Dilweg to Sell Atlanta Office Tower Where WeWork
This article originally appeared on CoStar.
The owner that renovated the 101 Marietta office tower in downtown Atlanta where coworking giant WeWork is the largest tenant has decided to sell the building.
Dilweg Cos., based in Durham, North Carolina, said it has hired the CBRE Atlanta office's institutional properties team to market the building.
The building's name is derived from its location at 101 Marietta St. adjacent to Centennial Olympic Park. During the sales process, Dilweg and CBRE plan to tout the building's location in the heart of Atlanta's sports-and-entertainment district and its discounted rental rates compared with the nearby midtown market.
Dilweg bought 101 Marietta in August 2015 for $68.8 million, or about $104 per square foot. The company's $5 million investment to renovate the 665,000-square-foot tower helped it attract new tech and creative tenants and increase occupancy to more than 83%, with several tenants paying higher rents than when Dilweg bought the building.
It's the first building listed in Atlanta with a major WeWork lease since the coworking firm canceled plans for an initial public offering. It could serve as a test case for how a large WeWork lease might impact an office building's sale price.
With 80,240 square feet of space on floors 28 through 31, WeWork is the biggest tenant at 101 Marietta with about 12% of the building's space. If a landlord has more than 20% of an office building's lease tied to coworking, it could hurt the valuation of the property because of the often flexible lease terms of coworking tenants, according to a report from valuation and consulting firm Capright.
The CBRE team marketing the building does not expect the WeWork presence to greatly impact the price, since WeWork does not occupy a huge portion of 101 Marietta. Despite its failed IPO, WeWork remains a top brand in coworking and flexible office space, and its presence offers existing and startup tenants at 101 Marietta an option if they outgrow their space or need space on a short-term basis, the team said.
"Moving forward, investors will continue to closely track the trends surrounding co-working tenants, particularly WeWork given its robust market share," according to a Capright report titled "The Impact of WeWork on Property Value." "Considering the fact that the WeWork business model has never been tested by a downturn, ownership groups will continue to exercise caution in leasing to co-working tenants or acquiring buildings with too much co-working exposure."
Moreover, the short-term nature of leases signed by WeWork's tenants, which often are startups with no credit history, can add to uncertainly when figuring the value of an office property, Jim Messina, a senior vice president of National Valuation Consultants, told CoStar News last fall. "Over the past year, there's been a greater acceptance of coworking, but there's still a premium for that added risk," said Messina, who is also the firm's Denver office director. "Essentially, these tenants have no credit, and there is speculation on what could happen to all this leased space in a downtown."
CBRE said it expects the WeWork location at 101 Marietta to continue to perform well.
Dilweg recently signed 10 new leases or renewals totaling more than 55,000 square feet at 101 Marietta. This week, domestic relations law firm Kessler & Solomiany said it renewed its long-term lease for 10,931 square feet in the tower.
“We enjoy our downtown location and the amenities offered by 101 Marietta Street, along with the continued revitalization of the downtown submarket,” Randy Kessler, a Kessler & Solomiany founding partner, said in a statement.
For the Record
The CBRE team marketing 101 Marietta includes Will Yowell, Jay O'Meara, Justin Parsonnet and Ryan Reethof. Hansell Roddenbery, a principal at Cresa Global, represented Kessler & Solomiany in its lease transaction.