SOUTHEAST SNAPSHOT, NOVEMBER 2007
Nashville Multifamily Market
Nashville’s dynamic growth has caught the attention of developers. The city’s ability to attract major corporations such as Nissan, Dell, Caremark, Louisiana-Pacific, Asurion and Clarco, not to mention job growth among suppliers who have set up shop to get closer to these corporate customers, have triggered interest in new product. Nashville’s diverse economy has always allowed the market to thrive during times of economic expansion, but more importantly, the city is able to weather any downturn far better than its peer cities.
While multifamily plays a part in Nashville’s robust development, the area’s zoning, topography and political climate create high barriers to entry. New developments within the city’s core favor condominiums. In the suburbs, available land often is used for larger projects, oftentimes mixed-use developments that may include multifamily as a piece of the development’s finished product.
Major multifamily projects are still moving forward, though, with new developers Gross Builders, MLP, Pedcor, Tesco, Flournoy and Colonial entering the Nashville scene while still more developers look for other opportunities.
Several notable condominium projects just opened or are underway in the city’s core.
The 31-story, 305-unit Viridian opened last October. Completed by Nashville-based Giarratana Development and Atlanta-based Novare Group, Viridian sold out before its completion. This prompted the developers to move forward with the Signature Tower, which at 70 stories will become the tallest building in the Southeast. When completed in 2010, it will offer 435 units on floors 15 through 70 starting at $400,000 and topping $5 million for massive penthouses on the upper seven floors. Additionally, Brasfield and Gorre joined Giarratana and Novare in developing Encore, a 333-unit condo skyscraper that will open next spring.
Other major projects spurring interest in Nashville’s core are the Icon in the Gulch, a 22-story, 412-unit upscale development expected to be completed next spring by its developers, Bristol Development Group and MarketStreet Enterprises. Crosland’s Terrazo is also going up across the street from the Icon. When completed late next year, the 14-story tower will boast 115 units, with four floors of retail and office space.
And nearby Griffin Plaza, a 150-unit apartment building, and Velocity, a 265-unit condo project, have moved past the planning into the selling stage.
The move to condos reflects the need to recover rising construction costs in the urban core. Developers also realize that the condo market is slowing so they are directing attention to higher-end in-fill rental projects.
The suburbs have seen increased activity as well. Providence in Mt. Juliet is a major mixed-use development containing more than 800,000 square feet of retail along with several thousand single-family homes. St. Louis-based MLP is developing the 250-unit multifamily property and Del-Web is developing the retirement community.
Elsewhere in the eastern suburbs, there’s the Villages of Riverwood, a predominantly single-family home development with Beazer building most of the homes. The development also contains a 428-unit apartment being developed by Tarragon.
The southern suburbs beckon with the addition of corporate headquarters for companies such as Nissan, Healthways, Verizon, Community Health Systems, Mars Pet Care and more. Two of the top Williamson County cities – Brentwood and Franklin – make it one of the toughest spots for apartment development. But two notable developments are still moving forward. Southern Land Co. and Amstar have a joint venture for two smaller sites at McEwen Farms, a new intersection at I-65. Boyle Investment Co. is busy developing Berry Farms in the Goose Creek area of Williamson County. The 600-acre mixed-use development includes plans for single-family and multifamily units.
There’s been a significant amount of development in Rutherford County, which lies southeast. The cities of Murfreesboro (home to Middle Tennessee State University, the state’s largest university) and Smyrna (site of a Nissan plant) make it one of the fastest-growing counties in America. The area also favors multifamily developers with its topography and more relaxed zoning and political climate.
We’ve also seen some limited subsidized housing, utilizing low-income housing tax credits or bonds. The toughest impediment, though, is to find suitable land at a price that makes sense.
Improving fundamentals continue to favor multifamily developers and investors, with a healthy vacancy rate of 94.1 percent. Rents vary widely from $555 or 59 cents per square foot in North Nashville to $1,121 or $1.25 per square foot in the high-end West End/Downtown submarket. The ripple effects of the credit crunch should favor the multifamily market in the coming months but developers must be acutely aware of ensuring that they can cover higher construction costs without pushing renters away.
As Nashville moves forward, look for the Hendersonville/Gallatin submarket to emerge as a major player in multifamily development. Only one such property has been built in recent years in these growing areas dominated by retail and single-family mixed-use developments.
— Scott Tyrone is multifamily division leader for Colliers Turley Martin Tucker in Nashville, Tennessee.
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