This first in a series about a prominent Atlanta office development lays the foundation for the next generation.
Go to just about any real estate conference these days and Atlanta is on the lips of those who talk about robust city economies, job growth, traffic congestion, and oh, of course, new office development.
What started as a trickle over a year ago with the announcement of several 100,000 sq. ft. to 150,000 sq. ft. projects has mushroomed into a sort of feeding frenzy of new announcements. As with any real estate recovery cycle, though, many are real while many more are imaginary, still looking for that lead tenant.
One of the largest new announcements that is actually coming out of the ground is by a joint venture of Cousins Properties Corp., a 35-year-old real estate investment trust based in Atlanta, and an investment partnership advised by Bethesda, Md.-based Stonebridge Associates.
Chairman Tom Cousins and his team know a thing or two about developing major office properties in Atlanta and have been among the city's most active for years. In fact, Cousins helped to shape the Atlanta skyline by building the 1.2 million sq. ft. 191 Peachtree Street tower in downtown Atlanta (teaming with Hines and designed by Philip Johnson), the 1.2 million sq. ft. NationsBank Plaza in Midtown (designed by Kevin Roche) and the 2.5 million sq. ft. Wildwood Office Park in Northwest Atlanta.
The firm's latest announcement, an as-yet-to-be-named 21-story, 424,000 sq. ft. office building costing $84 million in the thriving Buckhead area of Atlanta (at the corner of Lenox Road and Peachtree Street), is really indicative of the latest real estate cycle sweeping many markets across America.
This new tower is not huge or monolithic. But it is among the largest of the latest round of new-builds, primarily due to the increased land costs of more close-in city development as opposed to cheaper land found in the suburbs, where most of Atlanta's smaller office buildings have been sprouting out of the ground.
Already the company has sewn up about 33% of the building in prelease commitments to firms such as Merrill Lynch and A.T. Kearney Inc. And rumblings abound that the company is about to sign on more.
That wouldn't be at all surprising. The Buckhead area has long been a draw for service tenants, with its proximity to major highways like I-285 and the Buckhead Loop. Its amenities are near legend, with two of the nation's leading shopping malls, Lenox Square and Phipps Plaza, and the renowned Ritz-Carlton Hotel/Buckhead. For these reasons and others, the area continues to be one of the country's most robust office leasing markets.
Indicative of that fact is the recent success story across the street from the Cousins building -- the 531,000 sq. ft. Monarch Tower (featured in National Real Estate Investor's April 1996 and 1997 reviews of the Atlanta office market). Monarch Tower's owner, Equitable Real Estate Investment Management (now ERE Yarmouth), leased some 85% of the building's space long before completion earlier this year (the building now stands 99% leased). This contrasts sharply to events in the Atlanta office market only two or three years ago when tenants looking for space were scarce and see-through buildings were plentiful.
The Monarch success story also kicked off a spate of new-building announcements, as many developers dusted off plans of buildings that never saw the light of day in the last up cycle and began marketing their space, looking for a lead tenant or tenants.
All told, the project will take about 18 months to complete. Initial tenants are scheduled to begin moving in during the fourth quarter of 1998.
One of the factors leading to the timing of the project's groundbreaking was the success of neighboring Two Live Oak, a 278,000 sq. ft., 13-story office redevelopment undertaken by the Cousins/Stonebridge joint venture. After the building was vacated in 1996 by its only tenant, Dunn & Bradstreet, a total renovation was completed in the second quarter of 1997 that included new exterior glass, a totally renovated lobby and new or updated building systems. That total investment will exceed $20 million after lease up.
Two Live Oak is now 72% leased to tenants including Kajima Construction Services Inc., Sales Technologies Inc., Fidelity Brokerage Services Inc. and Federal Insurance Co., a subsidiary of Chubb & Son Inc.
Right now, the Buckhead office market contains some 9.3 million sq. ft. of space, which is estimated by most sources to be about 95% leased. Of the 2.2 million sq. ft. of new office space absorbed in the city of Atlanta in the first half of 1997, the Buckhead submarket accounted for about 20%. The market, like most others, has experienced an impressive increase in rental rates during the past 18 months.
Tom Cousins was just awarded the National Association of Office Properties (NAIOP) highest honor as developer of the year for 1997. And if timing is everything, Cousins is in before the market turns. In fact, as we were going to press, ERE Yarmouth pulled the plug on its plans to develop a major Buckhead tower next to the The Ritz-Carlton, Buckhead.
Stay tuned to the second part in our ongoing series on this project in the January issue of National Real Estate Investor, when we'll unveil the architectural model and introduce you to the entire building team.
Developer: Cousins Properties Inc.
Ownership: Cousins Loret Venture, LLC, a joint venture of Cousins Properties and an investment partnership advised by Stonebridge Associates of Bethesda, Md.
Location: A 3.75-acre site at the intersection of Peachtree Street and Lenox Road in Atlanta's Buckhead office submarket
Size: 21 stories, 415,000 rentable sq. ft.
Architect: Jon Pickard Architects, New Haven, Conn.; HKS Inc. of Dallas
Design Features: Distinctive architecture with a sloping roof line 40 feet above top floor; efficient 23,500 sq. ft. floorplates; floor-to-ceiling glass; urban park at corner
Parking: Covered garage parking with 1,235 spaces
Commencement: July 1997
Completion Date: 4thQ 1998
Project Budget: $84 million (including land)