An office tower in a prime Midtown location has been purchased at a significant discount by new owners, a sign of how distress in the office market is causing building values to reset.
Atlanta-based Cousins Properties and New York-based Town Lane announced late Thursday they paid about $83 million to acquire Proscenium, a 526,000-square-foot building along 14th and Peachtree streets near Colony Square. The building last changed hands in 2017 for more than $146 million — meaning the building’s value has dipped 43% in the last seven years, according to Fulton County property records.
The all-cash transaction is a sign of the a tumultuous time for office landlords, who have had to endure the COVID-19 pandemic, the rise of hybrid work schedules and tenants choosing to downsize or vacate their leases. Built in 2000, Proscenium had historically been more than 90% leased, but that had dropped to 74% by this year, according to brokers who worked on the deal.
“The office investment market may have been a little oversold to a certain degree, and capital is recognizing that there could be some good buying opportunities right now,” said Will Yowell, a vice chairman at CBRE in Atlanta.
Yowell was on the team that represented Proscenium’s seller, Canadian investment giant Manulife Investment Management, which did not respond to a request for comment.
Town Lane and Cousins acquired the building through a newly formed joint venture with Town Lane owning 80% of the venture and Cousins owning the remaining 20%. Cousins will provide property management and leasing services, with both companies committing to “significant capital upgrades to modernize and reposition the building,” according to a news release.
“We have exciting improvements planned for Proscenium which will complement its A+ location in the heart of Midtown Atlanta,” Cousins CEO Colin Connolly said. “We look forward to re-introducing a re-invigorated Proscenium to customers seeking a dynamic lifestyle office experience.”
Yowell said his CBRE team, which also included Justin Parsonnet, Jay O’Meara, Ryan Reethof and Kyle Witt, were selected to market Proscenium in late April. Within a month, they had several offers, mostly from institutional investors like Cousins and Town Lane.
In June, Manulife paid lender JPMorgan Chase more than $17 million to extend its loan on Proscenium, according to real estate publication Bisnow citing Atlanta property research firm Databank. Loan distress has been mounting across major U.S. office markets since the pandemic, leading to foreclosures and discount sales.
Fuller offices are generally worth more than emptier ones. Buildings that are declining in value are harder to refinance if there are pending mortgages, particularly at a time of high interest rates.
Many cities, counties and schools rely on commercial property taxes, meaning declining values can hit tax digests, putting strains on other taxpayers to help fund services.
But cash-flush buyers are also out there looking to scoop up deals and often to renovate properties to reposition them with new amenities to entice tenants.
The amount of available office space has only exacerbated those issues for landlords struggling to find or retain tenants. About one-third of all office square footage in metro Atlanta was available to rent at the end of June, according to real estate services firm CBRE. It was the fifth financial quarter in a row in which the region reached a new high-water mark for unwanted office space.
Yowell said a recent uptick in leasing activity is a sign for optimism. Eight leases of at least 90,000 square feet were signed between April and June, according to real estate services firm JLL. Those deals were concentrated in high-end buildings, which are often called Class A or trophy.
“That’s obviously a precursor to confidence in the marketplace and return to office,” he said.
Yowell added that multiple Proscenium tenants have leases set to expire soon, but Cousins and Town Lane are in a position to renovate the building and entice those tenants to stay.
“With the new ownership making a commitment to (Proscenium), I think they have a very good chance of retaining those tenants ... and get the occupancy back up,” he said.
