Downtown Atlanta icon persists after foreclosure, but changes may loom

Nine office tenants renew or sign new leases at Peachtree Center, but one tower is set aside for potential residential conversion
Peachtree Center in downtown Atlanta includes nearly 2.5 million square feet of office and retail space across multiple towers.

Credit: Transwestern Real Estate Services

Credit: Transwestern Real Estate Services

Peachtree Center in downtown Atlanta includes nearly 2.5 million square feet of office and retail space across multiple towers.

A little over a year ago, six office towers and the mall at Peachtree Center became arguably the most significant properties in Atlanta to go through foreclosure since the aftermath of the Great Recession.

But since the landmark downtown buildings changed hands, the road map to Peachtree Center’s future is beginning to come into focus.

Nine companies have renewed or signed new leases this year for office space within five of Peachtree Center’s towers, signaling some regained momentum for the skyline-defining buildings, the complex’s leasing agency Transwestern Real Estate Services said. But one tower, 225 Peachtree, lies completely vacant as its owner ponders putting it on the market in case another developer wants to acquire and convert it into apartments.

Peachtree Center, originally developed by famed Atlanta architect and developer John Portman, has been a cornerstone of downtown’s office market for decades. But the Miami-based owner of the buildings lost control of them after being unable to refinance its debt as vacancy grew during the COVID-19 pandemic as tenants moved or cut the size of their offices.

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, with more pain in commercial real estate likely on the horizon.

Fuller office buildings are worth more than emptier ones, and commercial properties make up a huge portion of the tax base for cities, counties and school systems.

Converting aging towers has garnered attention since the pandemic left many business districts flooded with unwanted office space. Taking one of Peachtree Center’s towers out of the office market could not only extend its viability but add life to the Peachtree Street corridor while concentrating tenants at the other buildings, stabilizing the entire development.

Transwestern said the five office towers are 54% occupied, roughly the same as the entire six-tower complex was in early 2022 before its foreclosure. The nine new leases total about 154,000 square feet or more than 7% of the five towers.

“Our ability to renew and expand leases with these organizations, several of which are long-term tenants, speaks to Peachtree Center’s status as the office location of choice in downtown Atlanta,” said Chip Roach, Transwestern’s senior managing director of agency leasing in Atlanta.

Foreclosure fears

When Miami-based Banyan Street Capital lost control of the properties in September of last year, some real estate experts feared it was the harbinger of more loan issues to come in the city.

Since then, multiple hotels, office buildings, apartment complexes and development project sites in Atlanta have gone through foreclosure due, in part, to increased interest rates, tighter credit markets and fallout from the pandemic.

Roach said tenants’ fears about the foreclosure were quickly alleviated, because it’s in the best interest of the new owner, New York-based SitusAMC, to maintain the value of its office buildings.

“They understood the new owner has funds to perform and protect the value of the asset,” Roach said. “They felt confident in the property as a result.”

A view of Peachtree Center in Atlanta on Monday, September 25, 2023. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: arvin.temkar@ajc.com

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Credit: arvin.temkar@ajc.com

A record amount of unwanted office space is currently on the market in metro Atlanta, and downtown’s office market has been among the slowest to recover from the pandemic.

Downtown broadly serves as a cheaper workplace alternative to Midtown and Buckhead. Downtown’s office buildings tend to be older. The first Peachtree Center towers date to the 1960s.

At the end of September, downtown office rents were roughly $31 per square foot — $10 cheaper than Midtown’s stock of new high-rise towers, according to Colliers Atlanta. Transwestern did not disclose the financial terms of the new leases.

Of the new signings, the United Negro College Fund (UNCF) and John Marshall Law School expanded their footprints within Peachtree Center. Two small firms, Bert Brock Law and EnLance IT, relocated to Peachtree Center.

Changing uses

The potential conversion of 225 Peachtree into apartments would mark one of downtown’s largest adaptive reuse projects, but it does have precedent — including within Peachtree Center.

The development’s first office building, known as 230 Peachtree, was re-acquired by Portman Holdings and transformed in 2016 into a Hotel Indigo, refreshed office space and an upscale restaurant.

230 Peachtree Hotel Indigo; 2016

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Other nearby office buildings have also received second lives. An aging office building on Piedmont Avenue near Atlanta’s flagship Hilton hotel is now high-rise apartments, and the old Candler Building is now a boutique hotel.

Kirk Rich, principal of agency leasing for Avison Young, recently said one of Atlanta’s tallest towers is being evaluated as a potential conversion candidate. His firm represents leasing at Tower Square, the 1.5 million-square-foot tower that used to house AT&T, which is now empty.

“We are studying Tower Square as a potential conversion,” he said during Nov. 2 during a panel at the Metro Atlanta Redevelopment Summit (MARS). “You’re going to see a lot of that creativity start all over the country, but people will have to unlock it.”

October 16, 2020 Atlanta: A Tower Square signature logo now sits a top what was the old AT&T building at 675 West Peachtree Street in midtown Atlanta. (John Spink / John.Spink@ajc.com)

Credit: JOHN SPINK / AJC

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Credit: JOHN SPINK / AJC

Over the summer, downtown civic organization Central Atlanta Progress and the Atlanta Downtown Improvement District hired urban development consulting firm HR&A Advisors to analyze potential office-to-resident conversions, adding to the wave of optimism about recycling the city center’s aging buildings.

However, some real estate experts remain skeptical that widespread conversions will solve the office market’s current woes. Adaptive reuse projects are often expensive and many buildings don’t have internal layouts that make for viable conversions.

“It’s much easier to redevelop a site than it is to redevelop a building,” Scott Meadows, President of Brand Real Estate Services, said during the MARS panel.

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