North Hills

Format
Full

City
Raleigh

State/Province
NC

Country
USA

Metro Area
Raleigh

Project Type
Mixed Use

Location Type
Suburban Business District

Land Uses
Entertainment
Fitness Center
Hotel
Multifamily Rental Housing
Office
Open space
Parking
Retail
Senior Housing
Supermarket
Underground Parking

Keywords
Active streets
Big-box retailers
ground-floor retail
High-rise building
Mall redevelopment site
Mixed-use development
Multigenerational
Office over retail
Pedestrian-friendly design
Place making

Site Size
94 acres
acres hectares

Date Started
1999

Date Opened
2004

A staid 1960s mall and its surroundings have been transformed into a $1 billion, 94-acre urban destination—located on two major parcels separated by an arterial street—for one of the country’s fastest-growing metropolitan areas. At North Hills, a finely balanced mix of uses surrounds parks, plazas, and walkable streets. In all, visitors will find 988,500 square feet of lifestyle and convenience retail, dining, and entertainment; 1,056,000 square feet of office space; 920 residential units; and 366 hotel rooms. The careful arrangement of uses, both vertically and horizontally, allows boutiques and fine dining to coexist at North Hills with parking garages, office space, and large-format retailers. Local developer Kane Realty began the project in 1999 by repositioning a modest retail strip and then demolishing the mall and assembling adjacent parcels for redevelopment. In the years since, the project scope has steadily evolved to encompass a broad, long-term vision of a 24-hour, high-rise urban district.

[ The Site and Context | The Idea and Development Program | Site Assembly | Approvals | Planning and Design | Architecture and Urban Design | Financing | Performance and Impact | Management and Marketing | Observations and Lessons Learned | Project Information ]

 

Over the past half century, Raleigh, North Carolina, has emerged from being a low-key southern city to becoming one of the most dynamic and fast-growing metropolitan areas in the country. Raleigh’s growth has been propelled by industries that capitalize on the talent emanating from local universities, particularly in fields such as life sciences, technology, and financial services.

However, that innovative spirit did not exactly spread to the area’s built environment. In 1999, John Kane, chief executive officer of Kane Realty, first purchased property at North Hills. “The market here was sleepy, to be honest with you,” he recalls. The vaunted Research Triangle Park consisted solely of corporate campuses that were hiding deep within the woods and were without even any coffee shops to walk to, much less sidewalks to walk on.

“Downtown Raleigh was not vibrant at all,” Kane continues. Rather, the downtown featured dreary blocks of state office buildings and a deserted pedestrian mall. Even as the metropolitan population quadrupled, something was missing, especially in suburban areas: a walkable gathering place, embraced by dense and complementary mixed uses.

While the city of Raleigh worked on fresh strategies to breathe new life back into downtown, Kane and his team began to see the potential around North Hills.

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The Site and Context

The North Hills site in 2001. The mall can be seen at left center, with North Hills Plaza to the right. What would become the Park District is visible in the bottom half of the photo. (Kane Realty)
The North Hills site in 2001. The mall can be seen at left center, with North Hills Plaza to the right. What would become the Park District is visible in the bottom half of the photo. (Kane Realty)

North Hills fills two quadrants of the interchange between Interstate 440 (Raleigh’s Beltline) and Six Forks Road (a major arterial leading to Raleigh’s expansive northern suburbs). The interchange is three miles north of downtown Raleigh and ten miles east of Research Triangle Park. About 134,000 cars pass by daily on I-440, and another 48,000 travel on Six Forks Road. Local collector roads such as Lassiter Mill Road and St. Albans Drive also feed into North Hills directly from surrounding neighborhoods, thus enabling many neighbors to reach the site without braving congested arterials.

The surrounding area was first developed by local developer Edward Richards just as the Research Triangle Park project got underway in the 1960s. In 1967, this burgeoning suburban community welcomed the 535,000-square-foot North Hills Mall, the first two-story enclosed mall between Atlanta and Washington, D.C. The mall, “a raving success” in Kane’s words, drew shoppers from across eastern North Carolina. It attracted adjacent development such as a community shopping center and small office buildings. However, the mall was subsequently neglected by its distant owners, and it began to decline as newer competitors eroded its market share.

The present North Hills footprint consists of three districts. At the center, the former mall is now the 31-acre Main District, bound by I-440 and Six Forks and Lassiter Mill roads. To the north across Lassiter Mill Road, the 14-acre Lassiter District replaced what was North Hills Plaza. On the east side of Six Forks Road and stretching almost half a mile along I-440, the 49-acre Park District comprises what were 18 different parcels with various previous uses.

Even as Raleigh sprawled far past North Hills, the surrounding areas remained some of the region’s most desirable. Kane Realty’s initial research into the area’s demographics discovered that the trade area of North Hills had higher incomes and education levels than did premier retail areas such as Atlanta’s Buckhead and Charlotte’s SouthPark.

As a result, John Kane says, “We knew that we were going to be able to get the right retailers here. We wanted retailers that would set us apart from the rest.”

Mike Smith, president and chief operating officer of Kane Realty, adds that the site combines “strong residential demographics” with “a piece of property that has commercial zoning right in the middle of the neighborhoods—and right at the intersection with the interstate… So there’s a lot of things here that said this place deserves really special treatment.”

Kane Realty’s principals have a particularly keen interest in the North Hills site: everyone on the project’s leadership team lives within a mile of the property. Since its founding in 1978, Kane Realty has developed 8 million square feet throughout North Carolina. Among the recent additions to this portfolio are mixed-use, high-rise developments in downtown Raleigh’s warehouse district and adjacent to North Carolina State University.

