The Durham City Council faced criticism two years ago when it unanimously awarded the sale and redevelopment of the old police headquarters to the Fallon Company.
The Boston-based commercial real estate firm had offered millions less than what another out-of-state developer, Akridge, in partnership with New South Ventures, a local Black-owned firm, had offered. Fallon won the bid, however, in part because of its national recognition and its own partnership with WinnCompanies, the nation’s largest developer of affordable housing.
That deal appears to be off the table now.
City council members at a work session last week agreed to end its relationship with Fallon and reopen bidding for the sale and redevelopment of the building at 505 W. Chapel Hill Street after the company terminated the original deal then proposed alternative plans for the redevelopment, which irked some city officials.
The alternatives included asking the city to reduce the sale price of the building by about $2 million, from $9.25 million to $7 million.
A memo from the Fallon Company sent to the city’s development staff in March informed the council that given the distressed condition of the building, along with the COVID-19 impact on commercial real estate, “the current transaction structure is not feasible despite our continued belief in and enthusiasm for the project’s importance to the City of Durham.”
A centerpiece of the redevelopment project, which was designed by the city and bid out for development, is the construction of 80 affordable housing units to be included in the proposed mixed-use development. The project also calls for 250,000-square-feet of office space and a “signature street design” that would serve as a vibrant gateway into the city’s downtown district.
Fallon countered with two proposals: In addition to asking for a reduction of $2 million from the purchase price, Fallon offered to construct 91 affordable housing units that could be sold to middle-income earners after five years but with an additional loan of $800,000 from the city. The developer also asked for a decrease in future property tax revenues of $1.54 million instead of $2.73 million, a reduction in office space, and no extension of the building’s ground floor to Chapel Hill Street.
Fair housing advocate Stella Adams asked the council to challenge Fallon’s assertion that the value of the property has diminished in the face of global firms like Google committed to the development of the downtown district.
“I want you to remember that the $9 million [purchase price] was a $2 million reduction from the other offer that was on the table at the time,” Adams said. “The other bidder [Akridge] on the property offered $11 million. But now we’re being asked to reduce that down to $7 million … and in one scenario, loan them a million dollars? That does not seem rational.”
Adams recommended slowing down the process to allow for public input and an opportunity for other developers to bid on the property.
“There is no rational reason under the sun the council should consider these two alternatives and reduce revenues,” Adams said. “We’re in no hurry.”
Council member Mark-Anthony Middleton wondered why it took Fallon and Winn two years to determine the building was not in great condition. He said that should have been evident early for people who are experts.
“Anyone who rode the elevator when it was the police department knows how bad a shape that building was in,” Middleton said.
As far as the pandemic’s economic impact on the project, Middleton said “part of the mystique about Fallon when it was presented to us—and I’m paraphrasing—[was] their pockets are so deep, and their connections were so enduring and impressive, that they would be insulated from these types of issues that we’re talking about.”
Middleton later added that if the council decided to reopen the solicitation process for bids toward the sale of the building then he would welcome Fallon’s participation.
“But I’m not really comfortable at this point with having Fallon suggest or dictate terms to us as a negotiator at this point anymore,” he said. “For me, the council and the city, a $2 million reduction in the asking price is DOA. That’s a non-starter.”
Council member Pierce Freelon wondered about other options regarding the preservation of the building. He was also in favor of “going back and engaging Akridge” to hear their assessment of the building.
“I wouldn’t mind hearing what Fallon has to say either,” Freelon added, “but Akridge seems to be a wise place to look for alternatives.”
Mayor Steve Schewel said his first thought after hearing Fallon’s proposals was also one of disappointment. He asked the city’s development staff how long it would take to assess how much money the city could get for the building in a deal with another developer.
Nor was he convinced that the pandemic was having a significant impact on commercial real estate in the city.
Property prices in Durham, the mayor said, “aren’t going down, they’re going up, pandemic be darned.”
Mayor Pro Tem Jillian Johnson also suggested that the council go back to the drawing board and that she was no longer confident of the Fallon Company.
“I’m not confident we can do better,” she said, “but it’s worth a shot.”
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