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Research Campus taking shape at iffy time for financing

By Emily Ford
eford@salisburypost.com
KANNAPOLIS ó A month after Kannapolis officials and developers of the N.C. Research Campus delayed the sale of $168.4 million in bonds, leaders still haven’t sent the package to investors.
But Kannapolis City Manager Mike Legg said the bond market has started to thaw and predicted the first phase, worth $95 million, would sell in early 2009.
The second phase should follow 18 months later.
“The whole municipal bond market is starting to loosen up a little bit,” Legg said. “That is a good sign for us.”
Unlike general obligation municipal bonds, Kannapolis will sell self-financing bonds to pay for road improvements and other public works projects surrounding the Research Campus. These tax increment financing bonds, or TIF bonds, are perceived as riskier.
“General obligation bonds will go first,” Legg said. “We are second in line.”
How the fledgling $1.5 billion Research Campus is weathering the global financial crisis has been a hot topic lately, discussed Tuesday at the Charlotte Biotechnology Conference and during a recent press conference following the announcement that PepsiCo would join the campus.
In general, campus supporters remain optimistic.
The biotech complex in downtown Kannapolis is “somewhat recession-proof,” said Clyde Higgs, the top business recruiter for campus developer Castle & Cooke North Carolina.
Speaking at the PepsiCo press conference about venture capitalists, a crucial funding source for start-up companies attracted to Kannapolis, Higgs said the economic downturn “is not that big of a deal for them right now.”
But he acknowledged a few days later at the biotech gathering in Charlotte that attracting venture capital is his biggest challenge. A businessman attending the conference called the need for venture capital in Kannapolis “urgent,” and keynote speaker Dr. Roger Newton, who discovered the drug Lipitor, said it should be a top priority.
Plans on go
When he officially opened the Research Campus on Oct. 20, founder and billionaire David Murdock said the stalled economy “may slow us down a little” but wouldn’t affect the construction of buildings on campus.
“We have two more ready to start,” Murdock said.
But Dr. Carol Spalding, president of Rowan-Cabarrus Community College, told her board of trustees Monday that construction of the college’s 60,000-square-foot facility in Kannapolis has been delayed.
Castle & Cooke is trying to finalize lending agreements, president Lynne Scott Safrit told the Post. A college spokesman said they still hope to break ground in 2008.
Castle & Cooke also has delayed a major residential project on the campus called South Village, saying the market isn’t right.
“We would be remiss to start construction” on homes right now, Safrit said at the PepsiCo press conference.
Despite the bad economy, Murdock has fulfilled his personal commitment to the Research Campus, said Erskine Bowles, president of the University of North Carolina System.
Murdock has met “every single commitment to the Core Lab,” Bowles said at the press conference. “Every single piece of equipment that he promised is here.”
Murdock has poured $400 million of his personal fortune into the campus and is expected to spend that much or more developing the 350-acre complex.
About two years ago, academic leaders willing to relocate their research projects to Kannapolis gave Murdock a list of state-of-the-art instruments and machines for the campus centerpiece, the Core Laboratory. It’s been called the most complete scientific lab in the world, and campus advocates are counting on it to attract more big-name companies like PepsiCo.
Murdock remains actively involved in developing the campus and is talking to 50 companies about coming to Kannapolis, Safrit said.
In the meantime, city manager Legg watches the municipal bond market.
He said he’s not nervous.
“All indications are that it will be slower than we like, but the market will come back,” he said. “There won’t be any problem once we cross that bridge.”
Crunching numbers
The city was preparing to send a slick electronic bond package out to investors the week that the economy tanked. The bond package has been more than 18 months in the making. After months of debate, city council members and Cabarrus County commissioners finally agreed to issue the TIF bonds in November 2007.
After that, it took so long to prepare the package because Castle & Cooke spent months crunching numbers and making “internal decisions,” Legg said.
“We noted our concerns of the potential volatility of the market,” Legg said. “But no one could have predicted what happened the last month.”
If the city had been issuing general obligation bonds, “we would have moved it a lot quicker,” he said.
With TIF bonds, the ball’s in Castle & Cooke’s court.
“To some degree it was their call,” Legg said. “They have the most risk out there. They are backing the bonds through guarantee.”
Ideally, debt on the bonds will be repaid using increased property taxes from the Research Campus development zone. But if tax revenue doesn’t cover the bond debt, Castle & Cooke must pay it.
Safrit, the president of Castle & Cooke, could not be reached for comment.
Legg said he doesn’t fault the developer for missing an opportunity to sell the bonds months ago.
“When you have this many people involved, a city and a county and a big company and this many moving parts, proceeding cautiously is not a bad thing,” he said.
He predicted no fallout from the delay.
“Some delay is not that big of a deal. Beyond two or three months, there’s a little more of a concern,” Legg said. “In the end, it probably won’t have any significant impact.”

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