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The Idea and Development Program

The Commons, seen in the lower left corner, is an open space in the Main District used as an informal gathering place and for events. The CapTrust Tower, in the Park District across Six Forks Road, can be seen in the upper right. (Kane Realty)
The Commons, seen in the lower left corner, is an open space in the Main District used as an informal gathering place and for events. The CapTrust Tower, in the Park District across Six Forks Road, can be seen in the upper right. (Kane Realty)

Kane Realty envisioned North Hills as a regional destination—the city’s best address for retail, offices, dining, hotels, and apartments. That vision grew along with the site, beginning with the grocery-anchored Lassiter and eventually encompassing almost 100 acres.

When the company had purchased both the mall and plaza, the leadership’s vision for the combined Lassiter and Main districts became one of an active, vibrant mixed-use environment with a focus on retail but with complementary entertainment, residential, office, and hotel uses. In the neighborhood, local and national merchants could cater to the needs and desires of the local community—from groceries to apparel, coffee to fine dining.

With the addition of the Park District, the North Hills canvas vastly expanded. John Kane recalls, “We knew the area over there was going to get more valuable. We then said, ‘Okay, well, let’s create more.’ ”

The intention was to take the urban, mixed-use vision to a new level. “That meant more density and enormous heights, relative to what had been there, and really, what had been in our community,” Smith says. The district would enable people to stay at North Hills—rather than just visit—by providing high-rise and mid-rise hotels, offices, and residences, along with complementary retail and entertainment.

Retail, dining, and entertainment. The 988,500 square feet of retail space includes more than 80 shops; nearly 40 restaurants; and entertainment uses such as a 14-screen cinema, 14 bowling lanes, and a health club. Retail space is located in all three districts, some in single-use buildings and some lining the ground floor of residential, office, and hotel buildings.

Anchor tenants at the fashion and entertainment-focused Main District include JCPenney, Target, Regal Cinema, REI, Anthropologie, and Fitness Connection. The convenience-focused Lassiter District is anchored by Total Wine, Sur la Table, Lululemon Athletica, and Walgreens. The largest tenants within the Park District are Harris Teeter, King’s Bowl, and Yard House.

The site plan for North Hills. (Kane Realty)
The site plan for North Hills. (Kane Realty)

Office. Most of the 1,056,000 square feet of Class A office space in North Hills will be inside three high rises in the Park District: the 17-story CapTrust Tower, the 18-story Bank of America Tower (to be delivered in 2016), and the 12-story Midtown Plaza (to be delivered in 2017). The Offices at North Hills offers 123,000 square feet of office space in four buildings located above the Main District’s shops.

Major office tenants include CapTrust, Allscripts, Bank of America, Merrill Lynch, Ogletree Deakins, K&L Gates, the American Board of Anesthesiology, Kilpatrick Townsend & Stockton, and Sprout Pharmaceuticals.

Hotel. Two hotels offer almost 400 rooms at North Hills: the Renaissance is a ten-story luxury hotel crowning Main Street, and the Hyatt House is a seven-story extended-stay hotel whose suites overlook Midtown Park. A third hotel, a seven-story AC hotel (a new, limited-service lifestyle brand from Marriott), will open at the north end of the Park District in 2017.

Residential. More than 1,800 rental residential units are occupied or are under construction at North Hills, with 1,203,500 square feet built and another 383,000 square feet set to come online over the next two years. Most of the apartments are located in the Park District, where three mid-rise buildings have been built or have started construction: Park & Market, Midtown Green, and the Dartmouth. The newest apartment building in the Park District will be Park Central, which will blend mid-rise units over retail space with a high rise built atop a parking garage; it will be one of Raleigh’s few high-rise multifamily buildings. Offerings also include the Alexan North Hills Apartments (297 units), residences that are located in the Lassiter District.

The Cardinal at North Hills is a 220-unit senior living community that is under construction at the Park District’s eastern end and is managed by Kisco Senior Living. When open in 2016, it will offer independent living as well as skilled and assisted care.

Parking. More than 5,000 parking spaces are free for visitors, employees, and residents. The largest garage is a two-story underground parking area tucked beneath and behind the Main District. Each of the office towers also includes above-ground garages, and the mid-rise apartments wrap around parking garages. Surface lots and on-street parking, particularly near the retailers, also are available.

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Site Assembly

Three office towers are located in the Park District. The CapTrust Tower has two restaurants on the first floor, a parking garage on floors two through seven, and offices above. (Kane Realty)
Three office towers are located in the Park District. The CapTrust Tower has two restaurants on the first floor, a parking garage on floors two through seven, and offices above. (Kane Realty)

Site assembly was accomplished in two major phases.

Lassiter and Main districts. As a Raleigh resident, John Kane had long pondered the potential of the North Hills site. The mall and plaza had been sold in 1980 to a foreign pension fund. The properties were occupied but had last been renovated in 1984 and had become “run-down and tired looking,” Kane says. When the fund’s substantial portfolio of Raleigh-area properties went up for sale in 1995, Kane bid on the lot—then watched as his firm’s capital partner bought the mall and plaza with a different national partner.

In 1999, the mall and plaza’s new owners returned to Kane, realizing that “they really had a redevelopment, reposition, recycling opportunity on their hands… They needed somebody else that could do it.” Kane recognized two factors that could unlock more value from the 60,000-square-foot plaza: a tree-buffer easement behind the property had expired, thereby enabling development on almost four acres, and below-market leases were set to expire in 2000, including a 20,000-square-foot Winn-Dixie supermarket and a large postal facility.

Kane went to work repositioning the existing strip center starting on Day One. He recalls, “We re-tenanted all that space, refaced that building, put pretty flower pots out there to make it a nicer environment… so we could really show the community the kind of quality that we were planning.” The faded Winn-Dixie was replaced with Harris Teeter, traditionally North Carolina’s better-quality grocer. Meanwhile, Kane examined the potential to build multifamily residential housing behind the center to replace the easement and post office.

