The real estate at a crossroads has been a retail magnet for nearly two centuries. In 1837, a general store and tavern offered respite to travelers in the thinly populated wilderness. In front of this establishment, the story goes, owner and operator Henry Irby mounted an antlered deer's head for all to see. Hence, the area came to be called Buckhead, gateway to the most affluent neighborhood in Atlanta.

Stretching north and south from the crossroads is Peachtree Road, which extends south into downtown Atlanta as Peachtree Street. The main east-west thoroughfare is West Paces Ferry Road, which runs west through an exclusive neighborhood of sprawling and old gardened estates that house such prominent residents as media mogul Anne Cox Chambers and the Georgia governor. It is in this part of town that socially pedigreed ladies still belong to garden clubs and where luncheons are stylish and frequent.

From its intersection with West Paces Ferry, Peachtree Road winds through Buckhead's posh financial district, past upscale hotels to Simon Property Group's two high-end regional malls — the 821,000 sq. ft. Phipps Plaza and nearly 1.5 million sq. ft. Lenox Square.

When Atlanta developer Ben Carter came up with a bold $1.5 billion plan to remake the crossroads into a luxury mixed-use development, the area had morphed from a quaint turn-of-the-century shopping district, Buckhead Village, into a raucous 1980s night spot.

Under pressure from the recession and ailing capital markets, plans for the project, known as the Streets of Buckhead, have been scaled back to $1 billion by cutting two hotels originally on the drawing board. The project is being completed in two phases and will ultimately include 600,000 sq. ft. of luxury retail. The first phase, which includes 375,000 sq. ft. of retail and 360 residential units, has been delayed from 2009 to fall or spring of 2010.

“We have the flexibility to open either spring or fall 2010,” says Carter. “We're talking to all of our committed retailers as well as those we're negotiating with to hopefully have a consensus on when everybody would like to do it, but my recommendation is fall 2010 for it to give some time for the economy to get percolating.” The second phase will feature the remaining 225,000 sq. ft. of retail, 325 residential units and a 250-room hotel.

Carter believes that the delay will give tenants time to regroup financially and therefore negate the necessity to lower rents. He also wants to allow enough time for the project to attract the right mix of tenants. “This [project] needs to be done right the first time,” he explains. “To get the Who's Who of luxury retail is very important to us.”

Already tenants are committed to half of the project through a combination of leases and letters of intent. Another 20% of the project is in active lease negotiations. Retailers that have signed leases include Oscar de la Renta, Hermes, Etro, Bottega Veneta, Domenico Vacca, Loro Piana and Vilebrequin as well as stylish restaurants, including Japonais and La Goulue Bistro.

The development is financed with bank loans, private investors and institutional capital. The private equity comes from individuals in Atlanta with whom Carter has historically done business. Bank of America is providing the senior construction loan, and CBRE Strategic Partners IV has made a major investment of equity and mezzanine financing in the project.

The crosshairs of retail

Buckhead offers retailers a unique opportunity to tap a regional customer base. The submarket attracts not only local affluent shoppers, but it also has the added benefit of drawing consumers from the greater metro Atlanta area and from as far away as a four-hour drive throughout the Southeast. Patrons are drawn to the submarket by an array of dining selections and entertainment that ranges from jazz clubs to theater.

It is for those reasons that Buckhead retail fundamentals outperform the surrounding city. “The Streets of Buckhead has a very desirable location,” says John Leonard, vice president and regional manager of the Atlanta office of brokerage Marcus & Millichap. “We're going to continue to see some pressure on vacancies going from 12% to 14% this year in the overall market. Buckhead is probably closer to 9% to 10%.”

Weakening tenant demand will contribute to falling rents in 2009 in the metro Atlanta retail market, reports Marcus & Millichap. Asking rents are projected to drop 3.5% to $16.87 per sq. ft., while effective rents will decline 4.5% to $15.01 per sq. ft. While the brokerage does not break out Buckhead rents, Leonard believes effective rents have already fallen 3% to 5%.

According to New York-based research firm Reis, asking rents in the first quarter for the submarket that includes downtown, Midtown and Buckhead are flat year-over-year at $24.67. That compares with a 0.5% decline to $17.36 per sq. ft. in the overall Atlanta retail market over the same period.

“It certainly looks like the CBD-Midtown-Buckhead submarket is able to hold on to asking rents slightly better than the metro as a whole, but effective rents are cratering everywhere, suggesting more concessions,” says Victor Calanog, chief economist for Reis.