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Highgate Partners Among Investors Finding New Allure In Suburban Office

A local duo with money from regional investors is shopping for $50M in suburban offices this year, and they are part of a growing trend where private capital and even foreign money is shopping for properties in Metro Atlanta's outskirts.

Barrett Court office park in Kennesaw, recently acquired by Highgate Partners

Highgate Partners recently purchased Barrett Court, a low-rise, 32K SF office complex in Kennesaw, just a half mile north of Kennesaw Marketplace, a new open-air, mixed-use project anchored by Whole Foods. Highgate picked up the property for $3.75M, or $118/SF, Highgate Partners partner Andrew Murphy said.

Since closing in January, Highgate has pushed occupancy up to 95%, Murphy said.

It is just the latest in what Highgate's two partners, Murphy and Beau Terrell, are targeting as they widen the net for value-add office investments in the Southeast. The firm is looking to outlay $50M in capital this year, up from $35M last year, thanks to funds from regional institutional funds and high net worth individuals, Murphy said.

Highgate is not alone in the race for acquisitions. Atlanta's strong economy and job growth have caught the attention of investors, pushing prices of trophy towers to record levels. But a lack of supply has local investors and private capital expanding their shopping lists to the suburbs, especially in the northern regions just outside of the Interstate 285 ring and as far north as Kennesaw and Duluth, according to a recent Marcus & Millichap report.

“While local investors target these properties, foreign capital also seeks assets in the market, raising bidding competition for properties,” Marcus & Millichap officials said.

Given a 15% increase in rents over the past three years, investors are hunting for office properties with tenants facing impending lease expirations, capturing an upside when those rents go up on renegotiation, Marcus & Millichap officials said.

Highgate Partners partners Andrew Murphy and Beau Terrell

Avison Young principal Kirk Rich said not only are office rents finally growing in the suburbs, but companies are also growing beyond the intown markets, especially smaller firms or back-office operations that do not need the high rents found in the city. And that is adding to the allure for office investors, Rich said.

"We have investors [where] that is the only place they will look," Rich said.

Last year, Highgate focused almost exclusively on medical office product near major medical centers, but that could be bought, fixed-up and sold in short order. Those investments included 3790 Pleasant Hill Road, a 34K SF medical office building in Duluth directly across from Gwinnett Medical Center.

But finding those deals has become a snipe hunt. There just is not much — if any – medical office to add value to in today's market. So now, Murphy and Terrell are hunting for more traditional office projects, ones in markets with strong demographics, but where Highgate can still fix whatever ails the projects and sell them within 36 months.

“It's just tough finding deals,” Murphy said. “Medical has never been overbuilt. Rarely do you see a new medical [office building] come online.”