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Investors Makes Twofer Value-Add Investment In Buckhead

For Hugh Pafford, finding value-add office deals in the Southeast is getting tough. Yet his firm still managed to snag two in Buckhead.

3475 Lenox Road Buckhead Anchor Capital Sage Equities
Live Oak Square, recently acquired in a joint venture between Anchor Capital Partners and Sage Equities

Pafford's Anchor Capital Partners, in a joint venture with Canadian real estate investment firm Sage Equities, has purchased Live Oak Square, the 201,500 SF mid-rise office building at the intersection of Lenox and Peachtree roads formerly known as One Live Oak.

Atlanta-based Anchor Capital paid some $50M, or just shy of $250/SF, according to estimates real estate transaction tracking firm Databank.

The deal comes on the heels of Anchor Capital's July purchase, also with Sage Equities, of 550 Pharr Road, a nine-story, 108K SF office building in Buckhead Village for $20M. That building is a renovation project from 2014 by Atlanta-based Joel & Granot and local investor Dion Meltzer, which converted the property from apartments back to its previous office use.

Pafford, a managing member with Anchor Capital, said the value-add play for Live Oak Square will be in infusing capital into the vacant top two floors of the building and positioning it to tenants looking to pay less than what tenants are shelling out at trophy towers in the same vicinity.

Hugh Pafford and his wife, Crystal
Anchor Capital Partners Managing Partner Hugh Pafford with his wife, Crystal, in 2011

“I think the market we're looking at is anywhere between $30 and $32/SF [gross rents],” Pafford said.

Anchor Capital is in the market for more value-add office projects in the Southeast, including markets like Jacksonville and Charleston, although the focus now is in Atlanta, Pafford said. But the challenge is finding office properties — especially those within the urban corridors — that can actually be considered value-add.

“It's becoming more difficult,” Pafford said. “Atlanta is so hot now, and the employment is so favorable and all of the statistics that all the investment firms all are interested in is the same reason we are: growing employment. We would like to own two to three more properties in Atlanta.”

Part of the struggle for value-add is the sheer amount of capital seeking to invest in commercial real estate. Demand for office investments, coupled with a lack of office properties on the market, is pushing prices to record levels in Atlanta. 

Most recently, Three Alliance Center, Buckhead's newest trophy tower, is reported to be under contract with San Francisco-based Stockbridge Capital Partners for some $525/SF, a per-square-foot price that, once consummated, will set the Metro Atlanta record for an office building sale.

Jeff Shaw Bridge Investment Group Partners
Bridge Commercial Real Estate CEO Jeff Shaw

Bridge Commercial Real Estate CEO Jeff Shaw said value-add can pay off. Most recently, the firm sold Parkway Center in Marietta, a two-building, 460K SF property that it purchased in 2015 for $30M. 

Unlike other investors, though, Bridge is focused on suburbia for value-add investments. The suburbs are places that, while generating less attention from institutional investors than urban core markets, come fraught with more risk. After all, some suburban markets continue to struggle as companies move to urban centers in an effort to attract millennial employees.

“We're not having issues finding good value-add. A lot of the big institutional money has been focused on gateway cities, downtown urban areas. There isn't as much money trying to find opportunities in the suburban markets,” Shaw said. “You can still buy some incredible Class-A assets that are not getting to the price levels [of urban properties]. So the opportunities are still there.”

A recent PwC Emerging Trends In Real Estate report noted private equity's hunger for value-add office investments going into 2018.

“With 58% of the private equity 'dry powder' oriented to North America, and 66% dedicated to value-add and opportunistic investment, the outlook for private equity real estate looks to be among the more exciting in the latter stages of this cycle,” especially with suburban office properties in amenity-rich environments, PwC officials stated in the report.

“We're seeing a lot of those kinds of trends,” Shaw said.

Millennials have driven the transformation in what companies are seeking in office spaces — more amenities, more features that are prevalent in co-working spaces and access to transit. Those features are not exclusive to urban offices any longer, Shaw said.

“Now you're starting to see those amenity bases moving out toward the suburbs,” he said. "That changes the dynamic and the thought of how office space is treated in that area."