How realistic is the new developer's hopes of an "Evolution?"
Atlantic station reminds me of the Atlanta Falcons performance in the playoffs this year: the hype before opening up on the big stage was set only for it to fall flat on its face.
As both a condominium owner, member of the Homeowners Association (HOA) executive board, and real estate professional, the whole "evolution," or lack there of, has been painful to watch.
I dare not say “Underground Atlanta”, but the comparisons are clearly there. The concept of Atlantic Station was and still is the perfect idea for an urban sprawled city such as Atlanta and has the potential to offer a festive and unique atmosphere for families, residents, and tourists to enjoy.
The ATLofts, Atlantic Station's 330 plus unit development that initially sold out to young professionals, represented the development's initial vision. Keep in mind, this represented more than 600 full time residents. Plagued by delays caused by poor construction, the completion of ATLofts were postponed by nearly a year, and when they were finally complete, the initial buyers who had planned to live in there, had purchased elsewhere, or no longer had the interest to live at Atlantic Station. The vision that excited them to the concept of Atlantic Station was clearly failing to translate.
When the units were ready for closings, Atlantic station already had a bad reputation of crime and cruising.
The hype had disappeared and failed. What was supposed to be a vibrant live, work, play setting, was now a retail area with dark lights of empty homes, nesting above the retail. Retailers did not have the support of true local residents. The “daily shopper” changed from a full time, live in resident, to a destination point for outsiders.
The layout is an issue as well.
Target and IKEA, the two largest traffic drivers of Atlantic Station are technically not part of Atlantic Station. When patrons frequent these stores, they are not steered to indulge themselves in the additional amenities offered by Atlantic Station.
While the movie theater is in an ideal location, the patrons it attracts are not ideal: young teenage kids, dropped off at Atlantic Station for hours who do not have the funds to shop at the different retailers.
Next time you are at Atlantic Station, take notice of how many people are actually carrying shopping bags, not labeled Publix.
The "evolution" is possible but it will take time.
Right now is a critical juncture: either it rebounds and reclaims what could have been or as tenants continue to default on rent, stores continue to close, and leases begin to expire (five year leases are approaching expiration, tenants will have to chose to renew or not), it will continue its downward spiral.
Atlantic Station will have to win back the trust and business of both retailers and patrons, those who originally believed in the project.
The most important supporting factor that could jump start said "evolution" is that the new owners purchased the asset at a distressed purchase price. As a result, they can deviate from the original financial projections required by the initial developer and still reach attractive returns on their investment. Having a significantly reduced entry price allows the new owners to lower the rental rates on vacant retail suites and still hit the rate of returns they need to satisfy their targeted rate of return on costs.
Current Atlantic Station retailers can restructure their leases ensuring their overhead costs are lowered and can remain in business. The initial rental rates paired with the absurdly high triple net lease (Net-Net-Net or NNN) pass through charges are damaging to attract the “right” tenants. But the new owners have the ability to adjust these charges to remain competitive and attractive to these tenants.
Where the original developer may have needed to rent space at $30 per square foot to cover their initial basis, the new owner can cover their basis, but at say, $20 per square foot and hit the same returns.
Atlantic station shopping needs to distinguish themselves from the “norm."
This means a unique shopping experience with more boutique clothing stores, furniture stores, or specialty shops. Patrons will want to go if a need is created. Commercial stores such as Old Navy, Gap, J Crew, etc., offer a nice mix to the boutique stores and are the less risky play for a landlord but it also leaves patrons deciding between going to the generic retailer at Atlantic station versus the generic retailer at any mall in Georgia.
One-off retailers or retailers that are corporate, yet still boutique in their number of locations, is what the development needs. The perfect destination tenant would be Apple. Urban Outfitters or Anthropology would provide a nice edgy attraction, something like LuLu Lemon would create some buzz and Nordstrom or Saks would also be ideal to replace the low budget Dillards. IMAX is a great addition and it works because it's needed; there is no competition in the city.
Past events such as Cirque De Sole, Taste of Atlanta, The Christmas Tree Lighting and associated fake snow at Santa’s Village, Weekend Art Fairs, Train Rides, Fashion Trunk Shows, Bodies exhibit, Dialogue in the Dark, even the constant music playing in the streets, are all steps in the right direction. These events make Atlantic Station unique from anywhere in the city.
Make me want to go there for an experience that I cannot have elsewhere. Make me want to have brunch there and spend the rest of the day enjoying the various shopping and eating venues. Virginia Highlands has succeeded at this and Decatur has as well. Atlantic Station, as currently constructed, is simply put, an outside generic mall.
The dining scene needs to change.
The difficult task the new owners face is in a poor economy, who will want to invest in opening a new concept? While restaurants like Fox Sports Grill, California Pizza Kitchen (Corporate), and Strip have done well, the overpriced “celebrity” concepts of Dolce, Geisha House, and Ten Pin have truly struggled to even pay rent. What will happen if they go under? That's more than 20,000 square feet of restaurant space available, making an entire wing of Atlantic Station empty that will mirror the vacant and dark windows of the lofts.
Atlantic Station needs to incentivize local restaurateurs to open up, creating a forum for Atlanta dining: Highland Bakery (unfortunately went to 14th), a Metro Entertainment Concept (ie: Einsteins, Garrisons, etc), Flying Biscuit, Goldbergs, or a Fifth Group Concept.
Atlanta born restaurants, combined with Atlanta boutique shopping, will help create an "evolution" that is Atlantic Station; something Atlanta can call its own and represents the very best our city has to offer.