Peachtree Center foreclosure leaves office towers, mall in flux

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

Few changes expected near-term for tenants, but the future of the six office high-rises remains a question mark

Six office towers and the mall at Peachtree Center were taken back by its lender Tuesday, marking one of the largest foreclosures in Atlanta since the aftermath of the Great Recession.

The foreclosure of the landmark downtown office and retail complex, a defining fixture of the city’s skyline since the 1960s, could be a harbinger for pain to come in the commercial real estate sector as corporate tenants sort out how much office space they need in a post-pandemic world and landlords adapt their buildings to stay competitive.

For roughly an hour, attorney Bob Stupar stood on the Fulton County Courthouse steps and read the lengthy foreclosure notice that outlined the legal descriptions of office high-rises and the shopping mall now known as The Hub.

Miami-based Banyan Street Capital owned the high-profile properties since the mid-2010s but was unable to work out a debt restructuring deal this year. The foreclosure notice listed a pair of loans on the properties totaling more than $140 million.

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The auction was over as soon as it began.

Credit: Jenni Girtman

Credit: Jenni Girtman

One cash offer of $1.5 million was made by a relatively unknown investor, Dr. Sahib Arora. But it didn’t come close to overtaking a $127.5 million “credit bid” that Stupar entered on behalf of SitusAMC, the company representing the investor-owned commercial mortgage-backed security that acted as the lender. A credit bid is essentially the foreclosing entity’s interest in the property, not cash.

“It was a good showing,” Stupar said of the crowd of more than a dozen who gathered to hear one of Atlanta’s largest foreclosure auctions in the past decade. “Too bad we didn’t sell it.”

Stupar declined to comment, and neither Banyan Street nor SitusAMC could immediately be reached for comment.

‘Distress in the office segment’

The properties up for sale included the towers known as Marquis I and II; the towers known as 225, 229, 233 and 235 Peachtree; and the shopping mall at 231 Peachtree. The future of Peachtree Center remains in flux, since ownership of the buildings now revert to investors.

Office space demand has been inconsistent since the onset of COVID-19, and with fears of a recession, some commercial real estate experts worry Peachtree Center’s foreclosure could signal dark times to come for some office owners.

The delinquency rate of commercial mortgage-backed securities, the type of mortgage that makes up the bulk of the Peachtree Center debt, dipped below 3% in August for the first time since the start of the pandemic, according to data firm Trepp.

Still, pain among office landlords may be unavoidable.

The pandemic and the emergence of work-from-home and the hybrid work schedule created instability in the office market, and large employers and landlords are still trying to adjust. The office vacancy rate across metro Atlanta was 21.3% at the end of June, according to data from real estate services firm Jones Lang LaSalle.

”Distress in the office segment — the property type most likely to be impacted by increased work from home trends — will take years to play out as a result of most firms being locked into five- and 10-year leases,” a Trepp report from Tuesday said.

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But others hold out hope that downtown Atlanta’s office market can remain resilient.

“I’m hopeful that this is not some kind of a bellwether of things to come,” said AJ Robinson, the president of Central Atlanta Progress and the Atlanta Downtown Improvement District.

Few short-term effects

Designed and built by famed late Atlanta developer and architect John C. Portman Jr., Peachtree Center was an outlier in a time when many developers invested in Buckhead and the northern suburbs rather than downtown.

Portman’s multi-block mini-city also included convention hotels like the Marriott Marquis and Hyatt Regency and the merchandise mart now known as AmericasMart. Neither the hotels nor AmericasMart were part of Tuesday’s foreclosure.

Peachtree Center’s office vacancy rate dipped to 55% by early 2022, according to financial documents obtained by the AJC.

Credit: AJC file

Credit: AJC file

The current tenants include several law firms and local, state and federal government agencies. The change in ownership likely won’t affect current tenants, since their leases have not expired.

But multiple leases are coming due by December, including the U.S. General Services Administration and law firm Finch McCranie.

“The office market is kind of fickle right now because you’ve got tenants in place right now saying, ‘Do I need this much office space right now?’” said Chris Meyer, an assistant vice president at investment analysis firm Morningstar.

When Banyan Street acquired the property, the company tried to overhaul the buildings and mall. Millions of dollars were spent to upgrade Peachtree Center’s outdoor plaza and to reinvigorate the area.

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Robinson said he believes Banyan Street’s effort was noble but the debt was too steep to overcome in this financial market.

“It’s just disappointing to see because Banyan has been a very good steward of this asset in recent history,” Robinson said. “They invested a lot of money in the buildings, and I think it’s just kind of sad to understand that whatever relationship between their lenders and them doesn’t seem to have worked out.”

In a prior statement, Banyan Street said it remains fully committed to its downtown Atlanta assets, including the neighboring 191 Peachtree office tower, the Ascent Peachtree residential project and multiple parking garages.