The same owner then offered Kane the mall site in 2001, thereby expanding the 14-acre vision to include an additional 31 acres. The mall still seemed healthy, with 92 percent occupancy, but in Kane’s words it was “very dated.” It was anchored by JCPenney, which had a very favorable long-term lease, and by Dillard’s, which was planning to close and move across town to a new mall.

Park District. Even while construction was underway on the Main District, in 2003 the Kane Realty team began to turn its attention across Six Forks Road to what is now the Park District.

At the time, the 49 acres on that side of Six Forks that Kane Realty wanted to purchase comprised a variety of small buildings. The property included a small hotel, low-rise apartments, a bank, a vacant restaurant, several ranch houses, and several older office buildings, including the Episcopal Diocese of North Carolina.

Acquisition of those properties began with the purchase of a single office building, located across from the mall’s traffic signal. The developer then acquired 17 additional parcels, totaling about 50 acres, over the next four years.

Several of the parcels had been part of a 1950s subdivision of 104 single-family houses, where deed restrictions barred anything but single-family houses. Developing the land would first require lifting those restrictions, possible only with a majority vote of the subdivision’s homeowners. To achieve that objective, Kane Realty development director T.J. Barringer went door to door to explain the project vision. Of 60 neighbors that he met with, 90 percent of them signed. “It’s one of those times you meet everybody in the neighborhood, and it changes from being a scary neighborhood that could hurt a development into just a set of people,” Barringer explains.

Barringer says it also helped that the neighbors could “walk around and kick the tires of the Main and Lassiter districts and say, ‘We would love to have this in our neighborhood,’ rather than be scared that we were just an out-of-town developer coming in to tear down everything.”

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Approvals

The Lassiter District was the first area of North Hills to be redeveloped. The Alexan at North Hills Apartments, seen here, is located above retail businesses. (Kane Realty)
The Lassiter District was the first area of North Hills to be redeveloped. The Alexan at North Hills Apartments, seen here, is located above retail businesses. (Kane Realty)

Soon after securing ownership of the Lassiter District, the Kane Realty team realized that it presented an opportunity to bring truly mixed-use development to Raleigh. Before that goal could be accomplished, the developer had to surmount the city’s site plan approval process.

The Lassiter and Main districts already had generous shopping center zoning, but they required site plan approval for the North Hills proposals. The tree buffer behind the Lassiter District was a private agreement between the original developer and abutting homeowners, and removing it sparked conflict with those neighbors. Raleigh’s political climate at the time had been primed by residents’ first high-profile fights over the potential impacts of infill development on existing neighborhoods.

To overcome the challenge, Kane Realty reached out to neighbors through community meetings and by hand-delivering 5,000 color booklets that articulated the North Hills vision to everyone within a one-mile radius. After the developer gained buy-in from both neighbors and city leaders, the redevelopment site plan was approved, and demolition of the old North Hills Mall began.

The next approvals challenge was to rezone the Park District—the largest-ever rezoning case in Raleigh history. Raleigh’s zoning ordinance at the time did not allow for mixed-use buildings outside shopping center zones. Instead, the developer devised a planned development district that allowed a broad variety of uses, reduced required parking by one-third, and limited overall density by guaranteeing that the development would not result in excessive traffic impacts on adjacent roads.

The support that Kane Realty had garnered by going door to door to lift the deed restrictions helped during the rezoning process. Smith says the site’s immediate neighbors supported the rezoning because they “wanted to be living in their single-family home but have connectivity to a place that was active and that had the restaurants and retailers that they could access.” The rezoning was unanimously approved by the City Council, granting approval for towers up to 30 stories tall at North Hills.

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Planning and Design

A rendering of North Hills shows the Main District, at center right; the Lassiter District, at bottom right; and the considerably denser Park District, at top left. (Kane Realty)
A rendering of North Hills shows the Main District, at center right; the Lassiter District, at bottom right; and the considerably denser Park District, at top left. (Kane Realty)

After observing great cities throughout the country and the world, the Kane Realty team knew that North Hills had to have the following: active streets for pedestrians and vehicles; a mix of local, regional, and national retailers; office workers, residents, and hotel guests located among those retailers; restaurants that spilled onto the sidewalks; and plenty of open space for both planned and unplanned gatherings. “We are building more than just bricks and mortar. We are building a community,” says Jennings Glenn, chief financial officer of Kane Realty.

The Main District, which replaced the original mall, was designed as two intersecting streets lined with low buildings that house retailers and offices. Main Street leads southwest into the site from Six Forks Road, ending at the Renaissance hotel’s front door. Lassiter at North Hills Avenue draws traffic southeast from Lassiter Mill Road toward a square in front of the cinema. Anchor stores blend into the fabric: shops wrap around JCPenney, Target is hidden underneath and behind the main retail level, and Fitness Connection is located above.

The Lassiter District retained much of its original “convenience center” layout, with surface parking between its shops and the arterial roads. The Alexan mid-rise apartment building wraps around a parking garage for residents and contains ground-floor shops facing the original Lassiter surface parking lot.

The Park District includes 12 city blocks in a two- to three-block wide grid, bound by collector roads on either side. Park Street, its principal spine, runs southeast through the site, from a plaza between the first two office towers past the one-acre Midtown Park to the entrance of the Cardinal at North Hills senior living community. The street is lined with mid-rise and high-rise offices and apartments, with shops on the ground floor.

