Underground sale changes psychology of downtown
With the sale of Underground Atlanta officially complete, south downtown’s collection of early 20th century brick buildings and underused parking lots are poised for the largest wave of private investment and development in decades.
The city of Atlanta closed on the Underground Atlanta transaction March 31, selling the nearly 12-acre property for $34.6 million to South Carolina real estate company WRS Inc.
For almost 40 years since it opened, Underground has been a struggling downtown mall that never reached its potential as a tourist draw for the city.
Now, its sale could become the catalyst that south downtown, including the historic retail core of the city, has sought for years. “The biggest shift I’ve seen is that the psychology has changed,” said Sebastian Drapac, chief operating officer with Drapac Capital Partners, which just sold former H.L. Green Building near Underground Atlanta for $3.5 million.
Drapac Capital paid just $970,000 last year for the building at Peachtree and Martin Luther King Jr. Boulevard.
There are other deals.
Downtown’s historic The Grant Building is selling for $7.25 million. The building’s owner, B.C. Grand LLC, reached an agreement with 57 Dudley LLC on March 31, according to a filing in U.S. Bankruptcy Court in Atlanta.
More sales are potentially in the offing. Invest Atlanta, the city’s economic development arm, is reviewing offers to redevelop 143 Alabama Street, a 95,000-square foot building that once housed the Atlanta Constitution newspaper printing facility.
Downtown property owners are getting calls about their buildings after practically being unable to “give them away” several years ago. For example, longtime downtown retailer Moti Gabay received an offer on his 11,000-square-foot 77 Peachtree Street building for more than double what previous investors had pitched.
Interest is coming from investors in Los Angeles, Miami, New York and from cities overseas, Gabay said.
Drapac isn’t surprised.
“People are not scared of downtown anymore,” Drapac said. “This is a very important step for the city to bring back its glory days.”
How quickly that happens depends on two major players.
The first, WRS would redevelop Underground with retail, which could include a large grocery operator such as Kroger Co. It could sell the air-rights over that retail, or partner with other developers to build a mix of apartments and student housing.
Another player is German real estate company Newport US RE, which bought the H.L. Green Building, one of many key downtown properties Newport has acquired.
It was also the lead capital partner in a deal with WRS Inc. for a series of row-style buildings including 74, 73, 70, 64, 57 and 55 Peachtree Street, along with 98, 96 and 60 Broad Street. Newport acquired those properties for about $10 million.
Newport has been reluctant to talk about its plans for south downtown, for now.
But, its principals include Jake Nawrocki and Katharine Kelley, both former executives with Jamestown, the developer behind Ponce City Market, a former Sears, Roebuck & Co. warehouse. Ponce City Market is one of the South’s most successful adaptive reuse projects. It forms the heart of Atlanta’s urban renaissance in the city’s historic Old Fourth Ward neighborhood and boasts the highest office rents in the city, eclipsing $50 a square foot.
More south downtown adaptive reuse projects are also underway, part of a wider development trend that includes properties around Underground and extends to areas such as Memorial Drive and neighborhoods near the new Mercedes-Benz Stadium.
A few blocks from Underground Atlanta and on the edge of Newport’s buildings, Gallman Development Group LLC has launched a $10 million redevelopment of the former Kiser Shoe Manufacturing plant. Gallman is turning the property at Pryor and Trinity streets into 41 loft apartments and retail space.
Like Newport, it wants its projects to echo the city’s history. For example, Gallman tore off a facade installed in the 1960s that hid the character of the old plant.
“We knew Underground was under contract when we started our project, but we didn’t yet know about Newport’s plans,” said W. Bruce Gallman, co-founder of Gallman Development. “It seems like everything is coming together for the southside, with Underground, the redevelopment of Memorial Drive, and the stadium [the redevelopment of Turner Field]. If this economic cycle lasts for a few more years, the southside is going to see a total transformation.”
That transformation could extend to several landmark properties on the periphery of Underground Atlanta, including The Norfolk Southern Building on Spring Street, 222 Mitchell Street and “Hotel Row,” a block of former hotels that served passengers from the main railroad station in Atlanta, Terminal Station.
“There is no doubt what we are seeing now in south downtown is significant and historic,” said Jennifer Ball, vice president of planning and economic development with Central Atlanta Progress. “These investors and developers are starting to see how well located and how underutilized these properties are.”