One of Atlanta's largest commercial landlords is grappling with a half-empty, 646K SF office building with a mortgage that is three months past its maturity date.
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The loan tied to Paces West, the two-tower, 18-story office building in Vinings that once housed Home Depot's headquarters, has been transferred to special servicing, according to Morningstar Credit.
Boca Raton, Florida-based CP Group and California real estate investor Farallon Capital Management bought Paces West in 2019 for $119.5M, according to Cobb County property records. They took out a $102.7M mortgage with Ares Management, $60M of which the private equity giant bundled into a collateralized loan obligation.
The loan was initially scheduled to mature in June 2024, but that maturity date was extended to January of this year and again to April, according to a CLO surveillance report from credit rating agency KBRA and servicer commentary via Morningstar Credit.
There is no indication that the loan has been extended again, although it has extension options remaining that could push the final maturity into next year. But refinancing the loan “would be impossible” because the building's largest tenant just moved out, Morningstar Credit Senior Vice President David Putro said in an email.
Piedmont Healthcare occupied more than 250K SF of the building until last month, accounting for 43% of its base rent, according to KBRA. The hospital system's lease expired at the end of June, and it vacated the premises in its consolidation at 271 17th St. in Midtown, which was announced last year.
Paces West was 85% occupied as of March, according to Morningstar Credit, but Piedmont's exit would bring that figure below 50%.
A CP Group spokesperson declined to comment. Farallon didn't respond to a request for comment.
The loan is being serviced by NewPoint Real Estate, according to servicer commentary. A spokesperson for NewPoint didn't respond to requests for comment.
KBRA estimated in September that investors in the $102.7M loan could expect a roughly $11.5M loss because of the likelihood of default after Piedmont's exit.
Paces West isn't the only Atlanta office property owned by CP Group and Farallon at risk of default.
The nearly $200M loan tied to the One and Two Ravinia Drive office towers in Central Perimeter and One Overton Park in Cobb County also was placed into special servicing last month, Bisnow reported. Occupancy at the 1.2M SF portfolio has slipped, with hundreds of thousands of square feet sitting vacant.
CP Group, formerly Crocker Partners, was the second-largest owner of Atlanta offices in 2023 after a $1B spending spree over the previous four years. It bought Paces West, One and Two Ravinia, One Overton Park, CNN Center and Atlanta's tallest building, Bank of America Plaza, over that period.
But despite setbacks at some of those acquisitions, it has pressed forward on its long-term conviction in Atlanta's troubled office market.
It partnered with Bawag Group on the takeover of the 2.2M SF Piedmont Center office park in Buckhead and just released new renderings of its redevelopment of CNN Center in Downtown Atlanta into The Center. That project, with 1.1M SF of updated office space, is set to open next year.
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