A Busier Sales And Foreclosure Market Expected For Atlanta In 2024

The new year is likely to bring grease to the wheels of investment sales as lenders get tougher on delinquent borrowers in the commercial real estate sector and beef up staffing to handle a deluge of foreclosures, a panel of industry experts warned during Bisnow’s Atlanta forecast event last week.

The distress and foreclosures are also spreading beyond the embattled office market and into multifamily, panelists said.

Bisnow/Brandon Elsasser

Noble Investment’s Adi Bhoopathy, Slate Asset Management’s Alex Bertles and Woodvale’s Rahim Charania at Bisnow’s Atlanta 2024 CRE Forecast.

The pandemic created an environment where lenders were encouraged and willing to work with borrowers to support property values as the worst of the economic downturn passed, Woodvale Managing Partner Rahim Charania said during the Dec. 5 event at the W Downtown Atlanta.

But that forbearance is rapidly coming to an end as a “perfect storm” of dwindling investor activity, elevated interest rates and a wave of loan maturities approaches, Charania said.

“We need to understand that we’ve been dealing with cracks in the industry since Covid,” said Charania, whose firm raised a $100M fund to buy distressed real estate. “Lenders have just been very good this time around compared to 2008 at being able to say, ‘OK, listen, let’s find a creative way of working things out. Let’s keep this thing going. Let’s not sound off the alarm and then race to the bottom on pricing.

“You can only kick the can down the road for so long. At a certain point, you’ve got to pay the check.”

Alex Bertles, a vice president at CRE investment platform Slate Asset Management, said lenders have held back on foreclosing on bad loans and working with borrowers for the simple reason that they have lacked the manpower to handle the workouts.

“When you look at delinquencies and CMBS, when you look at bank books right now, depending on who your lender is and if your property has the ability to bridge this distress period, banks don’t want it back,” Bertles said. “Banks are giving forbearance because their teams just aren’t built for mass foreclosure. They’re not staffed up to be ready for this. So they’re going to kick the can down on everything that they can, and they’re going to tackle what’s on their plate today. We’re seeing it with special servicers as well.”

Bertles said that over the past 90 days, distress has spread beyond the office market to apartments amid elevated interest rates and slowing — or even shrinking — rent growth. While rents continued to grow nationally, albeit at a reduced rate, apartment rents in once-high-flying Sun Belt markets reversed course, including in Atlanta, which saw rents fall 3.1% in the third quarter, according to CoStar.

“You think about multifamily as 18 months ago, 24 months ago having the tightest cap rates. Those cap rates are 50%, 60% higher than they were, and so it’s only natural that the dam is going to start to crack,” Bertles said. “Atlanta, for example, rents moved backwards last year on the multifamily front. And that doesn’t tend to work out. If you’ve got, you know, 2020, 2021 deals that are highly leveraged with floating-rate debt, that just doubled.”

Panelists said some lenders are willing to fund new deals, including some banks, but at a much higher cost and only for projects that are sure bets.

“You’re not going to non-relationship banks right now. The only people that are lending are people that you performed for in the past,” SJC Ventures principal Jeff Garrison said. “It really is about the relationship with the bank and proving out because you’ve done it before. That takes a little bit of work.”

Bisnow/Brandon Elsasser

HKS Studio’s Shelby Morris, Toro Development Co.’s Kimberly Goetz, Pellerin Real Estate’s Philippe Pellerin and SJC Ventures’ Jeff Garrison.

Lenders also are looking more favorably at retail, which has recovered since the onset of the pandemic and is showing growth in rental rates and tenant demand.

SJC Ventures is underway with three retail-driven mixed-use projects that are all fully pre-leased with various retailers, Garrison said during the event. Panelists said retail is what is now driving new mixed-use developments and it has been a salve for city and county pushback against new apartments.

“The way that you unlock it is you bring grocery or you bring restaurants or you bring this sense of activation that is not about the apartments” Garrison said. “It’s about the retail, the gathering spaces, the energy, the eatertainment, the concepts that build in the spaces.”

Mixed-use developers have had to pivot components of projects to attract lending as different parts of commercial real estate sour. In 2020, SJC pulled the plug on a planned hotel at its Interlock project in West Midtown. The pandemic chilled hotel development for a time, and instead of waiting for that market to return, SJC built more retail and parking, Garrison said.

Pellerin Real Estate switched gears from planned office space above retail to residential at various of its urban infill projects, founding principal Philippe Pellerin said.  

“We’ve seen that with some of our projects in East Atlanta where we had an office component or something else that all of a sudden in today’s world it’s just not as valuable, and the banks don’t look at it as favorably,” Pellerin said. “So you have to pivot. You have to find ways to change your business model.”


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