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Architecture and Urban Design

The primary entrance to the Main District’s parking garage is in the middle of Main Street. The garage and Target store are tucked into the hillside below the district. (Kane Realty)
The primary entrance to the Main District’s parking garage is in the middle of Main Street. The garage and Target store are tucked into the hillside below the district. (Kane Realty)

The design of North Hills invites visitors, employees, and residents to experience the entire district. The mix and placement of uses draw visitors throughout the site. Moreover, inviting, walkable streetscapes make getting there a pleasure.

One exception to the mixing rule is that high-rise buildings and large-format retailers are intentionally clustered at the site’s southern edge, facing I-440 and Six Forks Road. This arrangement keeps tall structures and large signs facing away from residential areas—and it takes advantage of the site’s topography, which slopes away from Six Forks Road.

Having uses that face like uses is a basic concept for the developer. “If you’re a resident and you’ve been there for a while, and there’s a developer coming in to do a project, we think the best thing you can do is to put residential next to residential,” Smith says. Kane used that model first with the Alexan North Hills Apartments, which are at the rear edge of the Lassiter District and were designed by the Preston Partnership.

Although many developers choose to work with one design firm for consistency purposes, Kane Realty chose to do just the opposite. Using different designers gives projects varied appearances, thus accentuating that North Hills was developed over time.

Carter & Burgess designed primarily the Main District, while Duda Paine Architects, LS3P, and SchenkelShultz Architecture designed the office towers. Housing Studio, Dwell Design Studio, and WDG designed the multifamily projects within the Park District, with Cline Design providing services for the Cardinal. RTKL and Duda Paine developed the overall scheme for North Hills once the Park District was added.

Parking. One key advantage of mixing uses is the ability to share parking; doing so enabled the Kane Realty team to focus on the big picture rather than having to worry about parking ratios within each building. “With the cost of parking being very expensive these days—especially underneath buildings, or underground—we do everything we can to facilitate and encourage the sharing of parking,” Barringer says. “It’s better to have a space used for 16–18 hours a day than six or eight.”

To use parking spaces in that way, the developer is strategic about mixing building uses. For instance, the Main District’s peak parking demand hours are extended by the gym, cinema, and hotel. In the Park District, the AC hotel and the Bank of America offices will share parking.

The site’s hilly topography created opportunities to tuck parking underneath several buildings. Six Forks Road is on a ridge through the middle of the site, so parking garages can be tucked into the hillsides below and behind the buildings. The Main District slopes about 25 feet down from its primary entrance on Six Forks. Its two-level parking garage and Target store are tucked into the slope, underneath the cinema and a block of shops. The Target opens out onto a surface lot facing I-440, drawing its customers past the rest of the retailers. The state’s first “Vermaport,” or shopping-cart escalator, lets customers travel up from Target to the middle level of parking.

The bi-level Harris Teeter in the Park District is also tucked into a hillside, this time beneath the mid-rise Park & Market apartment community. The downhill side of the apartment building sits above the grocery, while the uphill side wraps around a parking garage. The garage’s lower-level entry delivers grocery customers directly to the store’s front door, and an upper-level entry is convenient for residents.

Another creative parking solution maximizes retail frontage within the narrow footprint of the CapTrust Tower in the Park District. Vehicles drive onto an underground ramp outside the building, below a restaurant, and then up an internal ramp into a garage located above the retailers but below the offices. This route keeps the entering vehicles from queuing on the Park District’s busier streets.

Open spaces. “Probably the best thing we did was not develop some areas,” says Mike Smith, pointing to the immense popularity of the parks and plazas in North Hills. The most important gathering spaces include a small green in the middle of the Main District, a plaza between the Park District’s office towers, and the 400-foot by 150-foot Midtown Park, which lends its name to the Park District. Midtown Park’s sculptural stage, designed by local artist Thomas Sayre, hosts hundreds of events throughout the year.

Wide sidewalks at North Hills give restaurants room for outdoor dining. (Kane Realty)
Wide sidewalks at North Hills give restaurants room for outdoor dining. (Kane Realty)

Streetscapes. Wide sidewalks and narrow streets create an expansive pedestrian realm along the internal streets that connect North Hills. Keeping the internal streets private enables the developer to keep street widths to a minimum, to close streets for events, to install traffic-calming measures such as textured paving or curb extensions, and to let merchandise or seating spill out from shops or restaurants.

The Park District’s unusual zoning, which effectively rewards Kane Realty with more density for reducing car traffic, creates an incentive for Kane to work with the city to make busy arterials such as Six Forks Road friendlier for pedestrians, cyclists, and transit riders. High-visibility crosswalk stripes, pedestrian timer signals, wayfinding signs that include walking times, and refuge medians ease pedestrian crossings between the three districts. To install a refuge median on Six Forks Road, the developer shifted the road east onto the Park District’s property; further improvements will be identified in a forthcoming city corridor plan.

Storefronts. At the beginning, the Kane Realty team specified a conservative approach to storefronts, thereby ensuring that retailers and customers didn’t see the Lassiter and Main districts as just another strip center. To that end, storefronts adhered to a restrained color palette, avoiding bright colors such as red even when those colors were brand standard. JCPenney, for example, retained its existing building amid the new construction, but it received black-and-white striped awnings—a design chosen precisely because it is seen on high-end city department stores.

By the time construction on the Park District began in 2008, retailers were more accustomed to designing stores for mixed-use urban environments. Retailers in the Park District were given more leeway to use bright col-
ors and to let their personality shine through. “Mostly, it comes from understanding that the aesthetic of the property needs to evolve over time,” said Bonner Gaylord, general manager of North Hills. “If we’re not growing, we’re dying. We need to constantly evolve and grow and change, in order to make certain that what we are providing here is the absolute best.”

“We tried to pay attention that it’s not all tan, or it’s not all mundane looking, so that the retail brand can still pop and have its distinction,” notes Mike Smith. “It’s a place that is really a kaleidoscope of different stores and different storefronts that really say that this is a great place.”

