Three Alliance Leads Top Atlanta Office Sales Of 2018

Atlanta's biggest office purchase of 2018 came just a handful of days after the new year when a San Francisco firm bought Three Alliance Center in Buckhead. That sale set the tone for a market that continued to demonstrate robust investor demand for all things office, with the year expected to end at nearly $4B in sales.

But investors turned toward the suburban office market in an effort to chase yields, with six of the top 10 office sales of 2018 happening outside the city's confines, according to data compiled by Transwestern, Cushman & Wakefield and CBRE.

“What stands out about the top office sales in 2018 is the sheer variety. We saw strong sales activity in both urban and suburban properties, and in large new office towers like Three Alliance Center as well as older, renovated properties,” Transwestern Director of Research Keith Pierce wrote in an email. “And all of this activity came from a range of buyers and even buyer types, reflecting interest in Atlanta as an investment market that is both wide and deep.”

Surging population growth coupled with the region's continued momentum of creating new jobs has lured investors from around the globe, Bull Realty CEO Michael Bull said.

“I think there's a lot of optimism from local and institutional buyers from around the country,” Bull said. "Atlanta is more on the map than it's ever been."

Some expect the appetite for Atlanta office will continue into 2019 as investors continue to flock to second-tier markets in the U.S.

“With prices skyrocketing in markets like New York and Los Angeles, we expect to see this level of activity continue in Atlanta in 2019, with new players entering the market seeking to bring more value to their portfolios,” Pierce said.

Marcus & Millichap Senior Director Bob Johnson said he sees suburban properties picking up more momentum among investors, especially properties in closer-in submarkets like Central Perimeter or Cobb County. Many of Atlanta's trophy office towers have already traded hands, leaving little that may be put back on the market.

There also is a view among investors that Atlanta's suburban office market is finally rebounding from its long leasing lull, Johnson said.

“I think we're going to see suburban office continue to get more traction from a sales volume perspective based on the fact that it lacked for so long,” he said. “That's where the greatest opportunities are going to lie.”

That's what to look forward to in 2019, but here were the biggest office properties traded in the year that's coming to a close.

1. Three Alliance Center

• Submarket: Buckhead
• Size: 506,600 SF
• Price: $270M ($533/SF)
• Seller: Tishman Speyer
• Buyer: Stockbridge Capital Partners

The year started with a record-making sale as San Francisco-based Stockbridge Capital Partners — investing on behalf of the Florida State Board of Administration pension fund — finally closed its expected purchase of the Buckhead trophy office tower Three Alliance Center. The deal commanded a per-square-foot price unseen in Atlanta before or since at $533/SF.

Pricing not only reflected the success by developer Tishman Speyer at leasing the first new office tower to rise in Buckhead since the end of the Great Recession with such notable deals as Global Payments, Aon, State Street Corp. and CBRE, but also signaled the heated demand by investors for stabilized commercial properties at a time when a limited number of assets were being listed for sale.

For Tishman Speyer, the sale represented its exit from the Atlanta commercial real estate sphere, for now, as its Atlanta Managing Director, Chris Ahrenkiel, left to join forces with Selig Enterprises.

2. Lenox Park

• Submarket: Buckhead
• Size: 1M SF
• Price: $251.5M ($242/SF)
• Seller: Fortress Investment Group
• Buyer: Bridge Investment Group

Bridge Investment Group had already been on an acquisition tear in Metro Atlanta when it struck the second-largest deal in Atlanta this summer. The firm, whose office division is run by veteran commercial real estate pro Jeff Shaw, had already purchased a massive portfolio of office buildings from Atlanta-based Piedmont Office Realty Trust earlier in the year, a deal that included some low-rise office buildings in Metro Atlanta.

But the five-building office campus in Buckhead was a real catch. The park had been the longtime home of AT&T, which shrank its presence in Georgia this year, including vacating its 1M SF tower in Midtown. The telecommunications giant continues to operate in many of Lenox Park's buildings, but its downsizing offered Bridge an opportunity to spruce it up and open it to the wider market.

“What makes this opportunity unique is it's such a park-like setting that is so close to everything,” Shaw told the Atlanta Business Chronicle. “It's been thought of so long as an AT&T campus. Now, we have to reintroduce it to the market.”

 3. Palisades Office Park

• Submarket: Central Perimeter
• Size: 639K SF
• Price: $121M ($189/SF)
• Seller: Atlanta Property Group
• Buyer: Oaktree Capital Management

Atlanta Property Group's bet on an aging office park in the shadow of the iconic King and Queen towers at Concourse Corporate Center paid off in July when it sold the office campus to Oaktree Capital Management for over $26M more than it paid for it.

After acquiring it in 2014 for $95M, Atlanta Property Group began updating Palisades and transforming it into a mixed-use campus. By 2016, the firm sold a parcel on the property to Pollack Shores, which is developing a 425-unit apartment project there, complete with 10K SF of retail.

