“A little bit of a frenzy.” 

That’s one possible reaction, said local commercial real estate broker Jeff Hovis, when a handful of properties owned by the city of Wilmington hit the market.

The Wilmington City Council declared nine parcels in and around downtown surplus earlier this year in anticipation of using sale proceeds to offset the city’s $68-million purchase of the former PPD headquarters campus at 929 N. Front St. The campus would help the city consolidate its currently scattered offices, which would be millions of dollars cheaper than fixing up some of its old office properties, officials say.

The “crown jewels” of the surplus collection, according to Wilmington Mayor Bill Saffo, are 305 Chestnut St. (in terms of size and location) and 115 S. Third St., a four-story office building built by longtime area developer Bobby Harrelson.

But officials and real estate professionals are also looking at the potential impact of economic factors, including higher interest rates, on the sales.

“I think there’ll be a little bit of a frenzy for people wanting to go after it,” said Hovis, of Wilmington-based Intracoastal Realty. But at the same time, he said, “we’re going into a situation where there’s some hesitation in the commercial world. If you take commercial [properties] just as a macro situation, there’s concern, but when you start looking at some of the individual components of different markets and different types of industry, there’s acceleration. 

“So I think we’ll see some people look at these as a prime development opportunity,” he said.

Explaining the impact of the upcoming sale on potential buyer sentiment so far, Hovis said one of his current listings is a piece of property his family used to own, the former Cape Fear Formal Wear at 218 N. Third St. near the city-owned Chestnut Street properties. Hotel investors bought 218 N. Third St. for a little over $1 million in 2017, but a hotel never came to fruition. 

“We just put it on the market for the owners … I’ve had it listed for maybe three weeks,” Hovis said on July 11, “and the amount of people that are coming to me on it – it’s pretty intense.”

John Hinnant, vice president at Wilmington-based Eastern Carolinas Commercial Real Estate, said a high level of competition for the properties isn’t certain. (Hinnant also has announced that he is running in the New Hanover County Board of Commissioners race next year.)

“It’s difficult to say right now with the interest rates the way they are,” Hinnant said.

Loan rates have been ranging between about 6% to 18.5%, depending on the loan product, according to Commercial Loan Direct. Conventional commercial mortgages are seeing rates between 6% and 10%.

If the city were his client, Hinnant said, “I would advise them to put two or three properties on the market at a time. I wouldn’t put all of them at the same time because you don’t want to flood the market.  

But higher interest rates come on top of national sources such as Morgan Stanley issuing dire warnings. The bank’s analysts have predicted a commercial real estate price decline of as much as 40%.

Still, the city is in a position of strength on the potential sales, said Charlie Rivenbark, a city councilman and broker with Wilmington-based commercial real estate firm Cape Fear Commercial.

“The thing is we haven’t got to sell any of them,” Rivenbark said in early July. “We want to and will, but it’s not like our deal is dependent on those. It’s certainly going to make it a sweeter deal … They’re good properties, and I think there will be much interest.”

The Chestnut Street properties, which include a cobbled-together assortment of spaces with various city services inside, are likely to be redeveloped, some say.

“I could see a group coming in, an investment group, and taking that building down, putting all of that property together [305, 315 and 319 Chestnut St.] and then redeveloping it in different ways,” Saffo said. 

Rivenbark and Saffo expect the building at 115 N. Third St., which the city bought in 2021 for additional office space, to remain an office building. 

The city closed on the former PPD headquarters campus July 13, aiming to use five floors to consolidate city services, lease two floors back to PPD parent company Thermo Fisher Scientific Inc. and lease out the remaining five floors.

“It’s going to probably take us six to eight months to vacate all of the buildings to relocate everybody over to the new building,” Saffo said. “

The city’s options for selling the properties include sealed bidding, for which the council could OK the sales to the highest bidder or reject all bids; or upset bidding, for which the city has an offer but starts the process of seeing if anyone will top that offer.