Landscaping. The Main District faced a landscaping challenge created when the parking garage was built underneath the district’s southern half. Trees could not be recessed into the surface without eliminating the parking, and the soil would make the street too heavy. Instead, all landscaping on that block was placed in planters, a contrast that is particularly noticeable now that the trees elsewhere on the property have grown in.

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Financing

A rendering of the 18-story Bank of America Tower, which will open in 2016 in the Park District. Like other office towers at North Hills, it will have retail space and restaurants on the ground floor. (WDG Architecture for Kane Realty)
A rendering of the 18-story Bank of America Tower, which will open in 2016 in the Park District. Like other office towers at North Hills, it will have retail space and restaurants on the ground floor. (WDG Architecture for Kane Realty)

Kane Realty’s deliberately phased, long-term approach to financing the development of North Hills has enabled each phase to stand on its own financially, to bring in its own set of partners, and to tailor the capital stack to its own needs. Along the way, Kane has found tremendous value in having strong working relationships with a variety of capital partners, from local equity investors to community banks to international insurance groups.

“Every deal is unique; every deal is different,” Glenn says. “Therefore, we have to have a lot of different relationships. We have to secure broad networks and different capital sources.”

Equity for projects at North Hills comes from several local and national sources. Glenn says the Kane Realty team prefers to “do multiple deals with our existing equity partners.”

Larger phases usually include institutional equity partners, notably Fortress Investment Group, Federal Capital Partners on multiple residential developments, and KBS Realty Advisors on office developments. For smaller projects such as the single-story restaurant pavilions, where the amount of equity needed is less than $5 million, Kane Realty draws on deep local ties to raise funds from “friends and family” investors.

Some properties have been developed through joint ventures with property-type specialists. The first apartment phase, the Alexan North Hills Apartments, was built through a joint venture with Trammell Crow Residential in 2005. All three hotels have been developed through a joint venture with Raleigh-based Concord Hospitality, a national manager and developer of hotels.

Construction loans, bridge loans for land acquisition, and mezzanine financing on large deals are arranged through “a full range of different-sized lenders,” Glenn explains. Community banks take the lead on smaller projects, and national or regional banks lead on larger projects. The most recent construction loans—for the Dartmouth apartments and for Bank of America Tower—were financed by SunTrust and Bank of the Ozarks, respectively.

The solid market performance in North Hills has translated into a consistently strong market for permanent financing on its components. Individual properties have permanent debt backed by either life insurers or commercial mortgage– backed securities. Some of the refinancing has been particularly advantageous; the permanent loan for the Main District, for instance, allowed Kane Realty to take its institutional equity out.

As the project began, the Lassiter District’s supermarket and pharmacy anchors, strong preleasing, and conventional layout enabled it to be financed traditionally.

Across the street, a major hurdle to redeveloping the mall emerged when tests discovered contaminated soil from the gas station that still stands at one corner of the property. “We couldn’t get anybody to even quote us” on a construction loan with that degree of potential liability hanging over the site, John Kane says. Cherokee Investment Partners, a Raleigh-based private equity firm that specializes in contaminated sites, financed and managed the cleanup process. “After that,” Kane says, “it was more traditional financing—just a construction loan—because we were fairly well pre-leased” with strong anchor tenants.

When the Park District was launched during the mid-2000s, financing was comparatively plentiful. Assembling the 18 parcels that underlie the Park District took several bridge loans. The site was recapitalized in 2007 with an acquisition loan from Fortress, which “was patient, understood our vision, and knew that this was going to be a longterm development,” Glenn says. The loan terms included a simple method to calculate release prices for individual parcels, thus allowing Kane Realty “to develop each one of the tracts on a reasonable timeline.”

Park & Market and CapTrust Tower, the first two buildings in the Park District, closed their construction loans in 2008, “probably one of the last deals that got done before the markets tanked,” Kane says.

Glenn expresses thanks to “the lender for sticking with us even though things around us were looking kind of shaky at the time.” Both projects opened in 2010 and were able to eventually land permanent financing in 2012. KBS was pleased enough with CapTrust Tower to invest in what is now Bank of America Tower without any preleasing at all.

Even though Kane Realty has retained ownership of the office and retail components, institutional investors have purchased several of the stabilized apartment and hotel properties. Each one set a new per unit price record for the local apartment market: the Alexan in 2006, Park & Market in 2012, and Midtown Green in 2014. The 2015 sale of the two hotels to Abu Dhabi’s sovereign wealth fund garnered local headlines, as it validated Raleigh’s appeal to global institutional investors.

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Performance and Impact

A rendering of the Park District and its various elements. (Kane Realty)
A rendering of the Park District and its various elements. (Kane Realty)

The Main District reopened in 2004 amid an unusually competitive retail environment: two enclosed regional malls opened in the Triangle that same year. Many national chains that had been at North Hills Mall—or that had considered entering the growing region—went to the new malls instead. Dillard’s, the Gap, and the Limited left for Triangle Town Center, which is four miles to the north, while Apple, Nordstrom, and Saks Fifth Avenue made their debuts elsewhere.

Yet the superior location of North Hills, its demographics, and its design have proved a durable competitive advantage in drawing tenants. The existing retail and office spaces at North Hills are more than 99 percent leased, with rental rates 50 percent higher than the office submarket average and twice as high for retail.

North Hills “has lots of restaurants, shopping, and lots of walking space, so you can do different things and then go on over to the bookstore,” Raleigh bookstore owner Lisa Poole told the local newspaper, the News & Observer, when describing why she decided to move Quail Ridge Books. “It just has everything there.” National chain stores in the center that are new to the Triangle include J. McLaughlin, Lou & Grey, Peter Millar, and Vineyard Vines.

