Dewberry's hopeful rainmaker

Jarred Schenke

February 1, 2008

In commercial real estate circles, this personnel move was the equivalent of Nick Saban jumping from the Miami Dolphins to the University of Alabama. CRE.beat

Late last year, one of Atlanta's smaller commercial development firms – founded by one of the city's more maverick personalities – announced the hiring of Ridr Knowlton, luring him away from Jones Lang LaSalle, one of Atlanta's and the nation's largest commercial real estate firms. Knowlton, who has been named senior VP of office and industrial development for Atlanta-based Dewberry Capital Corp., made a real name for himself in commercial real estate circles for his major successes while at Jones Lang LaSalle, particularly with the sprawling Sanctuary Park office project in Alpharetta.

The move also is as much a story about the Midtown commercial real estate market, one of the hottest submarkets of development and activity during this past decade. Except those fortunes are quickly turning. Landlords in the market now are faced with increasing competition for a shrinking pool of companies seeking space.

So from a strategic point-of-view, tapping Knowlton's extensive contacts and expertise makes perfect sense, says Gregg Metcalf, VP for the development firm The Alter Group in Atlanta, who characterized the deal as a coup for Dewberry Capital Corp.

"Ridr is going to be an awesome opportunity for John [Dewberry]," Metcalf says. "His skill set was much needed by John's organization. It's a win-win situation for both of them."

A year of change

The changes at Dewberry Capital came fast and furious last year. And with those changes came some noteworthy leasing success.

The first major change involved John Dewberry himself, who tapped Satish Lathi last January to lead his company. Lathi was a former executive with Southeast Capital Partners, a local developer best known for its many condominium projects, including the upscale Borghese in Buckhead and The Manhattan condominium project towering over Central Perimeter. In turn, Dewberry placed Lathi in charge of day-to-day operations and stepped aside from the negotiating table.

The move put Dewberry out of the hashing out of negotiating leases. It was acknowledged by some in the industry and local press reports at the time that Dewberry had a reputation of being difficult in dealings with brokers, which may have even been responsible for Dewberry Capital losing out on luring noted bank BB&T to its then-empty Two Peachtree Pointe project. Lathi became the front-man in that negotiations process. And soon after, the developer was able to crow about a significant bit of success.

In November, Invesco Ltd. – an investment firm with more than $400 billion under management – announced it was moving its global headquarters from London to Atlanta. With that, the company leased more than 100,000 square feet for its new offices at Two Peachtree Pointe. This was one of Dewberry's maverick moves, having developed the 310,000-square-foot office tower overlooking Peachtree Street – just at the border between Midtown and south Buckhead, where Spring Street merges with the main artery through the city – without a single corporate tenant prospect on the books.

With Two Peachtree Pointe, Dewberry certainly rolled the dice. He developed the project in 2005 without a single tenant prospect on board, a somewhat unusual move in an industry that normally sees a certain amount of preleasing with corporations before a new project begins. CRE.dewberry

Two Peachtree Pointe remained empty up until last year, when Invesco announced its deal (at press time, Dewberry officials were declining comment). For Knowlton, who worked at Jones Lang LaSalle for 16 years, the move allowed him to move from strictly leasing activities to being a principal in a company, says Chris Wasko, the international director of Atlanta operations for JLL. With Knowlton in the mix, the developer should be able to reap some momentum to its leasing activity.

"He's truly going over as a principal. It's a change in role and responsibility," Wasko says, who adds Knowlton was instrumental in growing Sanctuary Park, the more-than-1-million-square-foot office park owned by JP Morgan. He helped lure a number of banner corporate tenants, including Microsoft, Verizon Wireless, and more recently RBSLynk Inc. and Delta Dental Insurance.

No cakewalk
As is typical in Atlanta's high-rolling commercial real estate industry, the fortunes of the market can turn on a dime. And Knowlton climbs aboard his new commander's seat at a time when the commercial office market dives into the doldrums. Many real estate professionals acknowledge the pool of big corporate candidates who can take major chunks of space at all the new gleaming office towers dotting the Atlanta skyline has shrunk, and fast. "We've seen distinct softness in the whole urban core with the exception of perhaps downtown itself," says Ken Ashley with Cushman & Wakefield of Georgia. "That's because in some measure the financial sector, which has been the hardest hit recently, is located in those markets."

According to Atlanta-based Dorey Market Analysis Group, nearly 20 percent of the metro area's 128.8 million square feet of office space remained empty as of the end of 2007. Plus, more than 6.5 million square feet of new office towers and buildings either was finished or began construction last year, while the market absorbed only 2.4 million square feet. Translation: Supply has outstripped demand once again.

Also, Knowlton isn't the only new face in the Midtown office market. A slew of major buildings changed hands over the past year and a half, bequeathing the area with new landlords hungry to land a new tenant, says Frank Mann, senior director with Cushman & Wakefield.

"You got six or seven new landlords saying, ‘Hey, we're here and we want to create some momentum and credibility with our product,' and to do that is to grab a substantial [tenant]," Mann says. "And while they are trying to preserve those high rental rates – on average more than $30 per square foot in Midtown – there is a growing mood to be aggressive to land the deal. It's created an interesting dynamic."

Knowlton also may be faced with a more immediate challenge: replacing a major law firm likely to leave One Peachtree Pointe. According to sources familiar with the deal, one of Atlanta's largest law firms, Seyfarth Shaw LLP, is weighing a move either to an older Midtown tower named the Campanile (the former BellSouth headquarters at Peachtree at 14th) or become an anchor in the under-development 12th & Midtown, a $2 billion mixed-use project spearheaded by Daniel Corp. and Selig Enterprises of Atlanta.