IN-DEPTH LOOK: Highwoods Properties adds One Alliance Center in Atlanta to portfolio

Raleigh, N.C.–based real estate investment trust Highwoods Properties has acquired One Alliance Center in Atlanta for $140 million, according to a statement. The deal closed June 24. Here is a closer look at the transaction.

THE DEAL

Highwoods Properties purchased the office building from mortgage servicer ORIX Capital Markets (OCM), a Dallas-based firm. One Alliance Center was purchased for $140.1 million, roughly $253 per square foot. Highwoods Properties has planned an additional $3.3 million in improvements to the property, bringing its total investment to $143.4 million. OCM obtained ownership of the property from Tishman Speyer via foreclosure in March 2013. Highwoods Properties did not assume any debt in the purchase. CBRE represented the seller in the deal.

OCM put the property on the market in April 2013 as part of a $1.3 billion portfolio of distressed assets and foreclosed properties, according to the Atlanta Business Chronicle. The Chronicle reports that, in March, Tishman Speyer negotiated the transfer of ownership of One Alliance Center to ORIX. Tishman Speyer had acquired the property in 2006 as part of a 3.5 million-square-foot portfolio acquisition.

THE ASSET

One Alliance Center was built in 2001 and is located at 3500 Lenox Road NE in the Buckhead submarket of Atlanta. The class A 20-story office building is situated on 3.38 acres and includes 553,370 square feet of rentable area. It also has 1,573 parking spaces. The building is currently 67 percent occupied. Highwood Properties anticipates that, with renovations, One Alliance Center will exceed 93 percent leasing occupancy in the next three years.

According to the Atlanta Business Chronicle, One Alliance Center was the first of three planned office towers in the Alliance Center. Last year, Highwoods bought the adjacent 29-story Two Alliance Center from Tishman Speyer for $152.3 million back in September 2012.

THE MARKET

The Atlanta office market has been in recovery mode for some time, but with large companies planning on expanding into the area, vacant office properties will start to become occupied, according to a first quarter report from Marcus & Millichap. The report notes that investors have been targeting redevelopment opportunities in the office submarkets of Buckhead and Midtown, an observation consistent with Highwood Properties’ recent acquisition. Construction remains low, with developers planning on completing 900,000 square feet of office space in 2013, a decline from new supply built in 2012. 

Highwood Properties has been expanding its presence in the office submarkets in Atlanta. Including the recent purchase of One Alliance Center, the company owns 1.04 million square feet of class A office space in the Buckhead submarket, according to a statement from the REIT.

In first quarter 2013, $645.9 million was transacted in the Atlanta office market, according to data tracked by Real Capital Analytics. The major players in the market are New York City–based real estate giant The Blackstone Group and The Atlanta Property Group (Rodbell family). In the past 24 months, Blackstone has acquired 22 office properties in the market, and Atlanta Property Group has acquired six. Earlier this year, CBRE Global Investors acquired the 804,876-square-foot Ravina Center from Colonial Properties Trust for $144.3 million, and Cole Real Estate Investments teamed with MacFarlan Capital Partners to purchase the 794,110-square-foot Midtown I and II properties from KanAm Grund for $205 million.

THE PLAYERS

Highwoods Properties, the buyer in this transaction, was first established in 1978 and went public in June 1994. Its services include leasing, management, development and construction. Highwoods owned, or had an interest in, 334 office, industrial and retail properties as of March 31 totaling approximately 35 million square feet. Its holdings are located in Florida, Georgia, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

ORIX Capital Markets, based in Dallas, is the real estate arm of ORIX Corp. OCM provides commercial real estate financing and investment services, and has more than $1 billion in assets. The firm operates debt and structured finance services, real estate investment, real estate asset management, and credit underwriting. The firm has a portfolio of foreclosed assets located throughout the United States.