At $34 a foot, Insignia can out-lease Vinings

Insignia bought 2727 Paces Ferry, the two 18-story Vinings towers Home Depot once used as its headquarters, for $21.75 million; across roughly 640,000 square feet, the Atlanta Business Chronicle's arithmetic puts the price at $34 a square foot. That basis is what lets it out-lease the district; the seller, according to that report, had fallen behind on its mortgage payments.

More than $10 million of renovation follows for a coffee bar and café, a tenant lounge and library, conference facilities, coworking areas, restaurant space and indoor-outdoor gathering areas, which works out to about $16 a square foot of capital and an all-in basis near $50. Nothing in the described scope points to mechanical or structural work, so the money is going where tenants see it and where tours are won.

At $50 a square foot, Insignia can quote rents that will not carry debt service for an owner who paid replacement cost for the same floor plate, and in a complex with 640,000 square feet to fill, the latitude to price below the field is worth more than the library. The report does not say how much of the complex is leased today, and that is the input that decides whether the amenity budget is enough.

Insignia's Atlanta book runs the play both ways: the Dunwoody City Council approved a plan to redevelop a local office property into more than 100 townhomes on land owned by an Insignia affiliate, and the firm has several other redevelopments underway around the metro—reposition the office where the basis supports office rents, convert it where it does not. Newmark's Craig Kalinowski and Brad Kirchner hold the exclusive office leasing assignment at Paces Ferry.

The refinancing wall, as this publication has argued, is being rolled rather than repriced, with maturities extended instead of marked. Paces Ferry is the version where the roll fails: a borrower fell behind and the collateral went for $34 a square foot, roughly a third of the $111 a foot a 90-percent-leased Norfolk tower brought in August and gave owners there a fresh mark for their collateral. The September argument that operators take the trade fits better; Insignia bought the basis before it priced the lobby.

Leasing velocity decides it. Fill two 18-story towers off a $50 basis and the Paces Ferry renovation becomes the template for every Vinings owner with a loan to refinance; leave the space empty and it becomes the comparable that resets the district's appraisals lower. The first tenant signings will say which.