May 5, 2023

West Midtown’s bustling Interlock tower has a buyer

By Savannah Sicurella at Atlanta Business Chronicle

Real estate investment trust Armada Hoffler Properties Inc. (NYSE: AHH), a key partner of the project since its inception, has entered into an agreement to acquire all existing commercial space at The Interlock, which totals 310,000 square feet. The firm will pay $215 million in an off-market purchase that is expected to close during the second quarter of the year, which totals $639 per square foot.

The Interlock is one of the largest projects in West Midtown, a former industrial area that is quickly transforming into one of the city’s busiest office and retail districts. The building’s offices are 89% leased. Information security company Pindrop Security, commercial furnishings company Kimball International and media agency Encore Media are tenants at The Interlock, among others. A 349-unit apartment building, retail space and 161-key hotel are also part of The Interlock.

Atlanta firm SJC Ventures developed the office building. Armada Hoffler served as a general contractor and provided a mezzanine loan, a mix of debt and equity, in 2018. It was the firm’s largest mezzanine investment.

The transaction will close during a turbulent period for commercial real estate, particularly within the office sector. Higher interest rates, regional banking turmoil and uncertain demand for the future of office leasing have slowed transaction activity. Properties are trading at lower values than what they could’ve in previous quarters — if they’re selling at all.

But top-of-the-line assets in growing markets like the Sun Belt are still attracting investor interest.

SJC Ventures always intended to sell in 2023, as indicated during a third-quarter earnings call with Armada Hoffler in 2021. In June 2022, Atlanta Business Chronicle reported the building was on the market as SJC Ventures looked for a new financial partner. One source estimated the building could sell for $700 per square foot, which is slightly higher than the price Armada Hoffler has committed to pay.

In the final quarter of last year, Armada Hoffler Chief Operating Officer Shawn Tibbetts hinted its interest in The Interlock as part of its goal to “strategically acquire accretive assets in 2023.”

The acquisition doesn’t change much, said Jeff Garrison, a partner with SJC Ventures. The developer has always taken a behind-the-scenes role on The Interlock, and it will continue to do so. Stream Realty will continue leasing and property management for the building.

To fund the acquisition, Armada Hoffler expects to use $100 million of fixed-rate financing, primarily through a $75 million unsecured term loan and the conversion of its existing mezzanine loan into equity, according to a company press release. A lender was not disclosed.

The transaction doesn’t Phase II, which includes student housing, along with additional office and retail space.

Malik Leaphart with Stream handles office leasing for the building. Justin Latone with SJC Ventures handles retail and restaurant inquiries.

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