OUTLET: The Virginian-Pilot
NORFOLK — One of the tallest office buildings in downtown Norfolk, built for one of the region’s biggest companies, Norfolk Southern, is now owned by Hampton Roads’ largest bank and Virginia’s only freestanding children’s hospital.
TowneBank, which had entered an arrangement last year as McKinnon Tower LLC to buy the 21-story tower at 3 Commercial Place from the railroad, announced Wednesday that it and Children’s Hospital of The King’s Daughters had partnered together to buy the building.
Nearly 900 people are expected to eventually occupy the office building, which will be shared by the bank and the hospital. The TowneBank name will be affixed to the top.
While some will move in after the first of the year, most of the tower’s new occupants won’t likely be moving in until late next year after Norfolk Southern fully moves out.
CHKD plans to move about 475 employees from information services, patient financial services, human resources and health system administration to the downtown tower.
“The decision to jointly own this building represents the most time-sensitive and cost-effective solution to critical space shortages for both our patients and our staff, including expediting our ability to bring much-needed mental health services to children in advance of the opening of our new mental health hospital and outpatient services tower in 2022,” said Jim Dahling, CHKD’s president and CEO, in a statement announcing the closing of the deal.
For TowneBank, it will house its Towne Financial Services, which includes about 400 employees who work for TowneBank Mortgage, Towne Insurance and Towne Benefits. The company has said its 40-acre corporate headquarters will remain in the Harbour View area of Suffolk, although regulatory filings for its banking division list its headquarters as Portsmouth. No employees based at its Suffolk campus are expected to move to downtown Norfolk.
G. Robert Aston Jr., chairman of TowneBank, said the company had been looking to buy about 150,000 square feet of office space to consolidate offices spread out mostly in Chesapeake and Virginia Beach, and the office tower has 300,000 square feet of space.
At the same time, CHKD was looking to make room for its future children’s mental health hospital and shift some of its non-medical operations from offices it leased in Chesapeake and Norfolk. It wanted a single space for everyone “who didn’t wear a stethoscope or lab coat,” Dahling said. That’s when John R. Lawson II, the CEO of W.M. Jordan, who is a bank board member and a friend to both the bank and the children’s hospital, encouraged the two to negotiate together with Norfolk Southern.
Neither TowneBank or CHKD leaders expect the increase in employees working from home caused by the coronavirus pandemic to affect their plans at the tower.
They plan to gut the offices there and redesign them. “In today’s world, it will have to be a consideration,” Aston said of designing workspaces in light of COVID-19.
The property’s assessed value has grown from $49.4 million in July 2019 to $55.2 million as of this July, according to city records. The price paid for the building was not immediately available, and Joel Rubin, a representative for TowneBank, said that at the direction of Norfolk Southern, the two buyers wouldn’t be revealing what they paid “at this time.”
“It is not our policy to release dollar amounts in these kinds of transactions,” said Jeff DeGraff, a spokesman for Norfolk Southern, in an email. The price will be publicly available once a new deed is recorded with the city.
The deal was completed June 23, according to the two buyers.
In 1988, Norfolk Southern began working in the tower, named for the late Arnold B. McKinnon, the railroad’s CEO from 1987 to 1992 who later served as its chairman. Ten years later, the railroad valued the property at $32.8 million in an internal transfer to a new business entity.
Norfolk Southern announced in late 2018 that it would move its headquarters and about 500 downtown workers to Atlanta, where the company is building a $575 million campus.
Norfolk Mayor Kenny Alexander said Wednesday that the timing of Norfolk Southern’s move didn’t worry him, because the downtown area had become a destination for 30,000 workers and 7,000 residents.
“We weren’t concerned that the building would be vacant long,” he said.
Alexander said he approached Aston shortly after he was elected mayor in 2016 to encourage him to grow the bank’s presence downtown. On Wednesday, he called Aston “a man of his word.”
Norfolk Southern’s move is supposed to be finished by the end of September. Norfolk Southern expects to occupy several floors of the downtown office building until the end of next year.
TowneBank has said it will donate Norfolk Southern’s lease payments, after operational costs, to CHKD’s efforts to build a mental health hospital for children on its Norfolk campus, an amount expected to add up to $1.3 million.
As part of the purchase, the bank and hospital also agreed to buy a 744-space parking garage at 520 E. Main St. from the city of Norfolk and lease an additional 298 spaces at three other city garages.
The building is one of five high-rises in downtown Norfolk that surrounded a prominent and controversial Confederate statue that was recently removed by the city. Norfolk’s mayor said no plans have been made for what will replace it and conversations will happen with all of the city’s stakeholders, including the building’s new owners, before anything does take its place. For now, “we will let the land heal, if you will,” Alexander said.
