Key Take Aways from April 2023 Meeting!
Kelly Cochran (STREAM): Kelly is on the leasing side and tenant rep for government agencies. She asks for turnkey office space, with a 90-day termination for convenience. The State’s standard is mainly class B office. Construction materials have been hit or miss on what is available, so getting everything to the worksite at the same time is a challenge and having construction crews fully staffed is a challenge as well. People are coming onto constructions sites and hiring workers off the project. The State is doing the Military and Law Enforcement training facility project at Cockrail bend. It will be a huge multi-year project that will be advertised through STREAM. Once TPAC decides where they are going, they will be doing a ground lease for the James Polk building where TPAC is currently located. She also mentioned that the War Memorial and Citizens’ Plaza will be blocked off until after the 2024 election. So, pack your patience when traveling downtown in this area.
Barry Greer (RK Junior): Barry is an Asset Manager at RK Junior, which is a small, local residential builder. They do smaller multi-family projects in Memphis. As far as the market goes, he is seeing a lot more residential inventory and they have stopped buying. He has been spending time connecting investors to properties where the investors will have RK Junior build for them. He has been spending a lot of time in codes. Barry went on to mention that they are built to sell and he has been seeing private money coming in for residential projects.
Sam Sarbacker (Oman-Gibson): Sam works in commercial real estate, specifically in healthcare. He does acquisitions and developments. He mentioned the fact that inflation is here should not be a surprise as we had 0% interest rate policies for the last 15 years and everyone was used to that. Now, in the past 13 months, interest rates have been raised. The bid/ask spread and the asset pricing is all messed up. There is a huge gap between the bid and the ask price and he doesn’t see that going away time soon. He said by 2030, it is being projected that a 59% reduction in workforce participation rate is about 5% lower than where we are today. That will be about 17 million people leaving the workforce over the next 7 years. He said this is a big deal and the wage growth will continue to rise to retain employees. Fifty percent of Tennessee’s rural hospitals are scheduled to close but on the flip side to this is the move to outpatient, i.e., surgery centers.
John Agee (Terracon): John is the Regional Manager with Terracon. Terracon is a nationwide civil engineering group that focuses on environmental engineering. They also have a facility group that builds envelope-type projects. He feels that they have gotten busier in the Nashville office. He’s not particular about what the banks are doing but his numbers are showing things that are making him optimistic. As a company, they are looking for people because they do not have enough people to do the work. From a growth perspective, he is optimistic about how things are going.
Justin Gallardo (CapStar Bank): Justin works with Lee. He had been in banking for 20 years and has experienced a downturn before. They are doing a lot of portfolio reviews to ensure that they do not get caught off guard. Nashville will fare better because of the migration and the demand. He has a lot of lower/middle market transactions. It is a lot less busy this year than it was this time last year.
Steven Culp (W. E. O’Neil): Steven is a Director of Business Development with W.E. O’Neil. W.E. O’Neil is a national vertical commercial construction company. They look different in each of their local markets. In Nashville, they do a lot of multi-family, schools, higher ed and mixed use commercial and a little bit of smaller sized industrial projects. He has noticed that the developers on the multi-family projects was looking to build within the 440 loop are now looking further out, like Thompson Station because of the pricing of the property and recognizing that it does not have the same value as it once had and another one is that the properties are being based on what the property can be rezoned for instead of the entitlements that you can get now. People are assuming property can be rezoned but neighborhood organizations are pushing back on rezoning. The big issue is time as they cannot build in Nashville because the zoning/planning commission is so overwhelmed. The good news that he’s seeing in Middle Tennessee, the higher ed projects have picked up.
Lee Hunter (CapStar Bank): Lee began with his thoughts and prayers to the people that were affected by the shooters last week. He admitted that you just do not think about your co-workers being the shooter. He mentioned that there have been a lot of articles that have come out about the downfall of commercial real estate. With CapStar being public they have earning calls every quarter and he is amazed at the number of people calling and asking for their portfolios to be stress tested. He said CapStar is looking at every maturing loan for this year and next year. He feels pretty good about their loans. Many bankers have either stopped lending or tailored their lending and are being particular with whom they will do deals with. They are being selective. It is getting a little more difficult.
Tom Gregory (CT Consultants): Tom is a Regional Director with CT Consultants, which is a full-service civil engineering firm in Nashville. He remembers being with the REAL Nashville a couple months ago wondering where to pivot and spend time. He feels a little better than he did sixty days ago. He says that the office market has been in the dumps for a while, but industrial seems to be holding up. Multi-family definitely has slowed down. Interestingly enough, he has had requests from developers for multi-family developments. So, they are still looking and asking the due diligence questions. He feels that there will be pressure on the land prices to come down if the deals are going to work. Residential is beginning to back off their prices. He does not feel like the sky is falling but he feels that things will move forward, just a little different.
Mike Murphy (Cumberland Advisors): Mike’s development company, Cumberland Advisors, is based in Nashville. He primarily does multi-family, mixed-use, and land development. He is currently working on a project in Mt. Juliet, a 300–unit apartment complex is starting to deliver units hopefully this month. Has a zoning entitlements on another 300-units where it will be a town center type concept integrated mixed-use concept that he is proposing. He’s also working on some things in Thompson Station. He considers himself bullish on suburban multi-family. He feels that the airport has been a major factor in growth in Middle Tennessee. They are in the midst of a $4 billion capital improvement. He’s mainly financing through banks on his multi-family projects. He feels pretty good to be here in Nashville.
Gino Tabbi (Newmark): Gino does mostly traditional brokerage and has a lot of offices nationwide. He chases a lot of government support tenants, i.e., federal and state. Gino does a lot of defense contracts that will take him from sites that are anywhere from 10,000 sq. ft – 100,000 sq. ft. and deals from $5 million – $100 million. He works with a lot of developers that build government buildings – mostly B and A grade. He is noticing that a lot of foreigners are purchasing government buildings. He is noticing cap rates are going up. Many of the bigger deals over $20 million are not getting done because of lending as banks are on the sidelines. He sees the future of office space because of the growth expansion in the South. His motto right now is “Stay alive until ’25” because he feels that the market will come around by then.
Laura Youngberg (Walker & Dunlop): Laura is on the multi-family investment sales side at Walker & Dunlop. She is seeing a slowdown over the past year. She mentioned that cap rates were about sub 4 last year and now they are around 5%. She has been asked if there is a surplus, can we absorb everything that is being built downtown. She is hopeful because she sees Nashville as playing catch-up on the development side and it is becoming a real big city. She is also hopeful that with all of the job announcements, the people still make it here but is still optimistic that the city is still growing and is on fire. The Nashville market is Walker & Dunlop’s top city as they are doing more transactions here.
Tom Landstreet (Trusco Investment Management): Tom runs a global macro, long / short hedge fund. He is part of the division of Trustco, which is a diversified financial management company. They have some wealth management products and commodity specific investment funds. He looks at a lot of governmental policies and tries to figure out how the industries, individuals and businesses will respond to these policy changes. He is attuned to the economy and asset prices and what he sees as inflation will be persistent and it will be a problem for the politicians. We will come down but will not get to 2% for more than another decade. Tom wrote, and will share, an article that was in the Tennessee Society of CPAs Journal that was a deep dive into the 1973 policy mix that occurred under former President Richard Nixon.
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