The concession stand: even with vacancy rates declining, developers still have to give until it hurts.

• Author: Shackelford, Susan

Late this spring, when Wilmington real-estate broker Hansen Matthews met with an established North Carolina developer, he saw firsthand how times have changed.

The developer wanted to buy seven acres for a strip shopping center. During negotiations, the seller offered to add two more acres, raising the total cost but lowering the per-acre price. What did the developer do? Nancy Reagan would have been proud: He just said no.

"A couple of years ago, a developer would have jumped at the chance for the additional land," says Matthews, a partner in Maus Warwick Matthews & Co., a commercial real-estate company. "But today each deal has to stand on its own. |Developers~ are more interested in doing the project for the cash flow they can anticipate than in buying additional land they can land bank."

That's typical of commercial real-estate projects today in North Carolina. Days of 'buy now, worry later' are over. "The mood is more sober and realistic," Matthews says. "Better projects are being underpinned by financial common sense." Developers are having to toe the line with tightfisted lenders, who have boosted loan requirements and are waiting for demand to catch up with supply.

That is finally happening. After several years of depression like conditions in commercial real estate, North Carolina's major markets are seeing declining vacancies and, in a few instances, rising values and rents. Charlotte and the Triangle appear to be on an upward swing, while Triad developers are hoping they've seen the worst. In smaller markets such as Asheville and Wilmington, cautious optimism is replacing just plain caution.

Five years ago in Wilmington, Matthews recalls, "people were running down here buying land at outrageous prices. There was one 22-acre project that sold for $200,000 an acre." That property, University Commons, at the intersection of N.C. Highway 132 and College Road, was a $15.5 million development of Atlanta-based Jamestown Properties. Though it was almost full and had strong anchors in TJ Maxx and Phar-Mor, University Commons has gone into foreclosure. "The land price was just too great," Matthews says. "People were driven by the fact that major retailers were expanding, and they thought there was always a way to make a cash flow at the end. Today, developers are making sure they see cash flow at the beginning rather than coming up with a magic way to do it at the end."

No one expects a robust recovery in real estate, of course. "Have we reached the end of white-collar layoffs?" wonders Rick Bell, president of Bell & Gardner Inc. of Winston-Salem, a real-estate research company. "If we're not at the end of that -- and I think maybe we're not -- I think we're in for another year of slow times."

Slow, but certainly better than 1991. In Charlotte "we see improvement in all categories with the exception of downtown office space," says Eric Karnes, president of Karnes Research Inc. in Charlotte. "There's greater demand that's slowly lowering vacancy rates. And another thing that helps is there's little construction under way. The only construction to speak of is shopping centers that are heavily pre-leased."

Downtown Charlotte is another story. "It's...