Atlanta Office Loan Delinquencies Skyrocketing

Atlanta’s office landlords are benefitting from lender optimism, despite skyrocketing delinquency.

Nearly a quarter of securitized office debt in metro Atlanta — over $2 billion — is delinquent, ranking seventh among the nation’s 25 largest metros, the Atlanta Journal Constitution reported, citing data from Trepp.

Delinquencies are 27 percent for commercial mortgage-backed securities loans, which account for a third of the metro’s commercial real estate debt. That’s quadruple the rate from two years ago. The surge follows a post-pandemic shift to remote work, leaving office vacancy rates at a record high of nearly 33 percent, according to CBRE.

Foreclosures are uncommon in Atlanta, despite widespread missed payments. Lenders prefer to “extend and pretend” rather than reclaim properties worth far less than their loan values, said Hagan Dick of Colliers Atlanta.

Notable cases include the 2022 Peachtree Center foreclosure, the city’s largest since the Great Recession, and the Piedmont Center in Buckhead, which narrowly avoided auction last month.

Ardent Companies, which owns the 14-building Piedmont Center, has seen the complex’s value drop from $657 million in 2021 to an estimated $200 million. The property’s price per square foot has fallen 70 percent, from $298 to $91, putting it at risk of foreclosure.

Some buildings have sold at steep discounts, drawing all-cash buyers and investment funds eager to capitalize on the turmoil, like “sharks circling when they smell blood,” said Thomas Taylor, senior research manager at Trepp.

Cousins Properties, Atlanta’s biggest office owner, is seizing on opportunity, buying towers like Midtown’s 526,000-square-foot Proscenium at a 43 percent discount, and investing $1 billion in properties across three cities, funded partly by stock sales.

“There’s not a lot of private debt or equity available for office, and when it is, it’s quite expensive,” said Colin Connolly, CEO at Cousins Properties. He says well-capitalized companies that avoid outside debt or equity have a “window of opportunity” to seize attractive investment deals.

The divide between Class A and Class B office buildings grows sharper, with top-tier properties commanding higher occupancy. Newer office properties built between 2016 and 2021 are filling up fast, averaging 92 percent occupancy, according to JLL.

While leasing activity shows signs of recovery, supply remains tight. Fewer than 500,000 square feet were under construction in the fourth quarter, marking the lowest point since 2011.

Abby Corbett of Cushman & Wakefield calls the distress a “slow burn,” predicting a reckoning for landlords who can’t wait out high interest rates.

— Andrew Terrell