What the $245M refinance of a Midtown office tower signals for Atlanta

It hasn’t been easy the past few years to be an office landlord.

Many tenants shrunk their workspaces coming out of the COVID-19 pandemic, meaning buildings that lost rental revenue also lost value. Interest rates surged. Many banks got gun shy over having too much money lent to office tower owners, and a whole lot of loans have been coming due.

While many lenders remain wary of the office sector after the pandemic’s disruptions, owners of a flashy Midtown skyscraper were recently able to secure a massive new loan.

Selig Enterprises and partner Florida SBA finalized $245 million in new debt in December for its 1105 W. Peachtree St. tower, a 31-story building that bears the logo of its anchor tenant Google. The loan was one of the largest of its kind in Atlanta last year, according to CBRE, which represented Selig and Florida SBA.

Grappling with remote work schedules and a glut of outdated space, office markets across the country have slowly worked to adjust to a post-pandemic world. Some owners have faced foreclosure or distressed debt issues when unable to refinance pre-pandemic loans after interest rates increased.

But the 1105 W. Peachtree tower bucks that trend, touting a nearly full tenant roster that helped snag new debt despite difficult times. Matt Rendle, chief investment officer at Selig, called the refinance “a significant milestone not only for our company but for the office market as a whole.”

“At a time when few office refinances are happening, especially for assets of this scale, this transaction underscores continued investor interest in the Atlanta market and the long-term value of a truly exceptional property,” Rendle said in a news release.

The tower at 1105 W Peachtree St. in Midtown Atlanta is one of the city's newest office buildings.

The 1105 W. Peachtree building was the largest office building under construction in Atlanta when it broke ground in 2019. The speculative tower, meaning it didn’t have any pre-announced tenants, signed Google amid the construction and opened in late 2021.

The building includes nearly 654,000 square feet of office space, of which 95.4% is leased. Mike Ryan, vice chairman of CBRE’s Debt & Structured Finance Group in Atlanta, said the new loan speaks to the quality of the building and desirability of Midtown as a robust neighborhood.

“This transaction shows how strong Midtown Atlanta’s office market continues to be and the enduring appeal of best-in-class assets,” he said in a news release.

Bank of America originated the new commercial mortgage-backed securities loan, a popular form of commercial real estate debt known as a CMBS loan. It’s a floating-rate loan, meaning its interest rate changes alongside federal interest rates unlike most private home mortgages.

Floating-rate loans that were established before the onset of COVID-19 in 2020 led to widespread commercial real estate distress after interest rates increased to combat inflation amid the fallout. There have been some notable foreclosures over debt issues in metro Atlanta, but fears of a wave of foreclosures has yet to materialize.

About 31.5% of all office square footage in metro Atlanta was either vacant or available for sublease at the end of December, according to CBRE. That’s near record-highs, although the amount of unwanted space is concentrated in older and less desirable buildings.

Office market experts say the amount of empty office space will likely decrease in the coming years as the construction pipeline dries up for new buildings, partially driven by hesitancy among debt lenders.

That leaves 1105 W. Peachtree St. among the handful of office buildings that finished construction in Atlanta after 2020, facing less new competition than its predecessors. Steve Selig, who recently stepped down as CEO of his family’s firm after four decades, said it’s a challenging environment for new office construction even with the Google tower’s success.