One of the outgrowths of the commercial real estate slowdown is the preponderance of stalled projects. One that I drive by on occasion is the Streets of Buckhead in Atlanta.
Bank of America is on the hook for a $160 million dollar loan on the project that is dead in the water. The bank will have to decide whether to take a complete loss on the project as the development is tapped out, or double down and lend enough to finish it.
A tough choice in a tough market. But there are other projects around the country such as “Filene’s Basement site in downtown Boston; CityNorth, the mixed-use project that Related Cos. and Thomas Klutznick Co. were building in Phoenix; and the Xanadu retail project in the New Jersey Meadowlands.”
All of these mega projects are stuck since demand is not there and financing to complete the projects can not be found.
Lots of small businesses were bought out in some of the most fashionable real estate in the toney Buckhead hamlet outside of Atlanta. The land now is just a desolate landscape, hurting both the local businesses that stayed and the tax base for the city.
The Streets of Buckhead, was started in 2007 with a $160 million loan from Bank of America. Veteran developer and native Atlantan Ben Carter originally envisioned some 500,000 square feet of stylish restaurants and stores, a 225-room hotel and 350 condominiums. Marketing materials tout “a southern address for European style.”
Today, Streets of Buckhead is one of many high-profile developments in the country halted by the economic downturn and financing drought. Real-estate developments are among the biggest headaches for banks because they are huge capital drains and, in most instances, demand for space and rents in their markets are falling below projections. As of the fourth quarter, about 20% of $440 billion of construction loans outstanding were more than 30 days past due, according to Foresight Analytics, compared to 11.4 % a year ago. via WSJ.com
Personally this does hit home. The first place I worked at in Atlanta was scraped down for this project. I do not mind it when the project is completed, that is progress. It is the destruction and then failure of the project that disturbs me, because that is hubris.
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{ 5 comments… read them below or add one }
Market failure is created by greed as most are aware and stimulated with the lack of thought process, deliverability and mitigating risk. This process is not hard, but for politicians, financiers it seems to go way above their head or it is just pushed to one side while their own pockets are lined. There is a simple solution to this and it can be delivered. The issues are not dissimilar to any other economic financial failure, the risk should be addressed at the beginning.
There is a solution and I am sure that with government intervention financiers and banks listening I can deliver a cost effective model that will not only revitalise developments within the economy but ensure that all parties concerned will be financially buoyant and the government would have an active and rewarding role.
We have over the past few months communicated with governors and senators and we have had some interest and replies which we appreciate, but then on the other hand there have been many that have shown any interest. This is not unusual as you know in any sector.
We have just received correspondence from the US Department of Housing and Urban Development (Secretary Donovan) and we feel privileged to hopefully move forward and play an active role in contributing to the economic development within the USA.
Difficult times but with co-operation we can make it happen!
I am not an American but we have a vested interest as we would like our future to be in the USA.
Roger Blakemore
a) Buckhead is not "outside of Atlanta". In fact, the community is the biggest tax revenue stream for the city.
b) From the start, this project was ill-concieved and based heavily on condo sales. Anyone could see that the market was already close to flooded, yet more permits were being handed out to anyone with access to a crane. Now you can drive by empty building after empty building and scratch your head. Developers were so blinded by greed that they could not see the giant warning signs ahead that even the layman could recognize!
While Buckhead is flooded with empty condo's at the moment, this project is located in a great area and should be one of the premier upscale shopping districts in Atlanta when completed. The developers may be e to redraw the plans and convert some of the residential units to office space.
JD
The potential for this to be a great spot to develop so many sides of Buckhead (nee Atlanta north) is still there. The design, the pure visual treat and the buying power of Buckhead and Atlanta-surrounds residents all say, let's keep this one moving. Empty lots and cranes up for a year cost money that are now all sunk costs. The investors will find that their investment will pay off in the confidence and buying power of the area just now starting to come back to life. Too soon to give up! Tough year, but so what? Over the next few years, the Buckhead adventure will be on track again. We need to see this one finished in order to spur so much more in this area–Atlanta is a growing, not stagnating city in any sense except the last 21 months (a moment in time, ya'all), and Buckhead is, in spite of rumors to the contrary, well within the city limits, and the crown jewel of the city. There is too much here to let these pits of open construction sit idle much more–don't abandon them–fill them and create a park/Paris/shopping Mecca. Bank of America–stick with it. You will get your money back. Ben Carter, keep the faith–you will get your money back as well.
Ditto the post above. Unlike most bloggers that just say how great this project is going to be, I am honest. I need this to work because I've got $175K in the form of a 900 sq.ft. condo sitting on this development. Come on BofA and other investors bail me out. Oh yeah, and read the post above about how you'll make you're money back. I love you Ben Carter, not because I want to, but be cause it will cost me too much not to.