Foreclosure threatens TerraCap office building in suburban Atlanta

Office distress sets in in Atlanta’s northern suburbs.

Chicago-based lender NXT Capital has decided to foreclose on the five-story, 159,000-square-foot building at 200 Ashford Center North in Dunwoody, Bisnow reported. The property will be auctioned on June 4.

The owner, a subsidiary of Florida-based TerraCap Management, has defaulted on its $20.3 million loan on the property. TerraCap purchased the building for $24.6 million, or about $154 per square foot, in 2019 when it was 85% leased. Its current occupancy rate is unclear.

The financial issues surrounding the property reflect broader challenges facing the office market, which has been hit by remote working trends since the pandemic. Metro Atlanta’s office vacancy rate reached 24.6 percent in the first quarter, up 2 percent year over year, according to Savills. Even among Class A properties, which performed relatively well post-pandemic, about 35% of spaces were vacant.

The poor performance of office assets has been exacerbated by rising interest rates since last year, leading to an increase in foreclosures and other signs of distress. At the downtown building at 41 Marietta Street, for example, Dallas-based Wolfe Investments and Bluelofts are facing foreclosure after defaulting on a $20 million loan.

TerraCap was attracted to the Dunwoody building in part because of its amenities, including a renovated fitness center and a high-end conference center. NXT issued the loan when it acquired TerraCap.

The loan was transferred in April to an entity called Phenicia Real Estate Holdings VII in an effort to pursue foreclosure, the outlet reported.

The Dunwoody building isn’t TerraCap’s only troubled property in Atlanta. The company recently sold two other office buildings, Deerfield Point and Windward Pointe 200 in Alpharetta, to lender Synovus Bank after defaulting on debt payments. TerraCap acquired these buildings in 2017 for more than $47 million, but the deed in lieu of foreclosure valued the combined 340,000 square feet of office space at $23.7 million, or just under 70 dollars per square foot.

The office vacancy rate in the Central Perimeter submarket, which includes Dunwoody, stood at 24.5 percent in the first quarter, according to Colliers. A notable transaction in the first quarter was Innova Solutions’ purchase of the 187,000-square-foot building at 1455 Lincoln Parkway in Dunwoody from Florida-based Parmenter Realty Partners. Innova plans to occupy the top two floors of the eight-story building.

—Quinn Donoghue