Harbor Group Forecloses On 623-Unit Buckhead Apartment Building
A massive South Buckhead property long known as the Darlington apartments, known for its sign displaying Atlanta's population in real time, has been taken over by its lender.
Harbor Group International has assumed ownership of the 623-unit Lofts at Twenty25 after foreclosing Aug. 6 on the $104.7M loan it provided to the building's previous owner, Miami-based Westside Capital Group.
The Norfolk, Virginia-based investor took control of the property at 2025 Peachtree Road NE in a foreclosure sale valued at $92.5M, according to real estate tracking firm Databank.
Westside Capital paid $136M to purchase the complex in July 2022 after an extensive renovation and rebranding, but it struggled to fill the units.
A spokesperson for HGI declined to comment, and officials with Westside Capital didn't return a call seeking comment.
Westside took out the three-year, floating-rate loan from HGI to fund its purchase a year after the previous owner, Varden Capital Properties, completed a major overhaul of the Darlington after buying it for $30M in 2017.
Constructed in 1951, the Darlington had long been one of the few affordable housing options in Buckhead. But Varden displaced all of the building's previous tenants to renovate the property, sparking resident protests, Rough Draft Atlanta reported. At the time, units in the building were renting for between $600 to $1K per month.
When Westside Capital purchased The Lofts, its founder, Jakub Hejl, said in a press release that the firm was attracted to the project because of how Buckhead and Midtown had become “urban walkable centers that have become top gateway submarkets with great employment options, various urban amenities and walkability.”
The building was appraised at $149.9M shortly after its purchase, according to a DBRS Morningstar report on the building's debt, based on Westside's plan to raise rents. But that valuation turned out to be overly optimistic.
Westside projected the building's occupancy rate at stabilization would be 95%, according to special servicer commentary in the Morningstar Credit database.
Instead, it dropped from 58% in July 2022 to 26% as of March. I
“[The] borrower stated low occupancy and significant number of pending evictions and turnovers due to increased rents,” the CMBS loan's master servicer, Berkadia, wrote in a May 2023 update on the loan.
Berkadia also arranged the loan between HGI and Westside. It wrote at the time that the landlord changed property management companies in January 2023 and “identified a comprehensive plan on how to increase occupancy and improve operations,” but despite the building being deemed in overall good condition, its fortunes never turned around and it started hemorrhaging cash.
As of February, Westside had drawn the entirety of the $5.2M interest reserve to cover its shortfalls and “has been making debt service payments out of pocket since November 2023,” according to DBRS Morningstar.
After generating $5.1M of net operating income in 2022, the building's NOI was negative $168K in the trailing 12 months ending in March, and its net cash flow was $192K in the red, according to Morningstar Credit.
Its asking rents now range from $1,195 to $1,800 per month, according to Apartments.com. While the face rents are far below the average monthly rent in Buckhead of $2,200 per month, on a per-square-foot basis, The Lofts far outpaced the submarket’s average, according to research firm Haddow & Co.
Its units now range from 450 SF to 600 SF, putting rents at around $2.65 per SF. Apartments in Buckhead average 970 SF and $2.28 per SF in rent, according to Haddow.
HGI split the debt into multiple collateralized loan obligations, including two slices of $36.8M and a third worth $24.1M, according to Morningstar. The interest rate on the floating-rate loan had climbed to 9.1% in the latest update before the foreclosure.
The landlord last made a full monthly mortgage payment in March and made partial payments in April, May and June, running up a $586K delinquency, according to Berkadia's commentary.
The loan was transferred to special servicing in July after Westside was declared in default, and HGI foreclosed the following month.
“The floating-rate nature [of the loan] is what cratered it,” said Ladson Haddow, who runs Haddow & Co. “Having walked through it, it seemed like a decent renovation.”
The Lofts are the latest casualty of high interest rates dragging apartment values underwater and pushing owners into distress. Frankforter Group is facing foreclosure on its $104M loan attached to Generation Atlanta, a luxury 17-story Downtown Atlanta apartment tower. The foreclosure sale is now scheduled for Oct. 1 on the Fulton County Courthouse steps.
Ethan Rothstein contributed to this article.
