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Armada Hoffler Buys The Interlock For 'Discounted' Price

The Interlock project in West Midtown Atlanta.

SJC Ventures has sold the first phase of its popular West Midtown development to its initial lender for a price that the buyer dubbed a discount.

Virginia Beach-based office REIT Armada Hoffler Properties has reached an agreement with SJC to buy the first portion of The Interlock — the 311K SF of commercial space and an 835-space garage — for $215M in an off-market transaction, it announced Friday.

The 349-unit Solis Interlock and the 161-room Bellyard Hotel in the development off Howell Mill Road in Atlanta’s Westside are not part of the transaction. 

Armada Hoffler secured $100M in new fixed-rate financing and converted a mezzanine loan it owned on The Interlock into equity. The sale is expected to close by the end of June.

“For the fourth time in four years, our mezzanine lending program has led to an off-market, discounted acquisition of a trophy asset strategically located in one of our core markets,” Armada Hoffler CEO Louis Haddad said in a statement. "The Interlock is another extraordinary addition to our portfolio of investments in high-profile, mixed-use developments in the Southeast."

The sale comes as real estate values have fallen as a result of rising interest rates, which have dampened investment sales activity across the country.

SJC principal Jeff Garrison told Bisnow that if the firm had packaged The Interlock for sale in the larger market, it may have achieved a higher price. But Armada Hoffler also granted SJC limited partner shares in the REIT as part of the deal, which Garrison said makes the transaction “a win for all parties.”

“It would have been higher. But there are a lot of advantages to being a long-term partner in the overall Armada Hoffler stock,” Garrison said. “We are extremely happy with the transaction. It exceeds our expectations from when we started the project. Candidly, the success of the tenants and The Interlock, in general, have been better than expected.”

Garrison said the first phase is more than 90% occupied, with Georgia Tech’s incubator operation Georgia Advanced Technology Ventures, anchoring the office with a 50K SF space. 

Armada Hoffler was an early partner with SJC in The Interlock, providing a $100M mezzanine loan in 2018. SJC is under construction on The Interlock’s second phase, which includes 185K SF of office, a 42K SF Publix Super Market and an additional 38K SF of retail. Peak Campus is developing a 670-bed student housing tower that is set to open later this summer, with the remainder of Phase 2 delivering next year. 

The second phase was financed by Ameris Bancorp with investment from Packard Capital and other family office investors, Garrison said. 

The majority of the cash flow on Armada Hoffler’s portion of The Interlock is from retail rents, according to the release, from tenants such as Puttshack, the Velvet Taco, Humble Pie pizzeria and Rooftop LOA, a 38K SF rooftop restaurant and events facility that includes an outdoor bar and a 1,200 SF pool. Stream Realty leases and manages The Interlock.

Garrison said foot traffic at The Interlock has steadily increased over the past few months as it has blossomed to become a prime destination on the Westside.

“For us, it’s taken so long to get the team right, the energy right, everybody humming. We feel like we really hit our stride,” Garrison said. “Every restaurant and service tenant is in percentage rent because they’re doing so well.”