Midtown. Downtown. Intown. These are words familiar to residents of many major cities across America, but they have been quite foreign to most Atlantans. Until now.
In the past two years, Atlanta's own car-crazy residents have begun to tire of the seemingly endless suburban sprawl and started a subtle but nonetheless genuine shift back toward intown locations.
As commuters sour on navigating major north/south highways I-75 and Georgia 400 and I-285, the city's Perimeter highway, MARTA (Metro-politan Atlanta Rapid Transit Authority) is coming back into vogue. Development of office, residential and retail in midtown and downtown is starting to click along, and the highly visible construction cranes along many of the city's "Peachtree" streets are ample evidence of this trend.
With this in mind, we gathered many of the city's top real estate pros together for our annual breakfast confab, this time at a decidedly intown location - the Four Seasons Hotel at 14th Street and Peachtree. Appropriately, the site of our discussion sits in an area described by many as the new "ground zero" of Atlanta's new intown urban development. Here is what they had to say.
Tony Wilbert: John, when I first covered Atlanta real estate a few years ago, you thought midtown would be the next growth area. Now here you are with the first building coming out of the ground in midtown. How did you have the vision or foresight to do that?
John Dewberry: First let me say that intown development is pretty tough, so you all be careful! (laughter) I looked around and I wasn't sure if we weren't behind the curve after the Olympics in downtown. Buckhead was secured by all the big players from the '80s - Pope & Land, Equitable and Cousins - everybody already had their land from the '80s and it was very expensive. So I started looking at midtown. We started looking at Peachtree Pointe in '94, I guess it was.
So we bought the site and immediately Pope & Land and Hal Berry and I got some phone calls from people who wanted to joint venture office on it. I got the Jamison Report showing office being 5% vacant about two and a half years ago. So a lot of it is just like many things we do, we sit around and pretend we're real bright and all that but a lot of it is just pure luck. I knew it was a prominent piece of dirt, though.
Ben Johnson: What's been the real catalyst for this new intown development and growth?
Dewberry: I would say it is two-fold. One, there is suburban sprawl and everybody is concerned about that. But also we haven't done any apartments outside of I-285 and there is no place out there now that you can really develop multifamily without getting into a heck of a fight with the neighborhoods. One of the areas that you can is in midtown and downtown. They embrace residential development.
Harold Dawson: Our focus has been primarily on the south side of downtown. We feel that there are still tremendous opportunities there. Not to take away from the momentum that midtown has right now, but we really think even going south toward the Summerhill area you see the success that people like John Wieland and NationsBank and community development corporations have had with a lot of their projects in terms of putting housing in.
One of the things we've really focused on is not being so myopic on housing. We're really focused on creating communities and creating livable spaces. If you see what we did with City Plaza, we were somewhat pioneers back in 1996. Trying to convince the banks to finance a mixed-use project on the south side of downtown was next to impossible. So what we did was look at trying to get retailers in that would also provide services but at the same time provide long-term corporate leases that the banks like. What we ended up with was a mixed-use development that was self-sustaining. Those types of projects and similar projects that really feed on each other and support each other are the way.
Wilbert: We have some big developers here who are perhaps going ahead with buildings, even here on 14th Street. Why did you all decide to do that?
Harry Morgan: When we first started looking, we tried to follow our residential development. We started looking at downtown and midtown and doing new developments here. That was the first step. Then as John mentioned, we decided that the markets looked pretty exciting from a supply and demand matching standpoint. Then we started looking at what sites were available and decided on one that had a good history to it. So we just jumped in.
By the way, let's be very clear: There are a lot of conversations but there's not a heck of a lot of actual activity. It is going to take some entrepreneurial effort by individuals and corporations to get it done. Truth is, the proof is going to be in the execution. The fundamentals are there, but there are fundamentals in the suburbs. The economy is still good, so there is demand out there. And there's plenty of money around.
Mike Shelly: John Whitaker (a colleague at Trammell Crow) and I were familiar with the 14th and Peachtree corner when we developed Peachtree Promenade, so we went back to something we were familiar with. We like the Peachtree address, being across from the Colony Square, and felt it was ground zero in midtown. So we put it under contract. I think it's a great site. We have a lot of interest in it, but we have a little more work to do before we go forward. We're very positive we can get the preleasing we need in the 30% to 35% range.
I don't think it's that strange that Corporate America is coming back to midtown. You've got a great central location to attract a broader labor pool, you've got three MARTA stations a half-mile apart, which is great infrastructure. I think it's a pretty natural return to a more urban-oriented location.