4. Royal Centre II, III & IV

• Submarket: North Fulton County
• Size: 634,500 SF
• Price: $107M ($169/SF)
• Seller: New York Life/Dilweg Cos.
• Buyer: Bridge Investment Group

Not satisfied by its purchase of Lenox Park, Bridge continued to make strong inroads into the Atlanta office market, buying the three-building office park at Royal 400.

Dilweg and New York Life purchased the property in 2015 and focused on leasing up the center. The landlords, with the help of Stream Realty, pushed occupancy from 74% to 85% when it sold to Bridge.

5. 7000 Central Park

• Submarket: Central Perimeter
• Size: 415,300 SF
• Price: $104.8M ($252/SF)
• Seller: CBRE Global Investors
• Buyer: Starwood Capital Group

CBRE Global Investors' turnaround story had a happy ending in July when it sold the 415K SF tower for one of the highest prices of 2018. Three years prior, CBRE Global purchased the tower for $85M from Parkway Properties. It then repositioned the building, situated on the Cox Enterprise headquarters campus, with lobby and common area renovations. It pushed up occupancy, including landing Industrious' first suburban Atlanta location.

The landlord also managed to pump up gross rents by $10/SF.

Starwood Capital Group — led by lodging executive Barry Sternlicht, who recently sounded alarm bells over Amazon's decimation of Main Street retail — purchased the 18-story tower on behalf of a pension fund client.

6. Alcon Laboratories Biotech Campus

• Submarket: Gwinnett County
• Size: 882K SF
• Price: $100M ($113/SF)
• Seller: MetLife
• Buyer: AVG Partners

Little has been reported on this sale to know the complete backstory of why AVG Partners invested in Alcon's Johns Creek campus.

The sale comes as Novartis is spinning off its eye care division, Alcon, into its own stand-alone, publicly traded company. Novartis purchased Alcon in 2011 for $39B and after a few years began to consume Alcon's ophthalmic pharmaceuticals line into its own innovative medicines division. Alcon is expected to instead focus on surgical and vision care products, BioPharmadive.com reported.

On Wednesday, Alcon announced it was acquiring Tear Film Innovations, a private company that makes a therapeutic device to combat one of the causes of dry eye.

 7. The District at Chamblee

• Submarket: Buckhead/Doraville
• Size: 379K SF
• Price: $98.2M ($259/SF)
• Seller: TPA Group
• Buyer: Boyd Watterson Asset Management

Cleveland-based Boyd Watterson Asset Management makes it to the top sales list this year with the purchase of a four-building, refurbished office park in a wooded enclave in Chamblee, just north of Buckhead. TPA -- which retains the ownership of 17 other buildings in the park -- repositioned The District at Chamblee as an affordable alternative to Buckhead for startups and companies that can fill one of the buildings.

8. Buckhead Tower at Lenox Square

• Submarket: Buckhead
• Size: 348K SF
• Price: $96.5M ($259/SF)
• Seller: Parmenter Realty Partners
• Buyer: TPA Group

Soon after nabbing the North American headquarters for Networx Systems, Parmenter sold its iconic Buckhead tower to TPA group, earning more than $30M over its 2012 purchase price. 

Buckhead Tower is connected to the JW Marriott and adjacent to Lenox Square mall. 

9. Pershing Point Plaza

• Submarket: Midtown
• Size: 409,500 SF
• Price: $75M ($183/SF)
• Seller: CBRE Global Investors
• Buyer: The Dilweg Cos.

Dilweg capped its active investment season in Atlanta with the former headquarters for internet service provider EarthLink. The company purchased the eight-story tower in March, not long after Kaiser Permanente moved its IT operations to it, and pumped in $10M in capital improvements. Dilweg also rebranded the building as 1375 Peachtree and hired CBRE to market it as a creative office hub.

10. TownPark Commons

• Submarket: Northwest
• Size: 350K SF
• Price: $73.25M ($209/SF)
• Seller: Transwestern Investment Group
• Buyer: Adventus Realty Services

The 10th-largest office sale of 2018 also is the farthest from Atlanta's urban core. TownPark is a four-building, low-rise office campus in Kennesaw, a suburban Cobb County city 26 miles north of Downtown Atlanta along Interstate 75.

Adventus purchased the property in August, paying what normally would be a steep price for a suburban office asset. But the firm highlighted the keys to why the cost was justified: For 20 years, the park occupancy has never sunk below 90% on average, with tenants staying an average of 15 years. TownPark was 98% leased at the time of the sale, and its campus is close to Kennesaw State University.

CORRECTION: DEC. 19, 2:30 P.M. ET: A previous version of the story listed the incorrect name for Buckhead Tower at Lenox Square and its primary tenant. Salesforce is the primary tenant at Atlanta Plaza, renamed Salesforce Tower, and was not sold this year. The story has been updated.

CORRECTION, DEC. 20, 8:45 A.M. ET: A previous version of the story failed to specify Chris Ahrenkiel's title while at Tishman Speyer. The story has been updated.

CORRECTION, DEC. 20, 8:45 A.M. ET: A previous version of the story failed to highlight that TPA Group retained the ownership of 17 of the buildings at The District. The story has been updated.