North Hills is “one of the most desirable locations to work in the area,” David Campbell, Allscripts senior vice president of human resources, said in announcing his firm’s choice of North Hills for a new office.

The demand for office space surprises even Kane: “I don’t think I ever would have thought I would build a 300,000-square-foot spec [office] building in Raleigh, North Carolina, but we did,” speaking about the Bank of America Tower.

Similarly, North Hills is breaking new ground for Raleigh’s multifamily market. Park Central will be one of North Carolina’s first luxury apartment high rises when it is complete.

Retail merchandising. “The merchandising mix that we went after was very deliberate,” Kane notes. “I think what’s most innovative and different about what we do is that you can’t put us in a box. Everybody wants to call you a lifestyle center or an enclosed mall or a strip center. We’re not any of those things. We’re really a district.”

Many of the largest North Hills retailers— such as Fitness Connection, Harris Teeter, Target, Total Wine, and Walgreens—provide daily conveniences. The gridded layout in North Hills makes quick visits easy, but the walkable environment and array of dining and entertainment choices also prompt customers to linger and cross-shop. “The retail customer that we typically see coming to North Hills [doesn’t] want to simply drive up to a strip mall, go in, get what they need, and leave,” Gaylord says. “We find that our customer likes to stay on the property for a long period of time.”

“We believe that retail has shifted from the old concept of having a mall with the anchors. We think today the draw is your restaurants and your cafés, and also entertainment,” Smith adds. “Our concept relies on all of these, not just traditional designated ‘anchors.’”

Instead of grouping similar shops together into zones, as many malls do today, North Hills has deliberately mixed different tenants to move customers throughout the property. Kane Realty also draws on its local expertise and in-house leasing staff to recruit local merchants. Such an approach is an advantage in a market in which most other shopping centers have out-of-town owners. As John Kane says, “We very much value local merchants. We have a lot of owners that are in the shops actually selling their goods, which we think is a differentiator.”

This type of retail environment makes it relatively easy to attract tenants, as reflected in the 99 percent occupancy rate for retail and restaurants. Annual rents range from $30 to $60 per square foot, and lease terms average five years.

At first, many prospective merchants shied away from locations within the site’s interior, unsure whether customers would be able to find them. However, local retailers and restaurant owners saw the advantages of being at the center of the district, and now the spaces along the internal parks and squares command premium rents.

Office. Although North Hills was already a proven location for retail, its greatest success has been with office space. Not only has it created an entire new submarket with buildings and values as high as those downtown, but also it has shown that today’s high-amenity workplaces thrive best in vibrant mixed-use locations.

When the Main District reopened in 2004, the concept of office space above retail was practically unheard of within Raleigh—and it was doubly risky given the 20 percent office vacancy rate. “I think the local market thought that this office product was more of a B class versus an A class,” Smith notes. “It was our challenge to continue to be patient with the leasing, to wait until it could be walked, and to wait until it could all be understood to really get the Class A tenants that we expected.”

Yet the amenities and walkability offered by North Hills proved a tremendous enticement for employees and clients, particularly for professional services and technology firms. Having restaurants, fitness, and retail right outside increases productivity, and suburban office parks—including Research Triangle Park itself—are struggling to keep up.

“When large employers add these amenities to their campus or have food trucks come in, it’s really playing catch-up with the environment that we have here,” Gaylord says. By moving to North Hills, tenants “know that they won’t have to spend that additional overhead to make their employees happy. They can move here, pay a rent, and know that [amenities are] already included and will always be included.”

Park Central apartments in the Park District, under construction in 2016, combine mid-rise and high-rise residences with retail space. (Kane Realty)
Park Central apartments in the Park District, under construction in 2016, combine mid-rise and high-rise residences with retail space. (Kane Realty)

Apartment. The convenience afforded by an apartment at North Hills has broad appeal across generations, leading to occupancy rates from 92 to 95 percent. “Our residents are people who understand the value of their time,” Gaylord says. “They understand that by moving to North Hills it will make their life incredibly efficient. They’ve got a 24/7, 365-days-a-year grocery store; they’ve got a pharmacy; they’ve got dry cleaners; they’ve got everything they could want and need—right outside their door.”

Hotel management and occupancy. Raleigh-based Concord Hospitality manages the Renaissance hotel, which has a 75 to 80 percent occupancy rate and the highest room rates in Raleigh, and Hyatt House, which has an 85 to
90 percent occupancy rate. The company will also manage the AC hotel when it opens.

“People love staying in our hotels,” Kane says. “We get all of the visiting hockey teams. We get a lot of the college football and basketball teams here. We get most of the entertainment people. They want to stay where they can walk to everything they need or want. It’s a complement to what we’re doing” with retail and office.

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Management and Marketing

Wellness Wednesdays at the 1.38-acre Midtown Park were among the 470 free events hosted at North Hills in 2015. The developer uses the events to build a sense of community and to draw people to the property. The Midtown Green apartments, Chuy’s restaurant, and Hyatt House hotel overlook the park. (Kane Realty)
Wellness Wednesdays at the 1.38-acre Midtown Park were among the 470 free events hosted at North Hills in 2015. The developer uses the events to build a sense of community and to draw people to the property. The Midtown Green apartments, Chuy’s restaurant, and Hyatt House hotel overlook the park. (Kane Realty)

The marketing and management approach in North Hills seeks to foster a sense of community among all users—a strategy that reinforces the overall effort of place making. “The brand of North Hills is unique, because people don’t envision it as a corporate brand as much as a community brand,” Gaylord explains. “People understand that North Hills is for them. They can bring their kids out and their families and meet others who are doing the same thing.”

