Who's Buying Old Offices? Bargain Hunters Who Have Been 'Waiting For This Day'

Office buildings are at the bottom of the list of real estate assets most investors want to buy. But as prices fall, there is a brave minority of buyers putting millions behind the belief that office demand will one day return on a large scale.

Boyd Simpson is one of these contrarian investors. He paid $109M in September for the Towers at Wildwood Plaza, a two-building, 1.7M SF complex in Cobb County that was developed in 2000 and is 43% vacant.

America's Capital Partners — which sold the buildings for $9.5M less than it paid in 2014, according to Reonomy — had an upcoming debt maturity, and Simpson leapt at the opportunity to buy high-quality real estate at what he views as a bargain.

“One has to assume the office business has not changed in a way which I’ll call permanently adverse. We don’t believe that’s the case,” Simpson said. “We believe Atlanta is and will be in the future an office location for national, local and regional companies.”

Simpson is one of a small group of investors who bought older office buildings in Metro Atlanta last year, a collection that includes family offices, private equity firms and opportunistic funds.

These buyers still largely believe in Atlanta's office market, despite the maelstrom of hybrid work, tech layoffs, rising interest rates and a potential recession that has hammered values in the sector.

“The Simpson Organization is the perfect example of that buyer in the market right now,” said Will Yowell, a vice chairman with CBRE in Atlanta who brokered the sale of The Towers. “Had we put it up three years ago, he would have had a lot more competition and the asset would have traded for a much higher price.”

Of the 35 office buildings sold in Metro Atlanta for $10M or more since June on the Reonomy property database, 22 were purchased by private equity firms, discretionary funds and smaller investors. 

“There are a lot of small investment funds that have been waiting for this day,” Colliers Senior Vice President Tom Davenport said, adding that the small pool of office buyers consists of "speculators" and some "conversion specialists" who are looking to transform office buildings into apartments or other uses. 

Ackerman & Co. Senior Vice President Steve Langford said it's difficult to put today's office buyers in a single category. But they tend to share one trait: the belief that the office market isn't dead. 

"Surprisingly, there are some investors who see significant opportunities there. And some of these offices are selling at pricing points that are allowing investors to say, 'You know what? Despite all the uncertainty, I'm willing to accept that,'" Langford said.

Marcus & Millichap associate Michael Nolen said investors he's seen scouting the market are seeking buildings anywhere from $5M to $20M, often with an eye to converting their use to something other than office.

"I don't talk to many institutional folks. These are mostly private groups, private entities, families," Nolen said. "They'll do a cultural center or some kind of nonprofit WeWork scenario. The buyers looking aren't buying it just to use as office space, because that's not making money."

Atlanta-based Atlantic Cos. purchased 100 Edgewood, a 353K SF tower in Downtown Atlanta, for $29.56M last year from Parkway Properties. Parkway previously had plans to convert it into a residential property. Atlantic Managing Principal Taylor Smith told Bisnow via email that conversion "remains an option."

Florida-based Front Street Commercial Real Estate Group bought a 189K SF flex office campus at 3100 Breckinridge Blvd. in Duluth from TerraCap Partners for $12.5M in July, according to Reonomy. TerraCap paid $19M for the property in 2017.

Family office Heritage Park Associates bought a 100K SF office building near Downtown Suwanee from the Dilweg Cos. in July for $13.5M in a 1031 exchange, using the proceeds from selling an apartment complex in Covington earlier last year.

Jamey Dewar, who invests his family's money in Heritage's investment portfolio, said he didn't want to buy another apartment property given where prices have gone over the past year. But under the deadline of a 1031 exchange, Dewar had to redeploy the capital somewhere.

“This building came along in Suwanee, and it was right in my price range,” he said. 

Dewar said he's bullish on the office market in the area, despite the impact hybrid and remote work is having on space demand, Dewar said. Suwanee, a suburb in Gwinnett County, has an average household income of $99K per year, is closer to where most executives live than downtown.

He's managed to increase the occupancy of the four-story building called The Paddocks from 75% to 88% since buying it in July, populating it with tenants such as Loan Depot, an LCD screen manufacturer and a small law firm. 

Dewar said the property also gives Heritage options in the future if the bottom does fall out from the office market, given its proximity to Georgia 141 and 400.

“If we can keep it in the 80% range of occupancy, maintaining it as an office is the way to go,” Dewar said. “But it’s a great 5-acre site with good exposure. It could be apartments.”

Atlanta-based Tioga Partners also bought an office property more than two decades old with the thesis that its location would ensure future demand for workspace, despite macro headwinds.

Tioga bought Barrett Summit, a two-thirds empty, 180K SF three-building office complex in Kennesaw for $11M in November.

Tioga managed to close quickly out of its $80M discretionary fund because the buyer faced a maturing loan and no longer wanted to invest further in the property, founder Paxton Griffin said. The buildings were developed between 2000 and 2002 by Pope & Land Enterprises.

Griffin said the firm got a good price — it paid $61 per SF, far below the 2022 Metro Atlanta average of $171. Plus, with 3.5 acres surrounding the buildings, Tioga has options to further develop the property with other uses such as industrial or multifamily.

“Kennesaw has historically had a really low vacancy rate," he said. “It’s such a discount to replacement cost. Had it been a 15-story tower on 1 acre, we would not have been interested."

Tioga plans to invest some $2M almost immediately in property renovations to spruce up Barrett Summit for prospective tenants.  But while Griffin said he believes he got a once-in-a-cycle investment deal, Tioga isn't likely to pivot to buying more suburban office to add to its $200M portfolio.  

“We’re not looking to be a major office player, but we think there’s a good opportunity in this space because there’s less competition and there’s always a need for office space,” he said.