Wilbert: You're sitting next to someone who never left the urban area. Brian, you and Portman did Peachtree Center downtown. When we talked in December 1997 about the building atop the SunTrust parking garage (a major new development), did you honestly think it would happen?
Brian Hogg: Yes I did. With the leasing of the (SunTrust) tower, I got tired of saying 'no' to brokers and that we didn't have any space. That's one indication that the market is strong and there is a lot of momentum there. I felt like the bank itself would generate some substantial needs because of its interest in acquiring or merging with another bank and I had no idea who that might be at the time. Being a home-grown bank and going through the assimilation of its three states that it was operating in was really the linchpin of needing more space. A corporation like a financial services firm generally experiences controlled growth sometimes at a greater pace. I felt like it was going to take a while to get their demand in line with the continuing demand downtown.
Johnson: Jack, you're one of the tenants that decided to stay downtown. This is just a guess, but you probably had a few options on where to move your big space.
Jack Smith: We did. We started looking at space several years ago as our leases were coming up for renewal. We have traditionally been downtown. Our earlier offices were at Five Points on Marietta Street for years and then we moved to the Equitable Building. Basically because of the location of other people - big law firms, our peers, our competitors - are all in the sort of midtown and downtown complex. So we drew a line on a map and the furthest north that we looked was the One Atlantic Center building. We talked with people in other locations, but we never could get that comfortable being that far away from the people that we deal with on a day-to-day basis.
So we looked at the opportunities for our people to get to work, at parking and at other transportation modes. The great thing about MARTA is it goes downtown. So from our perspective, sitting right on top of a MARTA station was a very attractive benefit. We have 150,000 sq. ft. between our two offices downtown, so we rolled all of that up and said we were going to stay downtown.
Wilbert: We all know that Atlanta doesn't really have a 24-hour downtown, but Neil, you've just recently moved here from Washington, D.C. Do you see that type of urban core developing here?
Neil Golden: In the few years that I've been working here and what I did know from my experience at Julien J. Studley, one of the things that generally defines a city is its urban center. That commitment which the group in here is going to make to that urban center is going to define the city. Surely the Alpharetta suburban experience is something that almost every major city and every B-tier city has - great suburbs. I think the changes in midtown and the opportunity that Atlanta has to define itself as a major city with a 24/7 environment is there. It's just a question of whether or not the financing is there and the individuals are there to implement that. This is an important part of the next phase of the growth of this city.
Wilbert: Steve, how did you become a big booster of downtown?
Steve Rothschild: I got the opportunity to go downtown. I wanted to reiterate what Jack was saying about the traffic. (Georgia) 400 really misses midtown a little bit. I'm seeing a great labor pool that you can draw from all four corners of Atlanta to downtown. Obviously when you go downtown, you've got pretty good economics. Jack mentioned parking - most of the parking ratios downtown are fairly slight, but you do have MARTA and a tremendous amount of public parking. I've represented buildings all over and beyond those buildings and the parking structures they have and whatever ratio they can provide, you're stuck. There is no public parking in Buckhead. There is no public parking around Concourse (a big development on the northern Perimeter). Within a four-block radius of Centennial Tower (downtown), there are 8,500 public parking spaces. That is phenomenal.
Kay Younglove: It really is a lifestyle issue. You work out in the suburbs and you become sort of a hostage to your car and it limits your interaction with other people because you're alone sitting in your car. What I've experienced having worked at Peachtree Center for a number of years and now in midtown, it just is a more socially dynamic place to work where you can interact with other people. It's easy to meet people at events like this for breakfast and the people can incorporate their activities in a way that is much better.
Wilbert: At Post you've been developing intown for a while. Is that where you will concentrate most of your development from here on out?
Byron Carlock: Indeed, in fact three legs of our stool are urban development, adaptive reuse of historic or otherwise under-used structures and then the edge-city developments like Riverside. I think it's simple but the great cities of the world have vibrant cores and people want to be where the action is. History will rewrite this whole post-World War II suburban sprawl experiment largely in North America as a big failure. I think a lot of our suburbs are going to fall into the decay that we saw in many of our urban cores in the '70s because people desire the Back Bay, Pacific Heights, Highland Park Village and Uptown Village type experience as they're seeking they're residential live/work/play environment.
