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Norfolk Southern drops gulch-multimodal deal

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Norfolk Southern drops part of gulch-multimodal deal

Jarred Schenke

Staff writer

Norfolk Southern Corp. is scrapping a key component of a complex downtown land deal that also involved developer Cousins Properties and a proposed multimodal transportation facility.

Norfolk Southern (NYSE: NSC) told Cousins Properties Inc. (NYSE: CUZ) that it no longer plans to consolidate its employees into One Georgia Center, a West Peachtree Street office tower where Norfolk Southern already uses 90,000 square feet.

Norfolk Southern plans to remain in its current location for the time being, said Wick Moorman, senior vice president of corporate services at Norfolk Southern.

Norfolk Southern felt it wasn't financially viable to move to One Georgia Center unless it could also sell its downtown property known as the "gulch," Moorman said.

"When we might realize the value of that land is a critical component to any plan [to move from Spring Street]," he said.

More than 2,000 Norfolk Southern employees currently work in four older buildings on Spring Street next to the gulch.

History of the deal

The gulch property has been for sale for more than three years for about $40 million. Insignia/ESG Inc. in Atlanta (now CB Richard Ellis Inc.) has been marketing the property for Norfolk Southern, along with another 16 acres around the gulch site.

As first reported by Atlanta Business Chronicle, Cousins was working on plans to buy the gulch, a 16.5-acre lot generally bordered on the north by Philips Arena and CNN Center, on the east by Spring Street (where Norfolk Southern also has 404,000 square feet in office buildings), on the west by Walker Street and on the south by the 99 Spring Street building.

Most recently, Cousins offered a straight lease deal to Norfolk Southern that did not involve Cousins buying the gulch property, said Tad Leithead, senior vice president with Cousins. Norfolk Southern officials said the offer was refused because there was no clear answer from the state as to when the gulch might be purchased and used for a multimodal station -- a hub facility that might link bus and rail lines with MARTA.

Moorman also said Norfolk Southern changed its mind about One Georgia Center.

"We didn't feel ultimately that the One Georgia Center property was the best fit for our kind of operation," Moorman said, adding that with also having to move a data center they "just couldn't make the numbers work."

Cousins now is marketing 190,000 square feet at the 363,400-square-foot One Georgia Center. Much of that space is being vacated by SouthTrust, which is taking 100,000 square feet of office operations to Atlantic Station.

Leithead said he expects it to take 18 months to two years to find replacement tenants for most or all of the empty space at One Georgia Center.

"It's a very marketable project in a very good location," Leithead said. "Our problem is that there's obviously a lot of vacancy in the market and not a lot of activity. So yes, it'll be a challenge for us."

Gulch sale still possible

Despite the setback, Leithead said Cousins remains interested in developing the multimodal project in the gulch property.

"We have a team that is prepared to enter into a public/private partnership with the state to build the multimodal even if it doesn't include the acquisition of land and moving of Norfolk Southern," Leithead said.

Much of the idea of redeveloping the gulch property began under former Gov. Roy Barnes, who planned to buy the gulch property and rail lines from Atlanta to Macon as part of a commuter rail platform for about $300 million.

But Gov. Sonny Perdue has been much more vague about his intention to spearhead such a pricey endeavor.

"As far as the future of a multimodal station in that area, everything is still on the table," said Shane Hix, a Perdue spokesperson. But Hix said the governor is still interested in "discussing a public/private partnership in that area."

"Just because Cousins and Norfolk Southern have decided to go [in] different directions doesn't put an end to public/private partnerships," he said. "[but] the state has some serious financial issues that have to be worked out. There is a fiscal barrier that's present all across state government right now."

Perdue is less enthusiastic about commuter rail as a fix for traffic congestion in metro Atlanta than his predecessor. Perdue has repeatedly stated that improved bus systems and better arterial roads would help alleviate traffic in the metro area.

Perdue recently appointed former state Rep. Steve Stancil as executive director of the Georgia Regional Transportation Authority. Stancil has said he is reticent about the costs associated with passenger rail in Atlanta, and some proponents of the multimodal station worry he would be against it as well.

The state's ambiguity about the multimodal project has left Norfolk Southern "frustrated," said Sam Holmes, vice chairman of CB Richard Ellis in Atlanta. Holmes was hired by Norfolk Southern to help the company search for new office space, and also to market the gulch property.

"[Norfolk Southern] is very frustrated by the lack of progression and clarity on multimodal," Holmes said.

Stancil's appointment to GRTA only "confuses matters" because he is against the multimodal project, Holmes said. Norfolk Southern will continue to attempt to sell its gulch property, but Holmes added that the governor's position on the land will make it discourage private developers from taking a chance on parcels for development.

Cousins' Leithead said, "The governor has shown an indication that he at least considers going forward with the multimodal."

Jim Ritchey, deputy director of GRTA, also echoed those sentiments.

"We don't believe the Cousins project announcement really will yet impact the multimodal passenger terminal. We do believe the project is still something the state is considering and Norfolk Southern is still possibly a participant in it," Ritchey said. "On the other hand, it still may not."

Several city power brokers say the death of the Cousins proposal is by no means an end to multimodal in the gulch.

"Obviously, the land that Norfolk Southern has in the gulch is critical to the multimodal station. Even though they're not doing the Cousins deal, I don't think it means they're not in a position to deal with the state," said A.J. Robinson, president of Central Atlanta Progress.

Paul Mullins, chief engineer for the Georgia Department of Transportation, said that Norfolk Southern need not vacate the property for multimodal to become a reality.

"The fact that Norfolk Southern is staying there might be good for us. We never needed the buildings that Norfolk Southern is in; we needed the open space," Mullins said.

Mullins said the DOT is still considering buying the gulch to "bank it."

"We have limited resources obviously available for this. So we're determining what's the best bang for the buck. I think we will eventually get to the point where we'll begin negotiations with [Norfolk Southern]."

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