Veteran Charlotte developer Clay Grubb looking to expand

05/23/2014 12:00 AM

05/24/2014 9:38 PM

Clay Grubb has been developing real estate around Charlotte for a couple of decades now.

His Grubb Properties built the luxury Ratcliffe condos on South Tryon Street and Dilworth’s Latta Pavilion mixed-use complex on East Boulevard. Most recently, his firm joined Novare Group and Batson-Cook Development Co. to break ground on the 24-story SkyHouse Uptown apartment tower on North Tryon.

The firm his father began by building low-interest homes in minority neighborhoods of their hometown of Lexington is celebrating its 50th anniversary this year.

And as it does, Grubb Properties is doubling down on the hot multifamily market, bulking up its real estate investment activity and looking to expand its reach around the Southeast.

The firm’s growing ambitions reflect Charlotte’s broader real estate development scene. Local developers who hunkered down to ride out the recession are back in expansion mode.

Grubb’s firm recently paid $12 million to buy the office building at 330 S. Tryon St., currently the home of the Charlotte Chamber. And it’s clearing land in the SouthPark area for a 398-unit apartment complex.

Grubb is branching out from his North Carolina base to do deals in Richmond, Va., Nashville, Tenn., and as far west as Mississippi. He says the firm has handled about $500 million worth of new real estate investments since 2010.

It’s a long way from the worst of the recession, when Grubb Properties flipped single-family homes because there was little else to do.

In a recent interview, Grubb says it could have been a lot worse, had he not sensed trouble as the downturn approached.

He pared his company’s properties from nearly 40 to just five, and bowed out of deals to develop the Tranquil Court mixed-use project in Myers Park and Raleigh’s Contemporary Arts Museum.

Tranquil Court went forward without Grubb’s firm and struggled; it was later taken over by its lender and sold.

The museum trustees were livid, he recalls, but they scrapped plans for an ambitious new building and simply renovated an existing one.

They felt a lot better about it after the recession took hold.

“Some of those members were like, ‘Wow, we were really lucky! How did you know?’ And I was like, ‘We didn’t know it was going to be anything like it was, but we were nervous enough.”

Success with apartment-building

The multifamily market gave Grubb Properties and other real estate firms a path out of the recession.

Grubb, 46, started his development career in the early 1990s buying apartment complexes, so for him it was like going back to his roots.

The returns have been solid, he says. The bulk of his firm’s work now falls in the multifamily market. It’s a crowded space, as anyone can tell from all the new apartments going up around Charlotte.

Some observers voice concern that apartment developers might be going too far, that there’s an “apartment bubble” getting ready to pop.

Grubb shrugs all that off. It’s simple supply and demand, as he sees it.

The millennial generation ranks as the largest demographic bulge group since the baby boomers. Given the tough mortgage qualification climate and normal tendency of young singles to rent, Grubb and other multifamily developers are betting rental markets will stay hot for at least the next decade.

He’s so confident about it that he says he’d love to join forces with Novare to build a second SkyHouse somewhere in uptown Charlotte.

“If we can deliver at an affordable price, I don’t think we can ever overbuild residential in downtown Charlotte. There’s a lot going on, but I’m still very bullish. I guess we’ll see!”

He’s hoping to build apartments on a national scale, too. He has a national trademark on a concept he calls Link Apartments. They’re complexes aimed at the highly sought-after young urban professionals who like living close to work and recreation spots.

It’s a five-story version of SkyHouse – a reusable development template Novare has built in cities around the South. Grubb has built a Link complex in Richmond, is delivering another in Winston-Salem and has one under construction in Raleigh.

“The idea is to keep building and eventually team with somebody that wants to take that national,” he says.

Elizabeth Avenue plans stall

Not all of his plans are moving forward so quickly, though.

Still awaiting takeoff: his planned revitalization of Elizabeth Avenue, where he and Novant Health have $40 million invested in a six-block corridor. He’s been assembling land there since the late 1990s in hopes of turning the streetscape between Central Piedmont Community College and Novant Health Presbyterian Medical Center into a thriving new urban center.

He envisions about three dozen restaurants, 600 apartments or condominiums and office space. Residents and diners could get in and out via the CityLynx Gold Line, the first phase of the city’s east-west streetcar project, which runs through the corridor.

But the recession froze his plans. He’s hoping a momentum-builder is the 150,000-square-foot cancer and heart disease center the hospital plans to build at Hawthorne Lane and Fifth Street. Groundbreaking for the $90 million to $100 million project is slated for the fall of 2015.

“If that goes successfully, we’ll see some development start directly across Hawthorne from the parking deck,” he says. “That’ll have some ripple effect.”

Grubb also hopes the Gold Line will help jump-start the effort. But the streetcar has seen its share of controversy, particularly over the proposed second phase that would extend the line west toward Johnson C. Smith University and northeast toward Central Avenue.

City Council voted it down in 2012 amid infighting then approved it last year. City officials are still seeking $63 million in federal grants for the project.

The fate of the streetcar, and development around it, also came up in the corruption probe involving former Mayor Patrick Cannon.

Court papers say undercover FBI agents posing as commercial real estate developers talked to Cannon about launching projects along the Gold Line.

Cannon, according to an affidavit, told the agents he could put them in touch with a “prominent Charlotte developer” with significant land holdings along the proposed streetcar line.

The affidavit never mentioned any developer by name, but Grubb’s 12 acres constitute one of the largest holdings owned by any single developer active along the line.

Grubb told an Observer reporter last month that he had no idea whether Cannon dropped his name. He said he was disappointed and saddened by the allegations about Cannon, which he added don’t give “an accurate picture of the above-board manner in which the development community conducts business in Charlotte.”

Speaking with me recently, he reiterated those sentiments. “It was a sad thing for Charlotte. A sad thing for Patrick.”

Looking ahead

It’s still tough to get banks to make real estate loans, Grubb says. But he’s finding success attracting equity investors. His firm has $400 million to $500 million under management.

In his annual letter to investors, he called the firm’s 2013 performance “outstanding.” He doesn’t expect capital to flow as freely as it did during pre-recession days anytime soon, but he figures his firm remains well-positioned for the long haul back up the hill.

The recession taught him it’s great to grow, but not if it means increasing risk.

“I feel like it’s going to be a slow grind for a while,” he says. “We’re going to try to stay true to our roots. … We weren’t in ’07 and ’08 out there trying to make things happen that didn’t make financial sense just because we were trying to grow. That’s made a huge difference, I think.”

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