Wilbert: Mark you recently switched companies and now you have a new role at Winter Properties. What have all of the intown projects meant to your business?
Mark Riley: I'm having a blast because this is what I really love. I think it's how people want to live. We're in the cost-effective office business and our tenants are folks who typically attract real creative types, Internet companies, all kinds of marketing companies - they want a good deal on their office space. Their employees live in Virginia Highlands, midtown, they want to be right where the action is. You can't imagine them living in Alpharetta and working in a big box.
We really see this as something that goes deeper than just a type of real estate there is a demand for. It really goes to how people interact and want to live long term. And we have a big challenge to address the in-city schools, too. I think you'll see Buckhead spread east and west. You already have Vinings taking over Smyrna - now they call it "Smynings."
Wilbert: Dan, why are you taking a chance on Underground Atlanta?
Dan O'Leary: We took a look at the market at all of the positive developments that are starting to take place downtown and we feel like this is the crest of the wave. We saw all of this new development. In the last 10 years we've got three brand new sports arenas - Turner Field, the Georgia Dome and the new Philips Arena, which will have a raised walkway all the way to Underground. We certainly felt that the City of Atlanta was there to stay, it's going to survive, it's not going to move. Then we looked at the existing traffic generators - the Coke Museum that is right next door and attracts close to 2 million visitors a year. Within walking distance we've got Georgia State University, Atlanta University, the State Capitol, the Fulton County Courthouse, the City of Atlanta. It's a dense population with virtually no retail to serve them. Underground has been doing a very poor job of that.
The other thing we think will be a huge success for Underground, which is probably its biggest negative, is the Five Points MARTA station. Right now there are a lot of undesirable activities in that area, but we believe that the public transportation system is going to have to play a bigger role in the success of Atlanta because of the traffic.
I live in Alpharetta and the traffic is terrible. It used to be I had to get up at 6:30 a.m. to beat the traffic, but now I have to get up at 6:00 a.m. A lot of my neighbors who are my age are saying they are moving back into town. They can't take it anymore.
Wilbert: Kris, as more people move downtown, what kind of lag time will there be between new people getting there and new retail or in-fill retail?
Kris Cooper: I think it will be an ongoing process. As Dan takes control of the Underground, I think you'll see various sites around that developed into additional retail. Also there's another corridor that has yet to develop in retail and that is the area around the new Hawks and Thrashers (Philips) Arena. Downtown has changed significantly, as has the character of the people. Steve Rothschild mentioned that we have a lot of people moving down here from major Northeastern cities that had hockey and understood it, and I think you'll have residential and retail follow that. I think you'll see out-of-state retailers coming and looking at downtown that were never here before.
Johnson: Such as?
O'Leary: If I told you I'd have to kill you! (laughter)
Wilbert: To change the subject a little bit, to investment sales, Randy, is there any product left in downtown and midtown?
Evans: The biggest sale last year was the Peachtree Center sale to Taylor-Simpson, and that's characteristic of the type of capital that is aligned in downtown and midtown right now. It is more entrepreneurial, it has a higher cost to it, pricing is somewhat different than it is in the suburbs. Capital generally wants stability and predictability and the more institutional the capital the more they want those things. Right now downtown and midtown, because of their evolution, you can't really say there's a long history of predictability and growth.
So it's really an area for entrepreneurs to invest. As the entrepreneurs inside and outside of this room create what they're going to create, they will create stability which will naturally attract institutional capital and the higher prices. The BellSouth announcement and the other great things that are happening serve to tell a great story to the institutional public.
Joe Terrell: Tony, I think there is an element in the market that I refer to as the "Ozzie and Harriet" effect that most of the people in this generation either grew up in a neighborhood or a small town where they either walked or rode their bicycle wherever they went. Their geographic sphere of influence was 3 to 5 miles. There is a strong desire in this generation to get back to that same element as evidenced by Vinings Jubilee and the Riverside by Post. All of these 'new urbanism' projects cater to peoples' emotional desire to get out of their car and relieve the stress we deal with by virtue of living in an automobile. You will see more and more of that, where you can walk to where you can eat, to where your kids can play ball, a mile away, you can have your office in a building that has retail on the ground floor.
Wilbert: Phil, how important is BellSouth's commitment to midtown?
Phil Stevenson: Here you have a corporate citizen that has very positively said what's the right thing to do for our firm and for the city, not for the next year but for the next several decades. It manifests itself in real estate with the idea that an employer is doing what's right for its shareholders, its employees and its community. That's a real story.
