5401 North: Worth the wait?

CAROLINA IN MY MIND: Commercial Properties’ 5401 North TND in Raleigh got an important jumpstart when Baton Rouge real estate developer John Engquist stepped in to purchase the residential portion of the project. (Staff photo)

In 2007, Commercial Properties Realty Trust acquired a nearly 400-acre tract of rolling farmland in Raleigh, North Carolina, near the intersection of two busy highways in the bustling corridor that has become home to numerous tech companies over the past three decades.

The idea was to develop a walkable, planned community, or traditional neighborhood development, with a variety of housing types, a commercial retail center, two schools and even a small farm, where residents could avail themselves of freshly grown produce.

But 11 years later, there’s still no commercial development at the property, though CPRT recently announced it has reached an agreement with Tin Roof Brewing Co. and Wake Technical Community College, which has a campus adjacent to the development, to open a brewery and restaurant. It’s a promising start at long last, though a far cry from the supermarket that several residents say they were promised when they bought into the development.

What went wrong?

A couple of things. Chief among them was bad timing. CPRT bought the property in 2007 for some $40 million, or about $108,000 per acre. A little more than a year later, the market crashed and CPRT had to take a $18.2 million write-down on the asset. It would sit idle for the next four years.

In 2013, local businessman-turned-real estate developer John Engquist stepped in and helped jumpstart the project by acquiring almost half the property from CPRT for $12.9 million and agreeing to develop it through his Engquist-Level Development.

CPRT Board Chairman John Davies acknowledges Engquist helped “accelerate” the development of 5401 North but believes it would have happened eventually. Regardless, today there are more than 250 homesites at the development, both single family and townhomes, about 100 of which are occupied, according to Metrostudy, a national firm that tracks market-specific real estate data.

They’re solid, middle-class homes, the product of volume builders like Engquist’s own Level Homes, Chesapeake and Lenar Builders. Townhomes average around 2,200 square feet with an average sale price of $314,000, while single-family homes average nearly 2,500 square feet with an average sale price of $370,000.

Earlier this summer, CPRT broke ground on a multifamily complex, too. And two schools on the site that are owned by the county—a middle and elementary school—are both completed and open now after several years. It’s starting to take off.

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But there are a few other reasons why attracting a commercial anchor tenant has been tough for 5401, which sits just off the intersection of highways 540 and 401. Part of the problem is the proximity of several other nearby grocery stores, some of which have been there since before CPRT bought the property, according to Jimmy Broemer, a veteran commercial real estate broker in the Raleigh market.

Part of the problem is the lack of easy access into and out of the development, which was redesigned from its original master plan in the years after the recession.

“Then if you look at grocery stores, there’s still a lot of vacant land out there,” Broemer says. “And groceries like to follow rooftops, not lead them.”

There’s also the fact that most of the high-end growth in Raleigh is on the northwestern side of Wake County. 5401 is more to the east, an area that is more moderate income and has been slower to develop.

“All the pieces are in place for 5401 to be a go but right now a lot of the new growth is around Cary (to the west) and the Research Triangle Park,” says Mandy Hoyle, an analyst with Metrostudy. “5401 is a 30- to 45-minute drive from there, so that probably has worked against them.”

Despite the lack of commercial development 11 years into the project, Davies says 5401 is now making money for CPRT and “is becoming a good investment” after several challenging years. The company no longer has carrying costs on the land—thanks to a mortgage buyout deal worked out with Baton Rouge businessmen John Noland and Matt McKay—and should start seeing an even greater return once it has apartments to lease.

Experts in the area agree that 5401 is poised to work long-term because there’s so much demand in the area for housing. But they suggest it might be slow for several more years.

“I’m bullish on it because it’s a great location,” Hoyle says. “It’s just not going to happen overnight.”

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