'We’ve Got To Find Something Else': Office Developers Forced To Reckon With Their Futures

The 12-story, glass-encased 14th + Spring building was prolific office developer Greenstone Properties' most ambitious project yet when it started construction in 2019.

But nearly a year after the speculative 324K SF project was delivered, the Midtown Atlanta building still sits vacant. With the sorry state of the office market, it might be the last office building Greenstone founder De Little ever builds, he told Bisnow in a recent interview.

“Guys like us, who made our living on office, we’ve got to find something else," Little said. 

Little founded Greenstone in 2005 and led it as it developed 14M SF of office properties throughout the Southeast, including Newell Rubbermaid’s headquarters in Central Perimeter, Mansell Overlook in Alpharetta and the 29-story Pinnacle at Symphony Place in Nashville.

"I do think there will be office buildings built again, but I’m 63 years old," Little said. "The chance for me to do another spec office building in the next seven years, right now those prospects don’t look very bright."

The decrease in office usage has put companies that specialize in building offices in a precarious position. More than 23% of the region's offices are vacant — an all-time record, according to CBRE — and more than 30% of office space is looking for a new user.

Those weak fundamentals and the rise in interest rates have made it all but impossible to get the construction financing necessary to start a new building. That is doubly true for speculative construction, which Greenstone has historically specialized in.

"I am not a futurist, but we've clearly got to work through the inventory," Little said. "Today the banks have just said, 'No office. Period.'"

Despite office development entering an ice age, Little said Greenstone's partners aren't looking to close up shop. Instead, the firm is pivoting to multifamily, mixed-use and hospitality opportunities. It still owns prime acreage outside of Avalon in Alpharetta that is zoned for office that could be developed if the right user comes along.

“To think we’re going to disband, go home and play tiddlywinks, no, that’s not going to happen,” Little said.

Nearly 75M SF of office was under construction in the U.S. as of the third quarter, a pipeline that shrank 33.4% over the past five quarters, according to JLL. The velocity of new construction is projected to slow further: During the past three years, quarterly new office development averaged 9M SF. Next year, that quarterly amount is expected to drop to 7.2M SF and will drop even further to 3M SF a quarter by 2025, JLL reported. 

Lenders are balking en masse at financing office acquisitions, let alone new development, as the ability to predict tenant demand remains elusive and office values could contract by as much as 30%, creating a wave of office distress. 

“What this shows you is the office development business is a big-risk business,” Seven Oaks Co. founder and principal Bob Voyles said.

The only new office buildings in Atlanta likely to break ground are build-to-suit projects for a corporation, but even those are likely to be few and far between. 

“There’s not a clear path out of this,” Voyles said.

Seven Oaks, like Greenstone, has a long history of developing office buildings in Atlanta. Its projects have included the four-tower Perimeter Summit in Central Perimeter, Riverwood 200 in the Cumberland/Galleria submarket and the iconic 1180 Peachtree, the Midtown headquarters of law firm King & Spalding.

Those skyline-defining office projects are now likely a relic of the firm’s past. Voyles said Seven Oaks has pivoted to managing a 2.3M SF office portfolio and is master planning land projects with a mix of residential and commercial uses.

Seven Oaks is also developing industrial, including a 260K SF warehouse in Chamblee.

On new office construction in Atlanta for the foreseeable future, Voyles said, “I just don’t see it happening.”

The lack of activity and need for a new direction led to the departure of one of Greenstone's partners, Chris Scott.

Scott had led Greenstone's development and leasing for more than a decade. Earlier this month, he left the firm to become the Atlanta market leader and managing principal at Cresa, a tenant representation firm.

Scott left Cresa in 2006 to join Greenstone, and 18 years later, he rejoined the firm to help it grow the business and recruit and train the next generation of brokers, he told Bisnow. He said "it's a little bit of a different role for me" but called it the natural evolution of this phase of his career.

Little said Scott's departure is indicative that Greenstone isn't planning much in the way of new office for the foreseeable future.

Greenstone is still the owner of the 128K SF Kimball Place building in Alpharetta and the 60K SF Medac campus in Augusta, as well as 14th + Spring. The firm recently extended its more than $30M loan on Kimball Place, according to the Reonomy database.

Little said its $75.8M loan on 14th + Spring with Santander Bank, while set to mature this December, has two one-year extensions, allowing the firm and its partner, Goldman Sachs, more time to lease up the project. 

"We’re extending that loan. We definitely have a couple of tenant conversations right now that would take the building to 50%, 60%, 70% leased, but we haven’t signed anything," Little said. "Unfortunately, we’re having to be more patient than we previously expected."

Greenstone has experience developing mixed-use projects, including a new stadium for the Augusta GreenJackets minor league baseball team and neighboring residential and hotel properties just over the border with South Carolina.

In the past, for parcels zoned for things other than office, the firm would partner with other developers. Now, Little said Greenstone is going to hold those parcels for itself.

“I don’t think we’ll be flipping that out anytime soon,” he said. “As we get more and more competitors, when you find a good piece of land, you need to develop every inch of it yourself.”