(This story, in slightly different form, originally appeared in ALM's Fulton County Daily Report.)
ATLANTA-Locally based Alston & Bird LLP has chosen Birmingham, AL-based developer Daniel Corp. to determine the feasibility of a new Midtown office building with the firm as anchor tenant. But in the current credit market, even securing a major law firm as a tenant does not guarantee that a building can get built. The oversupply of office space in Midtown, where the vacancy rate for class A space is 20%, does not help.
"In a normal environment, we would have hit a home run. In today's environment, we just got handed a very, very difficult assignment," says Steve Baile, a senior vice president with Daniel.
Baile acknowledges that Daniel faces an uphill battle in securing financing for the project in the moribund credit market. "To have a tenant of this size and stature, if the credit market can't do this deal, it will give some idea of how challenged the financial markets really are," he says.
Alston's headquarters currently occupy a total of 420,000 square feet on 10 floors at One Atlantic Center and another 10 floors across the street at Atlantic Center Plaza. The firm is in the market for 300,000 to 350,000 square feet for its next lease, says Mark Rusche, an Alston real estate partner overseeing the office space search.
Alston's leases do not expire until fall 2013, but it would take at least 18 months to construct a building, plus time to secure financing for such a project. Last fall, Alston narrowed the field of developer candidates to three: Daniel, which has partnered with Selig Enterprises and MetLife; Shailendra Group; and a partnership between Pope & Land and Duke Realty.
The firm also is considering staying at One Atlantic Center. The building's owner, Hines, has pitched a proposal to consolidate Alston's two spaces at One Atlantic.
Baile says the big issues Alston must consider as it ponders moving to a new Midtown office tower are the probability of getting financing and the affordability of anchoring a new tower, compared to restacking its offices in One Atlantic. He says Alston chose Daniel over the other developers because it offered more options for getting a building done.
"They came to the conclusion that if they picked one developer and site, they would be married to the success of that site. They saw our approach more as we are going to, come hell and high water, figure out the best way to rise above this [market situation]," Baile says.
Two possible locations are a parcel at 17th Street between Spring and West Peachtree Streets that MetLife owns and 1125 Peachtree St. on land belonging to Daniel and Selig. Baile says those locations have "very high probability," but several other Midtown sites are also under consideration.
On the bright side, Baile says the recession means the developer can get a great deal on construction. "From a cost standpoint, other than the cost of capital, everything is significantly lower than what we've been dealing with over the last five to seven years," he says.
Baile says his company will talk to national and international lenders about financing a building for Alston. He says Daniel has projects under way that are being financed by Citibank, Bank of America, Wells Fargo and Hypo International, a German lender. At least two of these lenders, Bank of America and Wells Fargo, are Alston clients.
"Now we have more leverage to line up financing," Baile says. "They've given us a tool to open the doors to talk to these banks."
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Meredith Hobbs
Meredith Hobbs writes about the Atlanta legal community and the business of law. Contact her at [email protected] or 404.419.2837. On Twitter: @MeredithHobbs.