What makes this all hum is the 24-hour city. But if this is really going to sustain itself, we've got to get the schools right. That's why people put up with an hour-and-15-minute commute so they can get out to the private schools. We can't lose sight of that. This is really important to companies like BellSouth.
Dawson: As we look back on what we do over the next 10 years, I think it's going to be incumbent upon us to see if we fell into the same traps we did in the suburbs where we were really addressing the needs of the few, or are we really taking this as an opportunity to address some of those issues like schooling, like education, like housing.
Wilbert: Bob, what do you like about the Atlantic Steel site, which will become a city within a city?
Robert Voyles: If you look at traditional development patterns, residential is followed by retail to serve the residential and then the office component comes in behind that. Looking at downtown, we wanted to focus on these 'new urbanism' projects where you do combine these different elements in a development. The issue for us at the Atlantic Steel site, we felt it was very prominent and visible. We know that Post is very creative in terms of residential, and Mills (Corp.) has a track record, they've done all different types of entertainment retail and discount retail. Our firm historically has been involved in the two Galleria projects in Texas in Houston and in Dallas which Hines developed in the early-1970s, and because of that this is where we decided to put our stake in the ground.
Wilbert: Clark, you and Equity Office have a building going up in Buckhead (called Prominence). We were talking earlier about how downtown and midtown are providing some new competition for Buckhead.
Clark Gore: Buckhead has been the beneficiary of staggered deliveries which has been very, very healthy. We've seen the projects come on line, not necessarily right at the same time. Each development that has come on line has had an opportunity to take advantage of its own window of opportunity. So the stability of this development cycle has been much different from the last development cycle in Buckhead. We've seen strong ongoing absorption.
The one wild card that I mentioned to Tony was, here we are with a building that is about six months from delivery. We are one of the few projects with large blocks of contiguous space in the city and what we're finding in the marketplace now is certain tenants having the flexibility to stay where they are for two years or pull the trigger and move right away. So we have seen some unexpected competition for our Buckhead project in the midtown alternatives that are being discussed and proposed. There are probably a couple of deals that we would have already signed up at Prominence had the possibility of midtown alternatives not surfaced and come into play.
We think '99 is probably going to be a record year for absorption. Our activity level is very encouraging, so we think Buckhead's going to have a banner year.
Sam Holmes: Buckhead last year was a beneficiary of midtown and downtown's growth, but not a generation of new buildings to accommodate that growth. A lot of the absorption that Buckhead captured last year was users that would have preferred to stay in midtown, but at that time there were absolutely no options to accommodate that growth. The vast majority of growth has been from pent-up demand. We have not to-date seen a significant amount of users that are looking to come back into town. We're seeing a lot of professional firms that are new to Atlanta that are focusing on the urban markets, but we have not seen a substantial amount of larger users who are presently in the suburbs who are caught up in the sprawl issue that we all hear about every day that are deciding to change focus and move to the urban market.
Clark has got a tremendous opportunity and I think you will see that building (Prominence) lease up substantially this year, which will allow some of the larger players in Buckhead to commence construction. In midtown you've definitely got pent-up demand to accommodate at least one and probably not two larger towers. But I do not believe that we have turned the corner as far as seeing the large corporate user who has embraced the five- to six-story box in the suburban marketplace, taking advantage of five-per-thousand parking deciding to come back in town and be a trailblazer like BellSouth. Will it happen? I certainly hope so, but I don't think you're going to see that in a totality, it will continue to be fewer than far between.
Wilbert: John, The Staubach Co. signed its lease in Monarch Tower, so you obviously chose Buckhead.
John Fetz: Midtown and Buckhead are both great markets, but from our perspective as tenant advocates - not only in our own office decision but in representing our tenants - office space is a lot less about real estate than it is attracting and retaining employees. That's about access to Buckhead; Georgia 400 opening is incredibly good now. Because of the traffic concerns in the suburban markets, access in the intown markets is actually very good, but not so good as Sam has said that we've begun to see the large corporate users move back downtown again.
Wilbert: What does all of this intown activity mean to the suburbs?
Duncan Gibbs: What a lot of people may be missing is that corporate users are taking a look at the entire picture. As Harold mentioned, they're really taking a look at communities and what that means is that it's not necessarily a real estate decision whether it be a suburban or urban location, but it's a human resources issue. It comes down to real estate cost, and it comes back to employee retention and being able to get quality employees and to keep them.