Work, Live, Learn and Play

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Wake Forest’s Innovation Quarter revives Winston-Salem

“Technology Overtakes Tobacco in Winston- Salem, N.C.,” read the headline of an article by Keith Schneider in The New York Times of April 28, 2015, describing the mid-size Carolina city’s new, and still developing, Wake Forest Innovation Quarter. The 145-acre project in the eastern part of downtown Winston-Salem currently comprises 2.5 million square feet of office, laboratory and education space in 16 buildings. There are 800 apartment and condominium units within or near the development, and many more on the way. In addition to the buildable ground, an additional 55 acres are designated as a green space urban park.

The master plan describes a development that will “complement those of other city initiatives focused on creating an environment rich with opportunities to work, live, learn and play.”

“What we are creating at the Innovation Quarter is an ecosystem that allows ideas to take hold and supports creativity, innovation and sustained business growth in every possible way,” states Dr. Eric Tomlinson, president of the quarter and chief innovation officer at the Wake Forest Baptist Medical Center, one of the project’s chief components. Tomlinson, who hails originally from Liverpool, England, is also a professor of physiology and pharmacology at Wake Forest School of Medicine.

New Market and State and Federal Historic Tax Credits have played a large role in this development that Tomlinson says evolved from an industrial zone to a research park to an innovation community.

The quarter’s antecedents go way back. The R.J. Reynolds Tobacco Company had been a fixture and major employer in Winston-Salem since 1875, when Virginia planter Richard Joshua Reynolds founded the company, moved it to a location near a train depot in the heart of tobacco country and bought his first factory building from the Moravian Church. At its height, more than 15,000 people worked at the manufacturing complex. A 22-story art deco tower built in the 1920s as Reynolds’ corporate headquarters, was a model for the Empire State Building.

In 1987, after merging with Nabisco, Reynolds moved its operations to a more modern facility 15 miles north of the city and sold a portion of the downtown site to Wake Forest Baptist Medical Center for a bargain $1 million. It has since donated the remainder of the land and buildings to Wake Forest and the medical center, which is jointly owned by the university and North Carolina Baptist Hospital, and is the city’s largest private employer.

Desolate downtown
By the time of Reynolds’ move, the largely African American east side had fallen on hard times. Stores and businesses were moving to the suburbs and various urban renewal projects had left what remained a series of failing shops and office building enclaves. “Desolate” was a common descriptor for the downtown area. Mayor Allen Joines, then assistant city manager, estimates the city lost 10,000 jobs in 18 months.

In 1994, in a quest for more space for its research facilities, Wake Forest School of Medicine’s Department of Physiology and Pharmacology moved into the vacated Reynolds tobacco warehouse. The building was renamed the Piedmont Triad Community Research Center. City officials, planners and community stakeholders realized that manufacturing was not coming back, and if the city was to prosper again as it had during the golden years of tobacco, a new focus on intellectual capital and technology would have to be made, and this meant the requisite financial capital to support the effort.

One of the early moves repurposed Reynolds Factory Building 251 into a mixed-use condominium and commerce center.

A major expansion was envisioned in 2002-2003, when a master plan was developed by Sasaki Associates of Boston, focusing on the goal of connecting scientific and technological ideas with the resources to research and realize them. But as Tomlinson comments, “Frankly, we didn’t know how to do it.”

Enter Wexford
What turned out to be the key appeared in 2009, shortly after the economic collapse threatened further expansion, when Wake Forest, which had born almost all of the capital burden thus far, teamed up with Wexford Science + Technology, a Baltimore-based developer specializing in partnerships with universities, research institutions and technology innovators.

As Wexford’s executive vice president Daniel C. Cramer recalls, “Wake Forest sent out an RFP, which another developer won. We knew the developer and there was one building intended for research, so they said, ‘Do you want to do the research component?’ So we got into discussions with the Wake Forest health department and tax credits were the deciding factor in the deal. We explained New Market and Historic Tax Credits and said, ‘We’ll pass them on to you to turn this old mill district around.’

“Putting tax credits into the deal was the only way they would have been able to move forward. This was a small town that had once been very wealthy but had fallen on hard times and was trying to come back. Rents couldn’t support new construction but with the tax credits, we were able to mitigate costs and refurbish old buildings. From the university’s standpoint, this was an opportunity to take a great leap and move over to the east side of downtown. And the end result was an outstanding product. Then, the other developer had financial problems and Wake Forest came back to us.”

The match quickly became a mutual admiration society and is still going strong. “It’s been a wonderful partnership for Wake Forest and the community as well,” says Tomlinson. “We sell buildings to Wexford, which invests in repurposing them, fueled by tax credits. They’ve developed the buildings one-by-one, but they’re so invested in what we’re doing that we look forward to working with them long into the future.”

For his part, Cramer says, “I never would have thought we’d be in Winston-Salem with over a million square feet.”

