Nearly a decade ago, two commercial real estate brokers had an idea: build a gleaming new office tower in Midtown Atlanta.
The two brokers weren't just novices with big dreams, but dreamers with the experience, wherewithal and connections to turn the vision into reality. So Mike Shelly and John Whitaker, who worked for Trammell Crow Co. in Atlanta, set up meetingswith AT&T to negotiate a parcel of land the telecommunications giant owned at the corner of Peachtree and 14th streets in 1999.
Using their influence and connections, the duo secured enough preleasing with
some prominent companies - including the law firmLord Bissell & Brook and advertising firm
WestWayne Inc. - to justify the development of what became known as the Proscenium, a 24-
story, 500,000-square-foot tower that was completed in 2001.
Years later, insurance giant AIG, which owns the Atlantic Station development in
Midtown, hired Whitaker to make sure more parts of the project become a reality, while Atlanta
commercial
real estate firm Carter tabbed
Shelley to lease the office portion of Atlantic Station following the firm's move into its
corporate offices to the first building at 171 17th Street. Their work not only spawned one, but
two new Midtown office towers. The latest is a 450,000-square-foot building that will be home to
BB&T and the law firms Womble Carlyle, Sandridge & Rice and Ford &
Harrison.
"One of the reasons I was appealing to AIG is that I was involved with the development of the Proscenium project," says Whitaker, managing director of AIG Global Real Estate. "I just came out of that experience in Midtown, so that correlated well with what Atlantic Station was doing."
In their quest for new office tenants, AIG and Carter also banked on leveraging Whitaker and Shelley's business connections. In the world of commercial real estate, using the right leasing team can give one development an edge over the next.
And today, with more than 2 million square feet of new office space being built, industry insiders say that connections and influence are the difference between vacancy and no vacancy. It's one of the major reasons why a few developers - which traditionally use in-house easing teams - have hired high-powered third-party brokerage firms.
A new phenomenon Bill Johnson, president of the Atlanta Commercial Board of Realtors, says third-party leasing teams are a new phenomenon. "At one time, if they were in development, or a major investment institution, they'd hire their own team," he says.
There are no sound statistics to show just how many developers and institutional building owners are hiring third-party brokerage firms to lease a project. To note, there are some international names behind some of Atlanta's biggest projects.
Along with Atlantic Station, Regent Partners has one of its future tenants at 3344 Peachtree, Jones Lang LaSalle, helping lease that tower as well. And Cousins Properties, while using inhouse leasing talent, tapped the CB Richard Ellis Group - one of the world's largest real estate companies - to establish a leasing plan prior to launching its Terminus development.
"Leasing is the value enhancer to any development," says Jim Ledbetter, president of Transwestern Commercial Services in Atlanta. "It's an evolution in the business. It's a recognition that everybody wants the best talent in the business."
Using brokers - particularly veteran players - isn't a less expensive alternative for a developer. The brokers usually command higher fees, which increases a developer's overall cost.
But in today's environment - with more than 5 million square feet in new office product under construction - the potential benefits outweigh the additional costs, especially given the competition and the expectations of the investors behind developments.
"The reason so many owners are now considering third party leasing is the level of competition has reached new heights in Atlanta," says Ken Ashley, director of Cushman & Wakefield of Georgia Inc. "The expectations of the capital markets for rapid leasing at heretofore some of the highest rates Atlanta has seen can be daunting to any asset manager."
Mounting pressure There's a lot of pressure on developers to quickly achieve a certain amount of pre-leasing on new projects.
Those first leases can act as the financing for the multimillion-dollar development. And using third party leasing teams - especially from brokerages with a national platform - allows a developer to access a larger pool of contacts, Johnson says.
"Having a leasing agent who has experience in placing tenants strategically in a building; it's of utmost importance," says John O'Keefe, director of leasing with Highwoods Properties Inc., one of the largest landlords of office buildings in Atlanta.
"Obviously location and amenities are very important, but having a leasing staff and management that have an ability to be creative in chasing large requirements is probably the key to success in a development."
The leasing assignments with some new developments farmed out to third parties
were awarded in part because the brokerage firm committed to moving its offices to the building
itself, says John Heagy, vice president of marketing with Hines Interests L.P., which recently
finished 1180 Peachtree, the Midtown office tower that's home to venerable Atlanta law firm King
& Spalding. Says Heagy, "You've also seen some projects that have been able to [offer the
incentive to] some brokerage companies to make a lease commitment there by providing them some
business, meaning, ‘Move your offices here and we'll give you the listing on this property and some
other properties in the future.'"
Industry veterans. Many developers still use in-house brokers for project leasing,
especially if the brokers at the developers' offices are industry veterans with a strong base of
contacts. "Those of us that do what we do, we're still doing it because we kind of chose that path
to stay with as opposed to brokerage," Heagy says. "Over the long haul, you build a book of
contacts that's very valuable and it gives you immediate access to the senior brokers and the
transactions they're working on as a consequence of the relationship you built with them over the
years."
Heagy cites Cousins' use of John Shlesinger, vice chairman of CB Richard Ellis in Atlanta and one of the city's most prolific brokers, to outline a leasing plan for Terminus. That has contributed to the leasing success seen thus far at Terminus. "John is one of these guys who has wonderful access," Heagy says. "His access is immense in the community. That was a very strong stroke for Cousins to tap that kind of resource. This is a heavily brokered town. The vast majority, darn near 100 percent of the transactions in this city, are done through a broker. So the relationship with the brokers is terribly important."
Regardless of whether a developer uses an outside brokerage firm or inhouse talent, O'Keefe says that in the end, the best leasing people have experience and longevity in the market. Says O'K eefe, "Whether you can hire it or go third-party, [that] isn't so much the issue as getting the right person."