Many of the Atlanta area office buildings that have traded hands since the COVID-19 pandemic have done so under duress.
Several building owners watched their tenants leave or payments on their debt balloon with rents unable to keep up after the 2020 pandemic upended the office market. As a result, some opted to cut their losses, selling their towers at steep losses or leaving their fates to the foreclosure block.
But for buildings that aren’t struggling, that dynamic is starting to change, a trend highlighted by two glassy towers north of Atlanta bearing a well-known corporate logo.
Two towers at State Farm’s Park Center campus in Dunwoody have been listed for sale by its owners, seeking opportunity to profit on a couple of fully occupied, rent-producing buildings. An asking price for Park Center 2 and 3 hasn’t been disclosed, but Green Street News, a commercial real estate outlet that first reported the listing, said the transaction could generate record-setting bids for an Atlanta area office sale.
Credit: J. Scott Trubey
Credit: J. Scott Trubey
The listing comes at a time when large investment funds are starting to show interest in buying office buildings after avoiding the sector for much of the 2020s. At the end of June, office building sales in the Atlanta area had more than doubled compared to the same time the year prior, according to data from real estate services firm Avison Young.
“There is more capital in the market for office buildings than there has been at any point in the last four years,” said Jay O’Meara, vice chairman at Newmark in Atlanta, which is marketing the two towers in Park Center. “ … It felt the right time to test the market.”
At nearly 1.1 million square feet of total space, the Park Center 2 and 3 towers are larger than many of their peers on the market, providing new scale to this trend and potentially serving as a harbinger of more activity to come for well-positioned workplaces.
“You’ve had more properties hit the market, but Atlanta still has growth ahead of it in terms of what a healthy, normal market looks like,” said Chris Godfrey, an Atlanta-based principal who represents office landlords at Avison Young. “That number is still soft, but it’s growing.”
The Park Center campus is a case study itself for the abrupt change COVID-19 thrust upon office developments.
Announced in 2014, State Farm partnered with Texas-based KDC to develop its regional headquarters next to the Dunwoody MARTA station between Hammond Drive and I-285. Three towers were built, totaling 1.6 million square feet — more floor space than nearby Perimeter Mall.
But the pandemic introduced many office employees to remote work, prompting companies to rethink their workplace strategies. At the same time, the Federal Reserve began to hike interest rates to battle increasing inflation, leading to significantly higher interest payments on most types of commercial real estate debt.
Credit: J. Scott Trubey
Credit: J. Scott Trubey
Office leasing in Atlanta and most major cities remains depressed compared to pre-pandemic norms, coinciding with higher vacancy rates, according to data from Avison Young. Nearly 29% of all office square footage in metro Atlanta remained vacant or available to lease at the end of June.
In a unique transaction, KDC purchased the leasehold interest in two Park Center towers in a partnership with Toronto-based Cadillac Fairview and Texas-based Compatriot Capital in 2022, leasing the buildings back to State Farm.
The other tower, which is attached to the Dunwoody MARTA station, is empty and is owned by a subsidiary of real estate services firm Transwestern, which declined to comment for this article. At one point, online auto merchant Carvana announced plans to occupy the building, but that plan fell through.
A State Farm representative said the insurer “is a tenant of Park Center with a long-term lease that must be honored by any buyer.” About 10 years remain on State Farm’s lease for the two towers, which represent about $527 million in rent.
KDC, which did not respond to a request for comment, is not a traditional long-term holder and tends to develop and sell its projects, O’Meara said. State Farm’s commitment to the buildings represents a huge amount of stable revenue for a prospective buyer.
“It was a very public statement that State Farm made when they built this campus,” he said, noting the insurer occupies similar regional campuses in Arizona and Texas. “I don’t think there’s anything of this scale or stature that exists in Atlanta.”
Plans for a fourth office tower at Park Center were scrapped. Dunwoody in 2024 approved a rezoning request by KDC to allow the developer to build a 175-room hotel and 300 apartments on the last undeveloped portion of the campus. But those projects have yet to be developed.
Credit: Cooper Carry
Credit: Cooper Carry
Dunwoody and the surrounding north Fulton and DeKalb County cities form the Central Perimeter submarket, the largest cluster of office space in metro Atlanta. Nearly a third of its office square footage is either empty or available to lease, outpacing the overall Atlanta market, according to Avison Young.
Since the pandemic, it’s also led the Atlanta area in tearing down obsolete offices for redevelopment, chipping away at the glut of unused space. Godfrey said Central Perimeter has led the Atlanta area in removing unwanted office space through demolition, conversion to other uses or owner-occupant purchases.
Fewer empty offices and more transactions has many commercial real estate experts optimistic the office market’s recovery will continue to pick up steam.
“Office is still not top of mind (among investors and banks),” Godfrey said. “So it is good to see the REITs (real estate investment trusts) and the institutional groups putting together money to buy office and reinvest.”
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