Sales of Underground, Civic Center face delays
By Doug Sams and Maria Saporta
As published in the Atlanta Business Chronicle on May 20, 2016
Nearly a year after the city of Atlanta announced an agreement to redevelop Underground Atlanta and almost eight months after plans emerged to transform the Atlanta Civic Center, neither deal has closed — and cranes for the intown projects are nowhere in sight.
The delays come as the country enters a period of uncertainty surrounding the presidential election, and the real estate cycle — which has flooded Atlanta with new investment and dotted its central skyline and intown neighborhoods with apartment buildings — may be peaking.
Recently, the outlook for the nearly $300 million Boisfeuillet Jones Atlanta Civic Center redevelopment took an unexpected turn when Atlanta Mayor Kasim Reed told a reporter “the deal is a little shaky. It’s taken longer than I had hoped it would.”
Reed didn’t exactly offer much hope, adding he was “not blown away” with plans for the project, which would turn the aging Civic Center at 1967 Piedmont Ave. and Ralph McGill Boulevard into 250,000 square feet of office space, 22,900 square feet of retail, a grocery store, 250 condos, 386 apartments and townhomes.
After seeing the initial concepts, the mayor said, “It’s not what I want it to be.”
The city has looked at the redevelopment as a potential spark for reinvestment just south of North Avenue. The project, it was hoped, would better connect the area to the historic Old Fourth Ward and Beltline Eastside Trail, where the redevelopment of the former Sears, Roebuck & Co. building into Ponce City Market has turned into a catalyst for further investment and corporate relocations along Ponce de Leon Avenue.
Reed still sees the Civic Center property as a “jewel,” and said the city may not need to sell it right away, suggesting a deal may not be in the offing. He also mentioned the surrounding community is not thrilled with the plans.
Another hurdle may be its proximity to the Peachtree Pine homeless shelter, which the city taken issue with over the way it’s operated. Reed said he is still working on a Peachtree-Pine solution that could relocate the shelter.
For its part, Houston-based developer Weingarten Realty Investors (NYSE: WRI) remains optimistic. It sent a prepared statement to Atlanta Business Chronicle, attributed to Rick Carson, regional vice president, saying, the company has made “significant progress with the Atlanta Civic Center deal” and believes a year-end closing date on the site is “likely.”
That progress includes negotiations with co-developers of the property, including hundreds of apartments. Weingarten has picked the developer but declined to identify it.
“We are very close to consummating deals with selected co-developers,” Carson said, adding the project would also meet the city’s goal of creating a grocery-anchored retail development.
In an interview May 17 with Atlanta Business Chronicle, another top Weingarten executive echoed those comments. “We are still going full speed ahead,” said Bill Coats, the company’s vice president and senior regional director of development. “We have made a lot of progress, and there’s a lot of excitement from our end.”
Even so, the Civic Center and Underground are both complicated projects that face market headwinds. Consider the apartment sector, where developers and their capital partners are shelving projects they planned to start this year as concerns of overbuilding converge with rising development costs.
Nationally, real estate prices are starting to plateau and private equity and bank lenders are signaling debt for acquisitions and construction is more expensive and more difficult to secure.
Coats remained positive about the redevelopment of the Civic Center, which could include up to 600 multifamily units. “I think the site is unique,” he said.
At Underground Atlanta, developers behind the 12-acre project also remained bullish amid the challenges.
The nearly $26 million sale was supposed to happen by January. It’s been delayed, in part, over a property swap.
Mayor Reed, however, expressed confidence that the Underground sale would go through.
Underground developer and property manager WRS Inc. would eventually buy a nearby state-owned downtown parking deck as part of the deal. The city still needs to work out a land swap with the state for the deck, and then flip it to WRS. The city has proposed swapping the Bobby Jones Golf Course for that property, and that swap will be presented to the Atlanta City Council later this month.
“We are 100 percent sure we are going to be closing the purchase of Underground as soon as possible,” said T. Scott Smith, president and CEO of WRS, told Atlanta Business Chronicle May 18. Smith expects the deal to close this year, adding, “It’s frustrating to have this marquee piece of property and not be able to get started.”
The project could approach up to $400 million, with new residential towers, commercial and retail space, as well as the revitalization of the historic area people refer to as Underground. It’s also expected to include a grocery store — reportedly The Kroger Co. — and student housing.
Demand for units would conceivably come from the rapid expansion of downtown’s Georgia State University, though the school has been lukewarm about the development so far. Part of its concerns have centered on the need for more security.
“We are a little disappointed Georgia State has not shown more interest,” Smith said.
The project’s timing will be closely watched. The first phase won’t be delivered before 2019, when the real estate boom would likely be winding down.
“You always worry about recessions coming back and other things happening,” Smith said.
He then added, “There’s not another location like this anywhere in the city.”