By Douglas Sams
Commercial Real Estate Editor
Source: Atlanta Business Chronicle
A Miami real estate company recently bought the 324 unsold condos in Midtown’s The Atlantic tower for $89.3 million, and has begun converting the units to apartments.
It’s another signal investors have confidence in the intown Atlanta apartment market. It also underscores they see remaining volatility for condos.
Crescent Heights completed the transaction March 15, paying about $275,000 a unit.
The Atlantic units were to be offered for sale, from $300,000 to $1.5 million, as late as 2007.
Crescent Heights had reached an agreement in January with The Atlantic’s owner, ST Residential, an affiliate of Starwood Capital.
Crescent does not plan to buy out owners of the 77 purchased condo units in the Atlantic, where sales ranged from $173,000 to $733,033 per unit in 2011.
The Atlantic was developed at the height of the intown condo boom by Novare Group Holdings LLC and financed by the failed Corus Bank. The 46-story Atlantic looms over the mixed-use development Atlantic Station at 17th Street and Downtown Connector, and the tower became a high-profile symbol of the condo market’s collapse.
Crescent Heights’ decision to lease the units reflects how momentum since then has shifted to apartments, especially in Midtown — the only part of metro Atlanta with two new apartment towers under construction.
Midtown is seeing an influx of firms to the office towers near the heart of Midtown, between 10th and 17th streets, including accounting giant PricewaterhouseCoopers, whose young professionals are expected to want to live close to work. CBRE Global Investors and managing partner North American Properties are also repositioning Atlantic Station, whose amenities helped pique Crescent Heights’ interest in The Atlantic.
“Midtown is a place people want to live,” said Roman Speron, operations manager at Crescent Heights.
“It would be similar to the Gold Coast,” he said, referring to the upscale neighborhood in Chicago, where Crescent Heights also has condo towers.
The company has started leasing The Atlantic units.
It’s setting rent at an average of $1.61 a square foot, for now. Rent for one-bedroom units will start at $1,650 a month and climb to at least $5,400 a month for one of the tower’s seven penthouses, Speron said.
Crescent Height expects it could lease the majority of the tower within as little as a year. It has signed 12 rental agreements so far.
“This is going to be an aggressive lease-up,” Speron said.
The acquisition also underscores broader trends in the residential market, where multifamily developers say they believe owning a home is no longer the American Dream that it once was.
Atlanta’s residential values have yet to stabilize, according to a March 27 report by S&P/Case-Shiller that showed prices have plunged 14.8 percent from January 2011 to January 2012, the steepest drop of the 20 cities in the study and a new low for metro Atlanta.
Lending requirements have tightened since the height of the housing boom, making it more difficult to obtain a home mortgage.
Intown Atlanta apartment fundamentals, however, appear solid.
For example, Mesirow Financial of Chicago recently bought Atlanta’s Post Biltmore apartments for $51 million, a signal Midtown’s climbing rents are attracting investors.
The acquisition coincided with Midtown apartment rents increasing by 12 percent and occupancy hovering around 96 percent in 2011, according to data cited by the commercial real estate brokerage Jones Lang LaSalle Inc.
“We think the strategy of bulk condo purchases for infill locations like Atlantic Station is a sound one,” David Gutting, a managing director with Jones Lang LaSalle, said in an email.
Jones Lang LaSalle, which expanded its multifamily team in Atlanta last year with Gutting and fellow market veteran Derrick Bloom, helped broker the Post Biltmore transaction.
Some of the highest rental rates in the city are being achieved in apartment units that were first built as condos, including “The Mezzo” and “05 Buckhead,” Gutting said.
The Crescent Heights plan for The Atlantic may not be permanent. Some foresee developers converting rentals back to condos in coming years.
“Our guess is the buyer’s overarching rental strategy is a temporary one until the condo resale market solidifies,” Gutting said.