Upper Westside Investment Thesis
In late 2014, Wyatt Capital (“WC”) was seeking a direction for new capital investment into commercial real estate assets after having successfully invested in various distressed asset acquisition opportunities across several different asset classes from 2008-2014. With the distressed asset cycle having largely played out, it was time for WC to pivot to a new investment strategy. The question was, “Where to invest and why?”
One area of interest that WC quickly became attracted to was the adaptive reuse redevelopment of strategically located urban warehouse assets that were approaching their functional obsolescence due to their age and nature. WC recognized a lack of available supply for this asset class in urban Atlanta, the apparent growing demand for this asset class by various different user types (including institutional office users), and an urban geography between Buckhead and Midtown that was sitting relatively dormant and was primed for the offering of this emerging product type. Being located directly adjacent to the West Midtown submarket where massive institutional redevelopment of all property types was already underway was an additionally appealing aspect to the investment thesis. WC conceived that institutional capital would be attracted to this emerging asset class if strong tenant credit could be recruited to a rent roll and if a project could offer enough size and scale to “move the needle” for larger capital sources.
Beginning in early 2015, WC joined with Sweetwater Holdings in a joint venture to acquire and redevelop over 600,000 square feet of office/warehouse space and establish the Upper Westside geography as a defined submarket of urban Atlanta.
The first project was the acquisition and speculative redevelopment of 100,000 square feet of warehouse space in two buildings at 2300/2282 Defoor Hills Road into cutting edge loft office space. With the development assistance of New City Properties, it took 20+ months of planning and construction to deliver the base building to the market and the project promptly leased to 3 credit tenants on a long term basis immediately thereafter. The largest tenant was an international public company that took 90% of the project and provided the credit that institutional investors would value. This leasing success allowed for the property to be sold for a then record sales price in Atlanta for the loft office asset class ($381/sf) to Nuveen (formerly TIAA-CREF) in mid 2018.
While underway with this initial redevelopment project on Defoor Hills, WC recognized the greater opportunity this geography offered along with a desire to curate a new submarket identity and establish the “Upper Westside” brand for this geography as part of the greater investment thesis to create a positive dynamic and attract quality tenants to the submarket. WC was able to quickly and successfully procure 11 additional buildings of varying sizes ranging from 20,000 up to 120,000 square feet in the submarket and proceeded to rebrand and redevelop these buildings in varying degrees (including multiple public art/mural projects) resulting in successfully attracting new office tenants, industrial tenants, retail/showroom tenants, and film production tenants – in addition to attracting multiple users looking to buy and own their own facilities in this geography.
WC then recognized asset valuations were at very high levels along with an abundance of capital seeking “alternative” real estate assets and proceeded to selectively exit the portfolio in 9 separate transactions between 2018 and 2021 – with the sale of the Defoor Hills loft office project leading the way and marking the market for elevated asset values in the Upper Westside.
In aggregate, WC sold the Upper Westside portfolio for a total consideration of approximately $124 MM – which earned an average project level annual return of approximately 65.7% and a 2.25X average equity multiple with an average holding period of slightly less than 31 months.