City to move forward with exploring purchase of PPD building. What you need to know.

The Wilmington City Council gave city staff the greenlight Tuesday to put down a $500,000 deposit on downtown’s PPD building, as they explore buying the 12-story structure and its surrounding campus.

The deposit will give staff an initial 120-day period to assess the property and evaluate the feasibility of the $68 million purchase. Buying the building could help consolidate the city’s office space, solve a parking shortage and open up land downtown for new development, according to city leaders.

The unanimous vote authorizes City Manager Tony Caudle to enter into an "offer to purchase contract" with River Ventures, LLC, the owner of land at 929 N. Front St. 1001 N. Front St. and 1021 N. Front St. The council also unanimously approved spending an additional $250,000 to cover due diligence costs.

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How did we get here?

In April 2022, Thermo Fisher Scientific announced plans to sell its 12-story office building on the northern end of downtown.

When the company announced its intentions to sell, company officials said a “significant percentage” of its employees preferred a hybrid work model, which “necessitates more flexible workspaces and fewer dedicated offices." The company has embarked on what it’s calling a “multi-year process” to find new office space in the Wilmington area.

Global corporation Thermo Fisher Scientific Inc. purchased PPD, a Wilmington-based clinical research company, in 2021 for $17.4 billion. PPD has owned and occupied the building since 2007. The company employs approximately 1,700 people, making it one of Wilmington's largest private employers.

How long have city leaders discussed this purchase?

City leaders began seriously discussing a potential purchase of the building about four weeks ago after being contacted by real estate representatives hired by Thermo Fisher Scientific, Wilmington Mayor Bill Saffo said.

City staff had initially looked at the building when it went on the market but didn’t move forward because of its potential cost, City Manager Tony Caudle told the city council during their agenda briefing on Monday.

“We had originally looked at the property when it came on the market,” Caudle said, “and just made the assumption that we would never be in the ballpark because of the tax value of the property and what they would be asking for it.”

What is the city looking to buy?

The city is looking to buy PPD’s entire 12.5-acre campus. That includes a 12-story office building, which houses 370,000 square feet of office space, along with more than 1,500 parking spots and two adjacent pieces of land that could be sold off for future development.

Why does the city want the building?

For years, city leaders have noted a need for more city office space.

The city commissioned a space needs study in 2014 and again in 2021 to identify long-term needs for city office space, according to Caudle. The results of the most recent study, which were released to city staff in November, recommended redeveloping the city’s aging office building located at 305 Chestnut Street.

The estimated price tag of that project was between $90 million and $96 million, Caudle said.

“We didn’t get into this predicament overnight,” he said, “but this is what happens when you have a rapidly growing city and a rapidly growing staff to accommodate the services that serve the population.”

The also city acquired the Harrelson Building at 115 N. Third St. in downtown Wilmington last spring in a move to secure more office space.

The PPD building presents a “unique opportunity” for the city, Caudle said, to consolidate its office space into one building, secure much-needed additional parking and provide opportunities for new development.

Saffo told the StarNews last week the purchase would also address ongoing security issues and high maintenance costs for some city buildings.

“On paper, it makes a lot of sense to me,” he said. “It's a heck of a lot more (space) than we need, but it poses a lot of opportunities and answers a lot of questions and concerns that we have from parking to space to security to even IT.”

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What is the city’s offer?

The city is working to enter a written contract for the sale of the building, Caudle said, following discussions with representatives from Thermo Fisher Scientific. The city’s current offer is $68 million for the 12.5-acre campus, which includes the PPD building and all its furnishings, fixtures and equipment.

An appraisal from New Hanover County places the property's value at more than $71.7 million, according to property records. The building cost approximately $80 million to build in 2007.

Both Caudle and Deputy City Manager Chad McEwen reiterated that Thermo Fisher Scientific is under no obligation to accept what the city offers for the building.

“Thermo Fisher is in no way bound to the offer that we are going to make,” Caudle told the council. “It has not been written, it has not been signed and there is no guarantee that they will take the offer that we have submitted.”

The $500,000 in earnest money will be refundable to the City for the first 120 days of a total 165-day examination period, according to the council's agenda. During the first 120 days, the city can end the purchase offer for any reason or no reason.

The resolution approved by the council states the city would "deposit an additional examination period fee of $300,000 by the 120th day of the examination period. Following the 120th day, the initial earnest money deposit of $500,000 and as well as the additional $300,000 fee, will become nonrefundable to city."

How does the city plan to offset the $68 million price tag?

The city has plans to lease several floors of the PPD building and sell its current office buildings to offset the $68 million purchase cost.

City offices are expected to take up five to six floors of the structure. The city plans to lease two to three floors of office space back to Thermo Fisher Scientific for a period of at least three years, and the remaining floors would be leased out at market rate, according to McEwen.

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Wilmington leaders would also sell many of the city’s seven existing office spaces – excluding Thalian Hall – as a way to offset the costs.

What is Thermo Fisher saying?

After the city's interest in the PPD building became public, Thermo Fisher Scientific released a statement that reiterated that no agreements have been signed or finalized.

"Interest in the property has been high, with a number of proposals received from interested parties, including from the City of Wilmington," Ned Glascock, senior director of communications and public affairs with Thermo Fisher Scientific Inc., wrote in an emailed statement. "Our business is evaluating various proposals, but no agreements have been signed at this time."

What’s next?

City staff will now begin the 120-day exploration period that will include an appraisal and a building conditions assessment. They will also evaluate the building’s operation and maintenance costs, perform a capital expenditures forecast and assess the site’s Brownfields compliance, according to McEwen.

McEwen said these findings will be brought back to the city council, so that council members can determine whether they want to remain in the contract. If city officials opt to move forward, the resolution approved by the council states that a closing on the property should happen no more than 15 days after the end of the examination period, no later than July 31, 2023.

Because of its magnitude, the purchase would be subject to approval for the Local Government Commission and city leaders would be required to hold public hearings on the financial structure of the purchase, if things move forward, Caudle said.

Reporter Emma Dill can be reached at edill@gannett.com.

This article originally appeared on Wilmington StarNews: Wilmington officials vote to explore buying downtown PPD building