Crescent's Troubles Mirror Industry's Fall

Why am I not a bit surprised about this news of Crescent Resource's problems?

Crescent Resources is currently struggling along with the rest of the nation’s commercial real estate market, saddled with $1.4 billion in debt and facing possible bankruptcy, according to the Charlotte Observer. The developer of multifamily and office properties expanded into booming states in the Southeast and Southwest that were later hit hard by the market downturn. [GlobeSt. Top Stories]

I wrote a couple of days ago about the 2,000,000 SF of office space under construction in the Buckhead submarket of Atlanta. A couple of years ago, Cousins Properties delivered Terminus 100 at the corner of Peachtree & Piedmont. This project began an exodus of many firms from surrounding Class A properties like Atlanta Financial Center and Monarch Tower. At that point back in 2007, all numbers (vacancy rates and absorption) indicated rising vacancy rates of up to 20% or more.

So what happened since then? Regent Partners has delivered Sovereign at 3344 Peachtree, a mixed-use tower with 82 condos and half a million square feet of office space. Tishman Speyer is scheduled to deliver this year Two Alliance Center, a 485,000 SF office building a few blocks away. 3360 Peachtree, a joint venture between Pope & Land and Post Properties, is under construction at Peachtree and Peachtree-Dunwoody.

And into this environment Crescent Resources decided to break ground last year on the 486,000 SF Phipps Tower. For Crescent Resources to add almost a half a million square feet of office space into a submarket that already had 1.5M SF under construction never made any sense whatsoever. That 2M SF of Class A office space is equivalent to the total Class A office absorption for the entire Atlanta market in 2006.

I fear that Crescent Resource's problems are just the tip of the iceberg here in Atlanta and throughout the country.