Council halts negotiations with developer on 505 West Chapel Hill; staff told to explore parceling, preservation and smaller-scale affordable options

The Durham City Council directed staff on June 5 to stop negotiating the most recent master development deal with the People’s Corporation for the 505 West Chapel Hill Street site and to return with narrower options that could include carving out and preserving the Milton Small (Home Security Life) building, pursuing a smaller-scale affordable housing development and interim site activation.

Why it matters: The four‑acre, city‑owned 505 site sits adjacent to Downtown Durham and had been the focus of repeated master-planning efforts. Advocates, developers and preservation groups have urged the city for years to use the site to deliver a mix of affordable housing, commercial space, and to preserve the architecturally significant Milton Small building. Staff said the most recent Peoples proposal would have required an estimated city subsidy that had grown to roughly $75–78 million and would have pushed subsidy per affordable unit far beyond typical market ranges.

What staff said: General Services staff and consultants told council that negotiations with the People’s Corporation produced a ground-lease structure and proposed an increased number of affordable units, but overall the developer’s subsidy request rose to a level that staff judged to be unaffordable and inconsistent with market conditions. Staff also cited deteriorating economic conditions, higher construction costs and higher interest rates that made the original high-rise steel construction concept much more costly than earlier estimates. Staff recommended not advancing that master-development deal at this time and proposed an interim approach.

What advocates asked for: Housing advocates and faith and community groups pressed the council not to pause affordable housing activity. A coalition called for either moving forward with a cost-effective contract that would deliver 160–200 units affordable at 60% of AMI in perpetuity, or, if the council lost confidence in the current developer, pivoting immediately to a qualified affordable-housing developer. Preservation groups including Preservation North Carolina and Preservation Durham asked council to carve out the Milton Small building onto its own parcel and to negotiate directly with preservation nonprofits (citing North Carolina General Statute 160A‑266(b) as an available tool for direct negotiated sales of publicly owned historic property).

Council discussion and decision: Councilors and staff discussed the tradeoffs at length. Many council members said they did not believe the high‑subsidy proposal was feasible and expressed interest in a phased approach: parcel the Milton Small building so it can be preserved and developed separately, pursue a smaller‑scale affordable housing project on the remainder, and activate the site in the near term with public programming or temporary uses. Several council members explicitly said they have lost confidence in the latest People’s Corporation proposal; a show of hands and subsequent staff confirmation indicated majority support to end negotiations with People’s and to have staff return with options. Staff said they would present alternative paths and analysis — including whether parceling the historic building is feasible under the city’s zoning and subdivision rules and the state statute cited by preservation groups — and aim to return with proposals in the coming weeks (staff mentioned a target of August for further work and analysis).

Preservation and finance proposals discussed: Preservation advocates said an option would be for a nonprofit preservation organization (Preservation North Carolina proposed this in writing) to seek an option to purchase the Milton Small building and then convey to a preservation-minded developer with use restrictions and a rehabilitation agreement. Housing advocates urged rapid movement to secure low-cost financing (for example, 4% LIHTC) and to favor low-density stick-built affordable design as an alternative to a high-rise steel tower that required larger subsidies.

Why the council paused the master-development effort: Staff cited a widening subsidy request (staff described a move to roughly $75–78 million in city subsidy for the latest concept), shifting construction and financing markets, and the prospect that the subsidy-per-affordable-unit would have been far higher than typical local benchmarks (staff said typical market subsidy per affordable unit is in the $40,000–$50,000 range whereas the Peoples proposal approached about $150,000 per unit in staff analysis). Councilors also expressed concern about letting the site sit vacant but agreed that pursuing a cheaper, faster affordable-housing solution and parceling the historic building for preservation merited more study.

Next steps: Council directed staff to end talks with People’s Corporation, to explore parceling the Milton Small building and negotiating with preservation nonprofits, and to return with options for a phased approach that prioritizes affordable housing and site activation. Staff will return with analysis and options for council deliberation.