Just like a new car depreciates in value as soon as it’s driven off the lot, some things are expected to get cheaper with time.
Real estate is generally an exception to that rule. But mounting struggles in Atlanta’s suburban office market are resetting some of those expectations.
A three-building office complex called Georgia 400 Center in Alpharetta recently sold for $39.1 million, about 57% less than it last did in 2019.
Atlanta-based developer Third & Urban plans to renovate and lease up the 24-acre campus off Ga. 400 and Haynes Bridge Road.
The trio of mid-rise buildings is the latest example of office properties seeing their values reset amid widespread distress prompted by the COVID-19 pandemic.
The rise of hybrid work schedules, record-high vacancy rates and rapid change in interest rates have pushed many office buildings to the brink of foreclosure. The pressure has led some owners to off-load buildings at significant discounts to new ownership groups seeking bargains and properties primed for a refresh.
Credit: Courtesy of Third & Urban
Credit: Courtesy of Third & Urban
“In the last six months, we’ve had more (office property sales) than all of 2024,” said Chris Godfrey, principal of office leasing in Atlanta for Avison Young. “Everything is trading at a significant decrease.”
Commercial property values are important to city and county tax bases, helping to fund services. Fuller buildings tend to be worth more than emptier ones.
Georgia 400 Center comprises about 430,000 square feet of rentable workspace and is 67% leased. A subsidiary of real estate investment trust KBS Capital Markets Group was the seller.
‘Taking it on the chin’
While metro Atlanta’s high-end office high-rises are doing relatively well, the region’s office market is filled with underperforming properties, including many struggling to keep up with loan payments.
Nearly 29% of all commercial mortgage-backed securities or CMBS loans backed by office properties in metro Atlanta are delinquent, meaning their owners have missed at least two payments, according to data firm Trepp. That figure is nearly 40% when focusing just on Atlanta’s suburbs.
“Suburban office appears to be taking it on the chin right now,” said Thomas Taylor, senior research manager for Trepp.
CMBS loans represent nearly 30% of all securitized office debt in metro Atlanta, an asset class that represents $47 billion in value, according to Trepp.
Those struggles have led to notable foreclosures, both in Atlanta’s urban core and suburban pockets.
For example, Buckhead’s largest office complex, Piedmont Center, was sold last month for $200 million at public auction, a fraction of its peak value. Cobb County’s Riveredge Place also saw its value plummet amid an April foreclosure to $8 million from $24 million — a 70% decline.
Seeking opportunity
Third & Urban has emerged as an aggressive buyer of commercial real estate its leaders deem as poised for revitalization.
The company, which is best known for intown revitalization projects including Armour Yards and Westside Paper, has acquired five properties this year as part of a new investment strategy.
“We are taking a thoughtful and strategic approach when evaluating investment opportunities and are targeting all sides of the office sector,” Third & Urban co-founder Pierce Lancaster said in a news release.
He said that includes obsolete properties positioned for demolition and redevelopment in addition to buildings to “hold as the market rebounds.”
Credit: Courtesy of Third & Urban
Credit: Courtesy of Third & Urban
Georgia 400 Center is in the latter category, with Third & Urban planning a $10 million refresh of the buildings. That initiative includes new roofs, revamped lobbies, an enhanced outdoor courtyard and improved amenities.
Other well-known, but aging, buildings in Atlanta have undergone similar makeovers to attract tenants. Atlanta’s fourth-tallest tower, 191 Peachtree, is undergoing a $4.5 million refresh, while the city’s tallest building, Bank of America Plaza, underwent a more expansive $50 million revamp two years ago.
“With our value-add improvements, we will create an environment that meets today’s workplace expectations while positioning the asset for long-term success,” Lancaster said of Georgia 400 Center.
Third & Urban acquired the campus through a partnership with Zalik Investment Group. Real estate services firm Cushman & Wakefield has been retained as the property’s leasing team, while Trinity Partners manages the buildings.
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