Management. Kane Realty manages the day-to-day operations of North Hills, including public safety, street maintenance, grounds maintenance, marketing, and event production. The developer provides concierge-level amenities to customers through services such as car jump-starts, flat tire repair, and neighborhood electric shuttles. A suggestion box is available for anyone to provide feedback. The apartment and hotel buildings that are owned by others are externally managed.

Marketing. The key marketing message is that North Hills is “the place where you can find everything you want, and everything you need, in a 24/7 environment.” Advertising includes limited print ads, TV ads, and radio ads to reach a regional and statewide audience. However, the preferred method of reaching local customers is directly through email and social media, notably Facebook, Twitter, and Instagram. Those messages are tailored to be relevant on a certain day or at a certain time.

“We want to provide [customers] with an opportunity and a message that brings them to the property for various reasons—to shop, to dine, for entertainment, for at-large events, and that’s generally how we like to reach out and build our community,” Gaylord says.

Events. North Hills hosted almost 500 on-site events in 2015, with a Beach Music Series bringing in nearly 10,000 people on Thursday nights. Such events help build community and draw a wide range of people from across the region to the property. Once there, the visitors tend to linger or return to dine and shop.

The event team curates a concert series featuring beach music, bluegrass, and tribute bands; weekly fitness classes; a farmers market; kids’ events; fashion shows; and holiday events. The largest events use Midtown Park’s stage, but other venues set up throughout the property ensure that visitors are exposed to each of the districts.

Sustainability. Environmentally friendly initiatives at North Hills include its pedestrian-friendly design, use of cleaning supplies that are low in volatile organic compounds, use of solar power in several locations (including heating the Park & Market swimming pool), an on-demand electric-powered shuttle service within the property, the electric vehicle charging stations, and the Midtown Farmers’ Market on Saturdays from April through October.

All office towers at North Hills have been certified under the Leadership in Energy and Environmental Design (LEED) program, beginning with the LEED Gold CapTrust Tower. The developer also views the entire property as one enormous recycling project, thus revitalizing not just the site but also the neighborhoods around it.

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Observations and Lessons Learned

Repositioning the Lassiter District enabled John Kane and his firm to “really show the community the kind of quality that we were planning” throughout the project, he said. (Kane Realty)
Repositioning the Lassiter District enabled John Kane and his firm to “really show the community the kind of quality that we were planning” throughout the project, he said. (Kane Realty)

Kane Realty’s overarching vision has guided the evolution of North Hills over the past 15 years, and the Kane team has also had the patience and flexibility to see that vision through. Maintaining control over the entire site has been a significant advantage for North Hills, John Kane says. “We’ve been able to contain the supply side [here]. It’s given us a real advantage in this submarket, to bring product online at the appropriate times, and have [all components] complementary to each other,” he says.

The complementary uses that make North Hills a 24-hour district build value by engaging visitors, residents, and workers in multiple activities. Office workers run errands at the supermarket, hotel visitors shop for gifts, concert-goers stop by for dinner, and apartment-dwellers go to the gym—all feeding into a virtuous cycle in which more visitors mean more amenities, which lead to more visitors.

The developer’s long-term approach to the project and transparency about its long-range plans have earned credibility with its neighbors. “What really resonated with the neighborhood was that a lot of decisions were made based on what was going to be better for the area for the long term, rather than short-term decisions,” Barringer notes. “When we came to the Park District, [neighbors] saw that promises—both written and unwritten promises—had been fulfilled.”

That trust between the community and Kane Realty has resulted in substantial latitude to fulfill the North Hills vision. That latitude means the developer can respond to changes in the marketplace without constantly having to ask for permission. Kane Realty strives to be forthright about changes that are underway, if only to inform stakeholders about what’s happening to “their” place.

Fifteen years of near-continuous mixed-use construction has taught the team to carefully balance the building code requirements of different uses, particularly for fire and life safety. Better anticipating potential conflicts during the design process can substantially reduce the cost of compliance. Precisely timed certificates of occupancy and detailed construction-staging plans can get tenants into their spaces even as construction continues all around.

The most important lesson of North Hills is that great places are always evolving. Kane says he still sees plenty of room around the property for growth—places where new buildings could complement what is already there and, in turn, spur other complementary buildings. Once the Park District is completed, he says he might return to reimagine the spot where the new North Hills started—the Lassiter District—“and go vertical, with something that would be much more dense and appropriate today.” He firmly states that, like any city, North Hills will never be finished.

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Project Information

Development timeline
North Hills north site acquired1999
Lassiter District redevelopment started2001
Original mall site acquiredSpring 2001
Main District site plan approvalFall 2002
Mall demolishedSpring 2003
Main District grand openingFall 2004
Park District acquired2003 - –2007
Park District redevelopment started2007
Park & Market Tower opened2010
Two hotels sold to Abu Dhabi Investment Authority2015

Gross building areaBuilding area (sq ft)
Office1,056,000
Retail/restaurant988,500
Hotel177,851
Residential1,211,500
Total gross building area3,433,851
Parking spaces (existing and under construction)7,500

Site areaAcresPercentage of site
Main District3133%
Lassiter District1415%
Park District4952%
Total94100%

Residential buildingsRentable sq ftNumber of unitsAverage unit size (sq ft)
Alexan North Hills272,000297916
Park & Market382,500409935
Midtown Green174,000214814
The Dartmouth (2016)131,000171770
Park Central (2017)252,000286881
Totals/averages1,211,5001,377880
Overall occupancy93%
Overall average rent$1.91

Office informationRentable sq ft
The Offices at North Hills123,000
CapTrust Tower303,000
Bank of America Tower (under construction)300,000
Midtown Plaza (under construction)330,000
Total1,056,000
Typical floor plate30,063
Overall occupancy99.8%
Average annual rent (per sq ft)$33.28

