Urban Landscapes

11/4/2008
Real Estate Law & Industry Report - by Kevin Lambert
Website: http://www.bna.com/products/corplaw/real.htm
PDF: RealEstateLawReport.pdf

Hal Barry, a visionary Atlanta developer who is unfazed by the financial panic, is building a project that will lead to a new way of life for his city. In an Oct. 31 interview with BNA, Barry recalled how his evolving view of 21st century Atlanta convinced him to build a new community within the city, rather than follow the well-worn path to the suburbs.

Atlanta Developer Abandons Suburbs to Forge Ahead With Massive Urban Project

Despite the current fear and gloom in commercial real estate, a legendary Atlanta developer is busily creating a neighborhood in Atlanta that could shift the focus of the entire city. Already anchored and partially occupied, Atlanta's Allen Plaza is transforming nine city blocks of former urban blight into a glittering mix of office space, mutli-family housing, luxury hotels, and even pedestrian streets.

Hal Barry, award-winning chief executive officer of Barry Real Estate Companies, is building not just structures, but a new way of life. “It's going to be an urban neighborhood,” said Barry, who believes that major companies should be located in a city's central business district. “There hasn't been as much focus on the walking environment that we need. Our whole deal is to … include places of employment as well as places to live.”

Allen Plaza—named after Atlanta's enlightened 1960s mayor Ivan Allen—began in 2004. The first phase of the project opened up three years ago with Southern Co.'s (Georgia's power company) 15—story, 260,000 square-foot building, which opened in October 2005. The second phase saw a 14-story, 346,000 s.f. building anchored by Ernst & Young LLP in April of 2007, which Barry described as “pretty well leased up.” The W Hotel, which will have 237 rooms and 74 W-branded condos, is planning a soft opening in January 2009 and a full opening in March, according to Barry. Among its amenities will be helicopter transport from the Hartsfield-Jackson Atlanta International Airport.

So far, the developer's cash outlay has been $375 million, with a final cost estimate of about $2 billion. The returns are difficult to project, but Harvey Rudy, Barry's senior director of development, told BNA he expects them to be “high.” “The whole investment return and financing models are all scrambled right now,” Rudy said. “We, along with the rest of the world, have to wait until it all shakes out.”

Streets for People.

The pedestrian neighborhood is a long-term project, but it has been approved and Barry expects construction to begin in 2009. It will contain an office building, another hotel, street level retail shops and places of entertainment. Rudy estimated that his firm could place between 700 and 1,000 condominiums and probably an equal number of rental units there, a mix that would probably vary according to the economy.

Barry compared Allen Plaza to New York City's Columbus Circle. He said he expects people to maintain some of the units as weekend places. Barry, who lives on a farm well outside the city, will have one himself.

The Move From the Suburbs.

Allen Plaza began when Barry, already established as one of the preeminent real estate investors in the Atlanta area, won the commission to build Southern Co.'s new headquarters in January 2004. A lot of his development had taken place in the suburbs up to that point, but he had noticed the trend toward reurbanization and thought he knew why. “I watched this exodus to the suburbs, with all the commuting. We saw energy prices spiking almost every year and we saw a lot of people get tired of that. I realized that the suburban house with the big grass lawn you gotta cut is not the best answer for an awful lot of people. Twenty years ago [the growth area] was in the suburbs; now the needle is pointing the other way.”

At the same time, because Atlanta hosts six major colleges and universities, Barry observed many young people around and noted “these are urban people.” When the chance came to build the Southern Co. building, he began to scout around inside the city limits. He became convinced that the city was the place for Southern's headquarters, and they eventually agreed. “We began to feel the hope that we were right … and I can tell you that we were at the right place at the right time.” Barry added, “Today, urban planned communities make a lot more sense. Your home is close to your place of work.” And since urban sensibilities are trending towards smaller retail spaces, for instance, “We said ‘no way' to a big box shopping center in the middle of this. Our retail and structure will be geared to the person living and working here.”

The person living there, in Barry's view, will be the same type of customer that most real estate firms covet: young, professional “Dinks.” Barry also anticipates the “Empty nester who wants the excitement of being in the city. We're seeing doctors who want their [offices] downtown.”

Atlanta, Hub of America's Southeast.

A surprisingly large international presence is anticipated in Allen Plaza, and that will be good for both the economy and the local ambience. Atlanta is, beyond all argument, the hub of Southeastern United States, and companies from all over the world are bidding to have a presence there. Atlanta, which once billed itself during the 1960s and 1970s as “the city too busy to hate,” is even busier now. It ranks fourth in the country as a host for Fortune 500 companies, including the landmark Coca Cola headquarters.

The state of Georgia, in some ways, seems to be accommodating itself to the new way of life. One way to keep Allen Plaza from turning into an elite island is to improve the city's ability to integrate the development with its neighbors. “The state is looking at some major regional transport improvements,” Barry says. “That will include the subway system. All the money isn't going to go to highways anymore.” The local Nov. 4 ballot also includes a referendum on a tax allocation district (TAD). This could assure that some of the Atlanta's real estate taxes help pay for infrastructure, which would certainly benefit Allen Plaza.

When the plaza will be finished and turned into a true neighborhood remains an unknown, mostly due to the current state of the economy. “It depends on how the capital markets play out,” says Rudy. “My guess is that with 2009 being a slower year we're probably looking at a 10-20 year range.”

No Property Oversupply.

Like all property developers, Barry has been hit by the credit crunch, but as a successful 40-year veteran of real estate ups and downs, he hasn't let it bother him unduly. “I've been through some stuff before, over the last 45 years. We've survived. Things are not as good as they should be; real estate is getting hit. [But] we've got a great platform of business happening now. This is not an oversupply of property, this is a credit meltdown. We are getting ready for the next wave when the money comes back.”

Barry assured that “We're predestined to grow. The question is how.”

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