In 2013, the name was changed to Wake Forest Innovation Quarter. As Schneider noted in the Times, “The irony of Innovation Quarter’s focus on data analysis, biotech health research and medical education is not lost on the project’s developers.” Though Tomlinson is quick to point out, “Reynolds have been very gracious in their donation and financing of the initial renovation.”

Once the way forward became clear, the development team had to move quickly to take advantage of North Carolina Historic Credits, which the legislature had voted to end on January 1, 2015. These credits provided more than $140 million in investment capital.

“One of the driving features of what we’re trying to do is build a thriving community,” says Tomlinson. “It’s helping to revitalize downtown and support the areas around us. The idea is to think ‘upstream’ by developing an entrepreneurial community that creates jobs and value, with the opportunity to raise up everyone in the area, to drive economic growth, and then make that prosperity enjoyable.”

Knowledge Community
“It really has to be inclusive of the neighborhood to be successful, which is really hard, to be honest,” adds Cramer. “The population is largely the old workforce from the mills, so it is mixing apples and oranges with high tech. But we’re all committed to what we call a ‘knowledge community,’ and we’ve now got STEM programs, jobs training, and have brought in the local community college to train kids into well-paying, in-demand lab technician careers. Or they can go on to four-year colleges with what they’ve learned. We’ve also arranged internships with tenants in the buildings. We have a small business training center and a leadership center that we try to improve each year.”

What has made this possible is the combination of tax credit supports. “Institutional investors for tax credits is a pretty robust market,” Cramer notes. “And in this case, News Market and Historic Credits have enhanced each other well. There is a direct correlation now between Winston-Salem’s downtown and tax credits.”

The Innovation Quarter has not only been the technology incubator it set out to be; it has also been an urban growth incubator. While Wake Forest and Wexford don’t do residential or retail, their efforts have attracted many others who do. “We have 300 apartment units going up in what was previously a parking lot,” says Cramer. “It’s really exceeded all of our expectations.”

As soon as Wake Forest made the downtown commitment, ideas started to take hold around the nascent life sciences park. A group of young punk rockers rented a floor of an abandoned meatpacking plant to practice their music, ultimately opening “The Werehouse” and luring in musical acts from other states. Their next move was convincing R. Philip Hanes, Jr., one of the city’s most influential benefactors, to support their efforts to bring the entire building up to code, which had the effect of transforming the neighborhood. AME Zion Church, which had been contemplating relocation to the suburbs, decided instead to remain in town and bought up an additional 15 acres to expand in its downtown location. Reynolds’ art deco tower became a Kimpton boutique hotel and 116 apartments.

Last year in the Winston-Salem Journal, reporter Fran Williams called the project “a knowledge-based innovation ecosystem to include developers, people, product partners, technical and legal teams, workforce training, incubators, and capital and management for sustainability. It is a place for research, business and education in biomedical science, information technology and advanced materials.”

Leveraging high technology, nearby residence units and educational and health facilities, business incubators and retail in “innovation districts” is a current trend that is paying off large dividends and drawing in highly desirable companies, institutions and individuals. According to Berkeley economics professor Enrico Moretti, each new high tech job creates five jobs in the service economy and workers in cities perceived to be innovative and growing, or “hot” make two to three times the income of those with identical jobs in cities that are “cold” and losing ground. Presently, the quarter is professional home to more than 60 companies, five academic institutions, more than 3,000 workers and 7,500 students. The medical center, Wells Fargo and Inmar, Inc., a technology and data analytics company specializing in intelligent commerce networks, are the anchor tenants. By the end of 2016, the investment will have reached $670 million, and Tomlinson says this accounts for only about 30 or 40 percent of the master plan. This means that when completed, the quarter would surpass the number that inhabited the Reynolds complex at its height. Tomlinson points out there are currently no vacancies and the next square footage coming on line has already been spoken for.

Urban Renewal
The further proof of concept is the more than $1.5 billion that has been invested in downtown Winston-Salem over the past 15 years. And unlike Research Triangle Park, its larger and more famous “rival” 80 miles away near Durham, Innovation Quarter is right in the middle of the city, not in an isolated suburban tract.

“We think the suburban model is really antiquated,” offers Cramer. “Urban is the new trend. Millennials are attracted to walkable environments where all aspects of their lives are accessible.”

“When we were trying to recruit the next faculty from Harvard or MIT or Berkeley, we would take them downtown, whereas before we’d hope they didn’t see it,” Wake Forest

Baptist’s CEO John D. McConnell told Politico’s Colin Woodard. “We’d driven residential, residential had driven the downtown revitalization, and it was all feeding back on itself.”

The Innovation Quarter has become a true partnership of government, business, education and community. “It’s been good for everyone,” says Tomlinson. “The investor group gets tax credits and good returns, the medical center has fantastic, quality buildings and facilities that are attracting top talent, the students are inspired by their surroundings, there is a large base of new companies and businesses boosting the economy and taxes, and all of this is against the backdrop of an increasingly thriving community. Definitely a win-win.”