements upon the completion of increments within a development phase, rather than a set time after the completion of a phase.
 
“I ask the town to consider a list of improvements to the property that are tied to metrics like square footage more in the neighborhood of the hundreds of thousands, or even the tens of thousands of square feet. We shouldn’t have to wait till 1.5 million square feet is built to get sidewalks. There should be a lower threshold,” said Raymond, publisher of the blog CitizenWill.
 
Raymond’s idea has support from council member Roger Perry, though the town has not committed to the idea. Officials from Chapel Hill and UNC-CH have promised, more broadly, to ensure community needs are addressed along with those of the university in the crafting of the development agreement.
 
UNC-CH has defended Carolina North as essential to remaining competitive against other national research universities for faculty members and their innovations.
 

“As a flagship public research university charged with helping to lead a transformation in the state’s economy, the University must compete with national peers for the talent and resources that drive innovation. Today, that competition demands a new kind of setting — one that enables public-private partnerships, public engagement, and flexible new spaces for research and education,” UNC-CH wrote in its original Carolina North plan. “Carolina North will be first and foremost a campus conceived to meet the academic mission and ideals of the University of North Carolina at Chapel Hill.”

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