Major office tenantsNet rentable area (sq ft)
Allscripts245,000
CapTrust60,000
Bank of America57,000
Ogletree, Deakins, Nash, Smoak & Stewart41,000
K&L Gates38,000
American Board of Anesthesiology32,500
Kilpatrick, Townsend & Stockton31,800

HotelsNumber of roomsStandard room size (sq ft)Occupancy rateAverage daily rate
The Renaissance22936875% - –80%$195
Hyatt House13741785% - –90%$189 - –$259
AC Hotel135270----

Retail informationTotal sq ft
Main District642,000
Lassiter District80,000
Alexan Retail40,000
Park & Market retail96,000
CapTrust Tower retail23,000
Hyatt House retail6,000
Midtown Green retail (incl. Chuy's)13,500
Outparcels (incl. Exxon, Wachovia, North State)28,000
Tower II retail (incl. Bruegger's) (2016)19,000
Park Central retail (2017)36,000
AC Hotel (2017)5,000
Total988,500
Overall occupancy99%
Annual rent range (per sq ft)$30– - $60

Major retail/restaurant tenantsRetail typeGross leasable area (sq ft)
TargetGeneral retail132,000
Regal CinemaCinema50,000
Harris TeeterGrocer48,000
King's BowlEntertainment29,000
Fitness ConnectionFitness50,000
REIRecreational supply25,500
Total WineBeverage retail13,500
Yard HouseCasual dining10,500
WalgreensGeneral retail/pharmacy10,200
AnthropologieApparel10,000

Development costs
Site acquisition cost (by use)Cost
Retail$50 - –$100 per sq ft
Office$20 - –$30 per sq ft
Residential$22,500 - –$35,000 per unit
Hotel$22,000 - –$28,000 per key
Retail
Hard costs$100 - –$200 per sq ft
Soft costs$75 - –$125 per sq ft
Office
Hard costs$130 - –$150 per sq ft
Soft costs$100 - –$120 per sq ft
Residential
Hard costs$80,000– - $120,000 per unit
Soft costs$30,000 - –$50,000 per unit
Hotel
Hard cost$80,000 - –$100,000 per key
Soft cost$40,000 - –$50,000 per key

Financing sourceUse
JP MorganPermanent debt and equity
Goldman SachsPermanent debt
U.S. BankPermanent debt
SunTrustConstruction debt
Bank of the OzarksConstruction debt
RBC/PNCConstruction debt
Federal Capital Partners (FCP)Mezzanine debt and equity
Fortress Investment GroupMezzanine debt and equity
KBS RealtyEquity

City
Raleigh

State/Province
NC

Country
USA

Metro Area
Raleigh

Project Type
Mixed Use

Location Type
Suburban Business District

Land Uses
Entertainment
Fitness Center
Hotel
Multifamily Rental Housing
Office
Open space
Parking
Retail
Senior Housing
Supermarket
Underground Parking

Keywords
Active streets
Big-box retailers
ground-floor retail
High-rise building
Mall redevelopment site
Mixed-use development
Multigenerational
Office over retail
Pedestrian-friendly design
Place making

Site Size
94 acres
acres hectares

Date Started
1999

Date Opened
2004

Website

www.visitnorthhills.com

Project address

4321 Lassiter at North Hills Avenue

Raleigh, NC 27609

Master developer

Kane Realty

4321 Lassiter at North Hills Avenue

Suite 250

Raleigh, NC 27609

www.kanerealtycorp.com

Investors/owners/developers

Kane Realty

JP Morgan

Federal Capital Partners

Fortress Investment Group

KBS Realty Advisors

Abu Dhabi Investment Authority

Concord Hospitality

Trammell Crow Residential

Master planners/architects

Duda Paine Architects

RTKL

Architecture and engineering

Dwell Design Studio

Carter & Burgess

Housing Studio

The Preston Partnership

WDG

CSO Architects

Braun & Steidl Architects

Duda Paine Architects

LS3P

Cline Design

SchenkelShultz Architecture

Civil and landscape architects

McAdams

HGOR

ColeJenest & Stone

General contractors

Holder Construction

Fortune-Johnson

Brasfield & Gorrie

Lendlease

Davidson and Jones Construction Company

Duke Construction

Fred Smith Company

Balfour Beatty Construction

Clancy & Theys Construction Company

Structural engineers

M2 Structural

The Preston Partnership

Brockette Davis Drake

Elhert Bryan

Haris Engineering

Stewart

Ellinwood + Machado

Mechanical, electrical, and plumbing engineers

Crenshaw Consulting Engineers

The Preston Partnership

Saber Engineering

Herndon Engineering Services

Bass, Nixon & Kennedy

Interviewees

John Kane, chairman and chief executive officer, Kane Realty

Mike Smith, president and chief operating officer, Kane Realty

Jennings Glenn, chief financial officer, Kane Realty

T.J. Barringer, development director, Kane Realty

Bonner Gaylord, general manager, North Hills

Staff

Patrick L. Phillips, Global Chief Executive Officer

Kathleen B. Carey, Executive Vice President and Chief Content Officer

Dean Schwanke, Senior Vice President, Case Studies and Publications

Payton Chung, Director, Case Studies and Publications

Robyn Kinsey Mooring, Eckel & Vaughan, Principal Author

James A. Mulligan, Senior Editor

Marcy Gessell, Publications Professionals LLC, Manuscript Editor

Betsy Van Buskirk, Creative Director

Anne Morgan, Graphic Design

Martin Schell, Director, Digital Communications

Danielle Bilotta, Online Communications

Elizabeth Herrgott, Feast Studios, Videography

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