Prominent properties get foreclosure notices, portend trend

Notices of foreclosure have been placed on two more high-profile properties in Atlanta, a development observers said may be a harbinger for the industry in 2010.

A notice was filed earlier this month on the Campanile Building, 1155 Peachtree St., the 20-story former home of BellSouth executives before the telecommunications giant was gobbled up by AT&T.

Also this month, a notice was filed for 1138 Peachtree St., the less than one-acre parcel that is the same address on which Tivoli Realty Properties President and Chief Executive Officer Scott Leventhal proposed building a 53-story mixed-use building, featuring a high-end Mandarin hotel and 71 condos costing $1.8 million and up.

Chicago-based Transwestern Investment, which owns the Campanile, declined comment about the notice. Leventhal did not return repeated calls. Both properties are in Midtown and are at or near the 14th Street intersection.

Industry observers predict foreclosure notices on commercial properties will only worsen in 2010.

Owners were able to stem the foreclosure tide last year by striking deals to put their properties into receivership, which allowed the owners time to improve financing terms or find ways to secure new backing for debt, said Philip Skinner, a partner with the Atlanta law firm Arnall Golden Gregory. But that move has run out of steam.

And Georgia's bank failings have added to potential foreclosures because many builders find themselves working with unfamiliar lending officials, who are more interested in the bottom line than individual personalities.

"All of a sudden, there is a new person that owns the loan," said Skinner, speaking of the change in bank ownership. "There is no personal tie. There is no history or working relationship to lean on."

Mark Woodworth, president of PKF Hospitality Research, said the risk of foreclosure will accelerate because a lot of the projects came out of the ground or were in the development stage just as the economy turned sour. That, coupled with a glut of office space, hotel rooms and retail space, made for an overwhelmed segment ripe for disaster.

The foreclosure tide is upending Atlanta's mighty building industry, which has created a gleaming city of glass towers over the past three decades. Since the turn of the new century, builders have raced at breakneck speed to turn empty lots or older buildings into their signature tower.

But in 2009, that changed. Foreclosed or potentially foreclosed properties included the Equitable building downtown, Tower Place 200 in Buckhead and the Clermont Hotel. Those troubles were followed this year by notices about the Mansion on Peachtree in Buckhead and 50 Allen Plaza downtown.

Campanile owes lender Wells Fargo $98.35 million, according to Databank Atlanta, a real estate research firm. The tower, built in 1987, is undergoing a multimillion-dollar renovation, its Web site said. It is only 15 percent leased, and one of the biggest tenants is Georgia’s Own Credit Union.

Tivoli purchased the 1138 Peachtree St. site in 2007, according to records. The foreclosure notice said $13.5 million is owed on the property to First Citizens Bank and Trust.

When a building goes into foreclosure, the impact on tenants and prospective tenants is very different, said Samuel Gould, president of Alter Asset Management and a principal in Alter Asset Recovery. Both companies are affiliates of Chicago-based the Alter Group, which this week announced the formation of Alter Asset Recovery to help lenders with the takeover and sale of distressed properties.

Alter Group said the formation of the new company comes at a time when more than $160 billion of commercial properties in the U.S. are in default, foreclosure or bankruptcy, according to research firm Real Capital Analytics.

It's not uncommon for owners of distressed property to cut back on services such as cleaning and landscaping, as well as maintenance of elevators and other building systems, said Gould.

“Possibly there could be an increase in costs to tenants,” Gould said, while it is not at all uncommon for rents to be reduced to lure in new tenants. There are some buildings that just cannot be leased, he said. The structures then become known as “zombie buildings” because owners cannot afford upgrades or needed build-outs.