“It’s the canary in the coal mine,” Henry Lorber, a distressed real estate expert at Henry Lorber and Associates, told The Atlanta Journal-Constitution. “I think you’re going to see more foreclosures.”
The notice lists the Marquis I and II towers, and the so-called 225, 229, 233 and 235 Peachtree towers. The mall at 231 Peachtree is also listed in the notice.
The opinion, first reported by Atlanta Business Chroniclesays the properties will be sold on the steps of the Fulton County Courthouse on Tuesday.
It’s possible the owner of the Peachtree Center debt, a commercial mortgage-backed security, could strike a deal with Banyan Street that would prevent a foreclosure before Tuesday.
Banyan Street, which acquired the complex in 2016, has spent years and millions renovating the Peachtree Center towers and mall.
The company said it was unable to “reach an acceptable agreement” with SitusAMCa special manager or distressed debt company, which handles the Peachtree Center loans.
A change in ownership, if it occurs on Tuesday, is unlikely to affect the complex’s current tenants, which include law firms and local, state and federal government agencies.
Peachtree Center was designed and built by renowned Atlanta developer and architect John C. Portman Jr. The complex is a defining feature of the city, lending its name to the surrounding business district and a MARTA station.
Developed from the 1960s to the 1980s, it includes several blocks of office towers, convention hotels, a shopping center, as well as what is now known as AmericasMart. The merchandise store and hotels, including the Hyatt Regency and the Marriott Marquis, are not part of the foreclosure proceeding.
Major tenants left Peachtree Center for glitzy new workplaces in other areas of the city. Occupancy has dropped to 55% and two large tenant leases are expiring in the next two years, according to financial documents obtained by AJC.
Banyan Street said it remains fully committed to its downtown Atlanta assets, including the nearby 191 Peachtree office tower, the Ascent Peachtree residential project and several parking lots.
In its statement, Banyan Street said the downtown civic group Atlanta Center Progress “expects approximately $3.8 billion to be invested in the downtown core over the next five years.
“This level of investment coupled with the growing number of residences in the submarket will make this an exceptional location,” the company said. “The best is yet to come for downtown Atlanta.”
Revitalize old offices
Metro Atlanta is famous for its boom-and-bust real estate cycles, and the area currently continues to ride a wave of development that began after the Great Recession. Job growth remains strong and jobs are a huge driver of office demand.
But there are storm clouds on the horizon.
The Federal Reserve’s efforts to control inflation could trigger an economic slowdown that dampens demand for office space, and rising interest rates could make it harder to refinance commercial mortgages.
The pandemic and the emergence of working from home and the hybrid work schedule have created instability in the office market, and large employers and landlords are still trying to adapt. The office vacancy rate in metro Atlanta was 21.3% at the end of June, according to data from a real estate services firm. Jones Lang LaSalle.
Downtown’s vacancy rate is slightly better than the metro average, but Downtown has some of the oldest commercial buildings, which can be at a disadvantage compared to newer towers. According to experts, many need investments or reinventions to stay competitive.
“We are cannibals in the office building business,” Lorber said. “New buildings being built and those that have been built in Midtown are eating up downtown tenants.”
Fewer tenants puts pressure on office owners, and that pressure is being felt.
Tyler Wright, forensic accountant and CPA with Moore Colson, said he saw more and more banks and building owners trying to restructure their loans. He said forbearance agreements, where lenders and debtors agree to reduce or temporarily suspend payments, are becoming more common.
“They were faithful”
AJ Robinson, who managed the Peachtree Center in the 1990s, said financial and leasing issues facing office towers in the area are signs of the ongoing challenges facing aging buildings.
“It’s disappointing to see. They’ve been mainstays since the ’60s in the downtown Atlanta landscape,” said Robinson, who is now president of the Atlanta Progress Center and the Downtown Atlanta Improvement District.
Portman’s downtown investment was an outlier at a time when many developers focused their attention on Buckhead and the northern suburbs.
But Peachtree Center had its detractors. The complex was also a product of its time – built as a sort of fortress, focused inwards with a network of sky bridges that allowed workers to avoid the streets. Urban designs now focus on active street living.
Portman struggled financially in the late 1980s, prompting the Peachtree Center to go by foreclosure in 1990. Robinson, who oversaw the foreclosure process, said the office towers are designed to persevere through tough times.
“Iconic assets tend to live a long time, regardless of the current crisis,” he said.
In 2016, Banyan Street launched a redesign of several of the buildings in the Peachtree Center and its mall.
The mix of restaurants and shops changed, and plans involved improvements to the Peachtree Center’s outdoor plaza to make the complex more street-friendly.
In April 2021, True Financial Corp. vacated the two Marquis towers as part of the consolidation of its business real estate. This the outing was more than a fifth of Peachtree Center’s rent, according to to a report from investment firm Morningstar.
Morningstar assistant vice president Chris Meyer said his company estimates it could take three years for a new owner to achieve 70% occupancy or higher, which is still below the vacancy rate. from downtown Atlanta.
He said the age of the Peachtree Center could work to the landlord’s advantage as long as rents remain relatively cheap.
“They’re not going there to try to get prime rents, so I think that might help,” Meyer said.
It is possible that a new owner will pursue different uses for buildings, and it wouldn’t be unprecedented within Peachtree Center. The development’s first office building, known as 230 Peachtree, was acquired by Portman and transformed in 2016 into an Indigo Hotel, refreshed offices and an upscale restaurant.
Other nearby office buildings have also been given a second life. An aging office building on Piedmont Avenue near Atlanta’s flagship Hilton hotel now houses high-rise apartments, and the former Candler building is now a boutique hotel. Several real estate experts have said the pandemic could speed up this reassignment process.
Lorber said access to utilities such as sewer and gas would make it a logistical nightmare to turn the Peachtree Center office towers into apartments, but Robinson was more open to that possibility. He said that was definitely something to consider.
“Whether it’s offices, housing or something else, they’re iconic,” Robinson said. “Maybe in the next 50 years they will have a different use.”
THE STORY SO FAR
Six office towers and the Peachtree Center mall face a foreclosure sale on Tuesday. The owner of the property, Banyan Street Capital, has so far been unable to refinance its loans worth more than $140 million. The potential foreclosure could serve as an indicator for the Atlanta office market due to the current economic headwinds and changes brought about by the COVID-19 pandemic.