It’s interesting to see the office tower at 2 Peachtree at Five Points in downtown Atlanta back in the headlines.
The 1 million-square-foot former bank building that dwarfs all other surrounding structures is owned by the Georgia Building Authority, which is expected this week to authorize its sale. While demand for office towers is peaking right now, the building may be a hard sell because any investor who wants to purchase the rental income likely will lose its lead and only sizable tenant when the state of Georgia leaves.
Still, it will be interesting to see how the offering memorandum for this forgotten office tower is received. The AJC story posted a story by James Salzer and Scott Trubey today is a good read, and it borrows from the AJC story I wrote about 2 Peachtree in 2002. Here’s that 13-year-old story:
The Real Deal: ‘Bargain’ skyscraper to cost state $112 million
BYLINE: TONY WILBERT; Staff
DATE: March 11, 2002
PUBLICATION: Atlanta Journal-Constitution, The (GA)
EDITION: Home; The Atlanta Journal Constitution
SECTION: Business Horizon
When it opened in 1967, the former First Atlanta Tower at Five Points was heralded as the South’s tallest office tower.The 41-story building was home to the bank, top-notch law firms and other professional services companies.Today, it’s a nondescript 1 million-square-foot government building that people walk and drive past without taking notice. But Georgia taxpayers should take note of the dark downtown building now known as 2 Peachtree.
They’re funding the renovation of the building that has dragged on twice as long as expected and will cost more than twice original estimates. All told, the state and its taxpayers will spend $112 million to renovate the building, which the Woodruff Foundation bought and donated to the state. Renovation work that began nine years ago still is not complete and no one really knows when it will be.
“I suspect we didn’t get no bargain,” said Tommy Irvin, the state agriculture commissioner, who also serves as a member of the Georgia Building Authority board.
The authority manages 2 Peachtree as well as more than 50 other state-owned buildings in downtown and surrounding areas including the State Capitol and Governor’s Mansion. Last week, more than a year after he made that statement, Irvin said the state did the right thing by accepting and renovating the tower. “It’s a beautiful building,” he said.Building Authority executives say they can’t explain the delays because they weren’t around when the project was started.The state initially was interested in the First Atlanta Tower in 1987. It was facing an office-space crunch around the Capitol and thought it would be cheaper and quicker to buy the building than to construct and furnish the two new properties it was considering.The state calculated wrong.It typically takes 18 months to build a new Class A office tower from scratch. The renovation of 2 Peachtree is about to enter its second decade.And even with the millions poured into it, it likely would be considered a Class B building.After a couple of false starts, including the failure of the General Assembly to fund the acquisition in 1988, the state finally got the building in 1992 thanks to a $13.2 million grant from the Woodruff Foundation. By that time, Atlanta’s commercial real estate industry had crashed, pushing down the sales price by about 85 percent.It was estimated then that a complete rehabilitation of the building would cost $50 million.
The current projection of $112 million is 124 percent higher, even higher when inflation is factored in.”Gosh,” said State Properties Commissioner Ray Crawford, who helped negotiate the deal that resulted in the state’s ownership. “I don’t think we were looking at that [much] when we bought the building. We were looking at less than that.”Luther C. Lewis Jr., who served as the Building Authority’s executive director when the state got 2 Peachtree, pointed out that the costs includes furniture, a telephone system and computers. When asked whether, in hindsight, he thought the renovation cost too much, he said, “You tell me.”Lewis did acknowledge that the renovation has “gone about five years longer than we originally planned.”The work began in April 1993 with the renovation of the cooling plant and waterproofing of the exterior. In October 1994, architect Smallwood, Reynolds was hired to redesign four floors. Shortly after, Winter Construction was hired to rebuild the space.The state started moving employees into 2 Peachtree in April 1993, about the same time renovations started. The renovations have been done on a rolling basis to allow employees to remain on certain floors while work continued on others. A majority of the 3,000 workers in the building are state employees. The largest tenant is the Department of Human Resources, which occupies floors three and seven through 33. Other tenants include the Department of Community Health and the state Medical Board.Building Authority Executive Director Helen Scholes and Chief Engineer Gena Abraham joined the authority in September 1999, several years after work began. Scholes and an auditor spent six months reviewing the project.Her conclusion: “This is a good news story, so the paper probably won’t want to write about it.”Coordinating the renovation and the musical chairs it required have made it a “complicated” process, Abraham said during a recent tour of the building.When she shows the difference between the renovated sixth floor and the fifth floor, where plastic bags cover holes in the ceiling, Abraham clearly is proud of what the state has accomplished at 2 Peachtree.
The new digs please F.D. Toth, executive secretary of the Georgia Professional Standards Commission. He moved in February from another state buildings. “I don’t know if I’ve got the words for it,” he said of his bright, corner office on the sixth floor.But those words come at a heavy price. One hundred and twelve million dollars.The state has completed its renovation of most of the building but still has to upgrade the lower five floors. The lobby is under construction. Asbestos will be removed from its high ceilings and a fitness center will open this fall.The renovation has cost taxpayers an average of $2.2 million per floor, with about $1 million being used for construction, $800,000 for furniture and $400,000 for asbestos abatement.Four blocks west at 101 Marietta St., LNR Property Corp. and Insignia Commercial Investments Group spent $28 million, or about $756,000 a floor, to gut and renovate a former government building in the late 1990s. Their costs did not include furniture.When furniture expenses are subtracted from renovation expenses at 2 Peachtree, the state still is spending nearly twice what the private developers paid to rehab 101 Marietta, which was renamed Centennial Tower. Its polished granite-and-glass exterior and lit chevron at top stand out on Atlanta’s skyline.The delays certainly played a role in the inflated costs to renovate the building.About three years after the renovation began, Atlanta’s real estate market rebounded. The late 1990s were a boom time for the industry, and developers scrambled to put up new buildings and renovate old ones.Demand increased for building materials and prices followed.Exactly when the renovation will be complete is up in the air. Renovation of the fourth and fifth floors cannot start until the Department of Juvenile Justice moves out. That won’t happen for at least 18 months.Until the department vacates and the Building Authority starts working on the last two floors, it says it cannot give a specific completion date. “It’s been a heck of a gift,” Abraham said.