Record Investor Demand Tempting Owners Of Atlanta's Prime Office Towers To Sell
As institutional investors flood Metro Atlanta's commercial real estate market, the owners of some of the city's premier office properties are looking to take advantage.
Atlanta was the second-most-active U.S. city for commercial property investment in 2021, according to Real Capital Analytics, with $37.1B in sales volume. Icons of Atlanta's skyline, like Bank of America Plaza, 3630 Peachtree and CNN Center have traded hands in the last year, and the market dynamic is pushing landlords to list their properties, looking to score record prices.
“There does appear to be a flurry of larger assets being brought to market. It's coincidental, if you will, with the leasing. If you got longer-term leases with credit tenants, that's an attractive investment,” CBRE Vice Chairman Will Yowell said. “If you got term and credit of the tenancy, then that is liquid. And it gets priced more aggressively.”
North American Properties is the latest developer to test Atlanta's office sales waters. The firm is putting its iconic 1.1M SF Colony Square redevelopment in Midtown on the market this month, Managing Partner Tim Perry told Bisnow.
NAP redeveloped the property for $400M after acquiring it for nearly $170M. Perry said the extensive work on the property has drawn enough tenants to stabilize the rent roll for future buyers, and its location at 14th and Peachtree streets in the heart of Midtown, Atlanta's tech epicenter, gives it a strong long-term outlook.
“Being in Midtown and stable makes it very attractive to international investors,” Perry said.
NAP is seeking more than $500M from potential buyers on the property, the Atlanta Business Chronicle reports, and it is not alone among owners seeking high price tags for their Midtown trophies.
Earlier this month, General Electric Pension Fund announced that it was putting 1180 Peachtree — the famed King & Spalding tower in Midtown — up for sale. Hines is also seeking buyers for Atlantic Yards, its newly delivered, two-building office project at Atlantic Station leased out to Microsoft, the ABC reported.
Investor demand has been steadily pushing up the values of Metro Atlanta office buildings over the years. The average square foot price of a Metro Atlanta office building sale rose from $152 per SF in 2019 to $207 per SF so far this year, according to Avison Young data.
But higher profile or newer assets, especially ones leased to tenants with strong credit, have far more interest from investors and are driving higher values, said Sara Barnes, the Southeast regional lead for innovation and insight at Avison Young.
“The market is hot and we're seeing record prices. [Existing landlords] may just be taking advantage of that,” Barnes said. “I think investors are just so hungry right now.”
The ABC reported that both 1180 Peachtree and Atlantic Yards are expected to see huge per square foot numbers: as much as $700 per SF for 1180 Peachtree and up to $900 per SF for Atlantic Yards. If Hines can find an investor to meet its price, it would set a new record for Atlanta, beating the $806 per SF price Cousins Properties paid for 725 Ponce last year.
“There's demand for quality assets and a flight to quality,” Urban Key Capital Partners President Tyrone Rachal said. “I think it is indicative of institutional buyers coming in. Given Covid, all buildings aren't going to be created equal. The ones with the strongest rent rolls will be the ones most sought after.”
Atlanta's economic story has boosted investor confidence in the metro area, a market that is expected to see the number of jobs return to pre-pandemic levels by the middle of this year, according to a University of Georgia Selig Center for Economic Growth outlook released in December. Corporate expansion into Atlanta also has been gaining investor attention.
“When you can point to Microsoft, to Google all making significant investments in the market, that's causing a lot of heads to turn,” Ackerman & Co. Senior Vice President Steve Langford said. “I long felt that Atlanta was on a national level. Atlanta was probably overlooked for one reason or another.”
Those turned heads have already dropped record amounts of capital into Atlanta's office market over the last 12 months. Office investment sales in Atlanta so far in 2022 have totaled $824M, according to data compiled by Colliers, almost twice as much as the $439M volume from Q1 2021.
Last year, investors paid a collective $3.7B for Metro Atlanta office properties, a huge jump from the $3B that traded in 2019 and more than triple the dollar volume in 2020, when there were $1.2B of office sales, according to Colliers.
This month, CP Group purchased Bank of America Plaza in Midtown, the tallest skyscraper in the Southeast, from Shorenstein Properties for $380M, according to Real Estate Alert. That purchase came months after the Boca Raton-based real estate investor bought CNN Center in Downtown Atlanta, another of the city's real estate icons, for $144.8M, according to the ABC.
Other notable purchases include Granite Properties' acquisition of 3630 Peachtree for $202M in January and Piedmont Real Estate Investment Trust's purchase of the 28-story 999 Peachtree in Midtown for $224M.
While average capitalization rates for Metro Atlanta office buildings have been in the low 7% range, cap rates for Class-A office buildings are in the 5% range, according to a recent Marcus & Millichap report.
While cap rates can go even lower for the most prominent office assets, Yowell said they are still higher than what investors are shelling out for warehouses and multifamily across the Sun Belt, where cap rates can go as low as 3%.
“Investors are looking very favorably on Atlanta," Yowell said.