DEL.ICIO.USWill AIG sell Atlantic Station to pay for its bailout?
Subsidiary of big insurance company is majority owner of Atlanta development
The Atlanta Journal-Constitution
Friday, September 26, 2008
The new chief executive of American International Group said the insurance giant will have a list next week of the assets it plans to sell to repay its $85 billion federal loan. Will Atlantic Station be in the mix?
AIG Global Real Estate, a subsidiary of AIG, is the majority owner of the unfinished mixed-use development in Midtown.
Allen Sullivan/AJC
In this photo from January, construction continues on a building in Atlantic Station. Slumping home sales have hurt Atlantic Station’s retail segment, real estate experts say.
“If the money is right, they’ll sell off whatever they have to,” said Alan Ziobrowski, real estate professor at Georgia State University’s J. Mack Robinson College of Business.
But “who is the buyer interest now is the big question,” added broker Robert Grigsby at NAI Brannen Goddard in Atlanta.
AIG spokesman Joseph Norton said only, “Atlantic Station is unaffected by any of the AIG parent company issues. The Atlantic Station project is fully funded. Construction is under way and will continue.”
Structural work at The Atlantic, a luxury condo high-rise, is expected to be completed in November and units should be available next summer. The condo company the Novare Group is a partner in that deal.
Atlantic Station’s third office building, 271 17th St., is on course to be finished in the spring. AIG also developed Atlantic Station’s first two office towers.
But that may be it for a while for new buildings at the 138-acre site.
“I would expect future construction to come to a halt for some time due to overall market conditions,” said Dan Fasulo, managing director at Real Capital Analytics in New York.
The latest Moody’s/Real Commercial Property Price Index shows that prices have dropped 9.6 percent from June to June. And lender and investor interest is weak. Meanwhile, condo supply far exceeds demand, which is bad news for The Atlantic.
A recently finished high-end condo tower on Peachtree Street, Mezzo, announced it is seeking renters because of a lack of sales.
Slumping home sales hurt Atlantic Station’s retail segment, real estate experts say.
“This would be a very, very, very bad time for AIG to sell their position because, certainly, the value of the [Atlantic Station] property is way down,” Ziobrowski said. “If they do decide to let go of their position at this time there’s going to be a tremendous write down.”
AIG Global Real Estate joined with Jacoby Development in 1999 to purchase the former Atlantic Steel site for $77 million. AIG Environmental helped remediate the industrial property so it could be redeveloped with housing, retail and offices.
Jim Jacoby, who started Atlantic Station, would not speculate on how AIG’s financial problems might affect the development.
“As a private enterprise, we do not publicly share specifics about our investments,” Jacoby said in a statement. “But Jacoby Development remains an active, enthusiastic partner in Atlantic Station. We defer to AIG to comment on their business, as we would with any partner.”
Edward Liddy, the AIG CEO, said his company plans to pare down to where it “will look a lot like it did prior to 1998, 1999, with less reliance on the financial services side. It’ll be smaller. It’ll be a lot nimbler.”
AIG Global Real Estate began in 1987 and comprises international companies that invest in and manage real estate for AIG companies and others around the world. It uses AIG money and outside investor funds.
Before the government bailout, AIG was on the brink of bankruptcy after its credit rating fell and it was required to put up billions of dollars in additional collateral for its credit default swap business — money it didn’t have.
AIG sold credit default swaps, an insurance-like product, to corporate bond holders and to speculators betting against mortgage-backed securities. When the defaults piled up, AIG was on the hook for billions of dollars.
Eric Fitzwater, senior analyst with SNL Financial in Charlottesville, Va., told Bloomberg this week that AIG’s vast real estate holdings likely will be on the block.
“I’m sure that selling off the real estate assets would be one of the first steps,” Fitzwater said. “That’s an easy thing to put up for sale.”
The AIG Global Real Estate portfolio is valued at about $16 billion and spans 30 countries and 14 U.S. cities.
Analysts at Credit Suisse Group AG told investors AIG may have to sell half its businesses to repay its debt.
The parent company’s assets cover a broad range of insurance and financial services; it even leases aircraft to airlines.
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