Buckhead landmark faces financial trouble amid office market woes

Starwood Capital Group reportedly defaults on $212.5M mortgage that is backed Tower Place 100
This is a screenshot of Tower Place 100 in Buckhead captured from Google Maps.

Credit: Google Maps

Credit: Google Maps

This is a screenshot of Tower Place 100 in Buckhead captured from Google Maps.

The loan backed by a skyline-defining office tower in Buckhead is in reportedly in default, adding to the list of high-profile buildings in Atlanta facing financial distress.

Starwood Capital Group has defaulted on a $212.5 million mortgage on Tower Place 100, which was first reported Tuesday by Bloomberg. The mortgage matured July 9 and Starwood failed to refinance or pay off the debt, Bloomberg reported, citing information from business services firm Computershare.

Tower Place 100 is a landmark 29-story building built in the 1970s that was the first high-rise tower in Buckhead’s financial district. Commercial real estate owners, especially those who own office buildings with high vacancy rates and loans coming due, are struggling to refinance their debt amid high interest rates and soft office leasing demand.

A Starwood representative declined to comment to The Atlanta Journal-Constitution about the default. Bloomberg reported that Starwood, which has more than $115 billion in assets under management, is in negotiations with Tower Place 100′s lender, a commercial mortgage backed security. If control of the building returns to the lender, little will likely change for tenants of Tower Place 100 as it is in the owner’s best interest to maintain the facilities and operations.

The 614,000-square-foot office tower at 3340 Peachtree Road was built by renowned Atlanta developer Charlie Ackerman. The surrounding Buckhead financial district would later emerge as one of Atlanta’s premier business hubs.

Starwood acquired the building in 2015 for $192 million. The $212.5 million CMBS loan was issued in 2018 when the building was 87% occupied, according to online business publication Bisnow, citing information from Morningstar Credit.

By the end of 2022, the building’s occupancy declined to 62%, primarily due to Catlin Inc. letting its 39,000-square-foot lease expire, according to Morningstar Credit. Co-working company WeWork is currently the building’s largest tenant.

According to data from real estate services firm CBRE, nearly 30% of all metro Atlanta office space is either vacant or listed as sublease space, meaning it’s under lease but the tenant is looking to give it to another would-be renter. That’s a modern record high for the Atlanta area.

Nationwide, about $1.5 trillion of commercial real estate debt is set to come due before the end of 2025. Data firm Trepp reports that the delinquency rate on office loans in metro Atlanta is about 7%, nearly triple the national rate.

High office vacancy is a large factor leading many owners to consider handing back their building keys. Vacant buildings are worth less than full ones and the higher interest rate environment and lenders’ skittishness to issue new commercial real estate loans is putting the squeeze on borrowers looking to refinance their debts.

The pressure on office landlords has prompted a few prominent foreclosures, including six towers and a mall within downtown Atlanta’s Peachtree Center in September.

Some hotels in Atlanta are also facing financial hardship.

Last week, a hospitality holding company relinquished 19 hotels across the country, including the W Atlanta — Downtown, to cut costs and reduce its debt. The 763-room Sheraton Atlanta Hotel also faced loan default earlier this year, setting the stage for an imminent foreclosure.