By Iris Richmond. A little revision goes a long way. In fact, the new owners of a luxury condo project in downtown Atlanta are counting on it.
Luke Leonaitis and Hal Horton, managing members of the investment company House of Pershing in Atlanta, faced a daunting task when they closed on the purchase of 2500 Peachtree Road last November: How to turn around an insolvent property? "Bankruptcy court seemed like a good way to acquire 2500 because it separated the property from its past financial distress, but we had some negativity to overcome," says Leonaitis.
The property's credibility capsized under the ownership of Blane Kelley Jr., a developer who broke ground on the $60 million project in 1998 and opened the condominiums two years later. "It was the first luxury condo [building] out of the box in Atlanta," says Jason Perry, vice president of Haddow & Co., a real estate consultancy group in Atlanta.
Not only was the product untested in the market, it was new for Kelley as well. "He was a pioneer just going on his instincts," Perry explains.
Kelley's extensive experience in commercial and office development didn't include upscale projects and the demanding buyers they attract. Construction delays, abetted by glitches in the customization process, led to price increases and the loss of pre-sale contracts. For Kelley, it was a new and unpleasant world.
"To my dismay, the purchasers want you to do more for them on the inside of their units than on the surroundings outside," Kelley says. "To my surprise, they are more interested in the brand of kitchen appliance, elaborate moldings, and fancy bathrooms, and less interested in the surrounding amenities that we offered. It doesn't matter how you design or lay out a unit, people want to modify it to their tastes. So we opened ourselves up to customized interiors, a demanding situation that would take the patience of Job."
Prospects were unable to appreciate, for example, the value of the expensive roof features, such as two ornate cupolas--which required a crane to install--surrounded by heavy, concrete balusters, because the detail wasn't visible from the ground or from the units, says Perry. They also found it challenging to navigate through a 10-story unit with nine elevators, twice as many as the average condo. "It was a bit of a design overkill," he adds.
In the midst of this came the market downturn, compounded by the dot-com bust and the terrorism episode. Kelley's financial partners pulled out, and bankruptcy followed.
Leonaitis and Horton reached undisclosed terms with Kelley to acquire the project through a combination of their own funds and loans from banks. The project, on three acres of land, features 62 luxury residences--26 of which were already sold. "2500 is a hidden gem that we plan to make shine. Despite the misperceptions, it's a signature development located on the Park Avenue of Atlanta," believes Horton.
But the buying public had to believe it, too. "Once a property gets egg on its face, it's very difficult to turn around, and [it] will require a superior marketing effort from the new owners," says Dale Henson, president of multifamily research firm Dale Henson Associates in Atlanta.
Putting their expertise to work began with word of mouth. "The most important thing was to spread the news to the existing real estate community that the financial issues at 2500 Peachtree Road had been solved," says Leonaitis. To rekindle the public's interest in the project, the duo employed Coldwell Banker to launch an aggressive advertising campaign to rebuild the property's prestige. "Marketing is everything once a property has fallen on some difficulties," explains Leonaitis.
The partners allotted 2 percent of expected gross sales to the campaign. One theme was the relatively affordable asking price of the condos. Acquiring the bankrupt property at a price below market value allowed the new owners to immediately reduce the unit prices to attract buyers. Newspaper and magazine ads carried such taglines as "Anything comparable just costs more."
Leonaitis and Horton believe they can pull off what would be their third successful luxury condo project together. For starters, instead of stumbling over the customization hurdle that disrupted the original schedule, the partners removed it, handing over the task to contractors.
The condominiums at 2500 Peachtree Road range in price from $499,000 to $1.95 million. "Kelley set up a custom work program with his contractors, and people had a blank slate to work with," explains Philip White, managing broker at Coldwell Banker, who worked with Kelley and who also works with the current owners. "The detail involved in that was unimaginable, and his system couldn't keep track of it all. The new ownership has trimmed its responsibilities, freeing up its time to improve its services." Leonaitis and Horton want their property's caliber of service to match the elegance of the development. "Our product has to be superior," says Horton. "We address our residents and guests by their surnames. You'll never see khakis or a polo shirt here. Instead, you'll see black pants, white shirts and gloves, top hats, and elegant topcoats; and there's never any staff visible in the corridors or lobbies. We're the Ritz-Carlton of the condo market."
With 14 closings since November, and an additional two under contract, the team anticipates closing the 20 remaining units by the end of the year. Unit prices range from $499,000 to $1.95 million, and total sales are expected to be around $35 million.
"Of course there's a huge risk," acknowledges Horton, "and if you haven't done this before you shouldn't try it. The luxury condo market is not for beginners or for the weak of heart."
BIG BUILDER Magazine, April 2002