Key Take Aways from Nashville November Meeting!
• Richard Warren (Bradley Arant Boult Cummings): Richard has been practicing commercial real estate in Nashville for 46 years. As he was looking at the speaker’s slideshow, it reminded him of when he represented the Methodist Publishing House owners about 25 years ago. They wanted to sell the building that was downtown but at the time Richard didn’t think they could get a buyer for the property. Years later after the Convention Center was built across the street from the property, developers were beating his doors down wanting the property to build a high-rise hotel. The CEO was amazed at the price he received for the property. Richard remembered about 15 years ago when they moved into the current Boult building, there was nothing between them and the old downtown Nashville, but now that area has over 100 new developments. He mentioned that it was told to him that Nashville was the only market they were operating in where people haven’t picked up their pencils because when interest rates bumped up, everybody figured out they were paying too much for the lineup. He has even seen a client walk away from $500,000 in earnest money on a piece of property because the numbers just did not work. He feels we are where we are and we don’t help each other by killing each other, we got to be honest with each other.
• Sam Sarbacker (Oman-Gibson Associates): Sam is with OGA, Oman-Gibson Associates, and he is in the construction development industry. He does mainly medical development in 35 states and has done several projects locally. He is seeing everything everyone else has mentioned and notices a lot of fragmentation in the economy. Tech is all over the place with 5-figure layoffs and getting crushed but the design firms are going gangbusters and they are trying to find people to hire. As far as contractors, the big guys are busy, the smaller guys are scratching their heads. Just kind of all over the place. There are interesting data points out there. Last year Spring Hill was one of the top 10 highest growing area in the county and they have not had a single residential permit issued in 60 days. Another thing that is interesting is that locally the office vacancy rates are stated at 20% or so but when you walk into some buildings, they may show 80% occupancy rate, but they are empty. So, he believes the true vacancy rate is much higher than stated.
• Shane Douglas (Colliers): Shane is a partner at Colliers on the office leasing side and investment sales on several projects over the last four to five years now. On the office leasing side, he is fortunate to have represented Bass Berry on their relocation to the Nashville Yards. On the investment sales side, he sold Ovation to Highwoods for $36 million. Shane is in office leasing sales but came from a capital markets background. Shane ended with saying that the current Pinnacle Building will be 75% empty in 2025 when Bass Berry and Pinnacle move to their new location. They will need to address the parking issues regarding being able to get in and out of the building, but also replace the glass to mitigate the outside sound. The good thing is that they have a 2-year runway.
• Lisa Maki (Avison Young): Is principal and co-lead in Avison’s capital market. She has been in Nashville for 20 years. Her focus shifted about 10 years ago when she used Bradley as a case study as she started to look at the Gulch and downtown and was very fortunate to have some relationships in town. It took her about seven years to get the RJ Young transaction completely sold and moved. It was definitely a long patient wait. She believes that land is going to take a little bit longer to get done, but she also believes that investors are looking at land as a hedge bet right now in this market. If you look at the statistics since COVID. land deals, believe it or not, are treated much higher than in any other sector over the last three years as they have more than doubled. Across the Sunbelt, there were about 500 undeveloped land deals done the second quarter of 2019 and that more than doubled by the second quarter of 2020. She believes that was just when investors were starting to see that they do not know where this is going but they are willing to hedge their bets. There are more than 2000 land sales per quarter, so she believes this speaks for itself.
• Madison Haynes (Bradley Arant Boult Cummings): Madison’s practice is in the Economic Development Practice Group at Bradley, which has a pretty heavy real estate hand. She works a lot with Tom Trent and Jim Murphy and does a lot of zoning and land use on top of just economic development transactions across the state.
• Mia Keller (The Pizzuti Companies): When Mia moved to Nashville, she started her career as an inspiring musician and worked at Boult . Her problems went from ensuring rooms were set up correctly to now, worrying about the river drying up and getting cement to her projects. She is grateful to have moved to the right city, at the right time and meeting the right people. She is seeing challenges where some deals are needing more time, interest rates are up, construction costs are escalating at 1%¬ a month for multifamily projects and for industrial projects they are escalating 1.25% a month because the site costs are astronomical. All the good sites that are zoned are taken so now she’s worried about utilities, properties not being zoned, wetland issues, rents are not moving in the right direction. Another concern is when will Oracle break ground and how much cement and supply chain materials will go into that project. Another concern is if there will be enough labor for the projects, when the time comes. She is remaining hopeful though.
• Patrick Inglis (Colliers): Patrick’s background was in investment property, and he moved to Nashville 4 ½ years ago from Los Angeles where he was for nearly 12 years doing mainly office, some retail, and eventually moved to family brokerage. He finds it interesting that one of his bigger clients is raising most of its money from the Korean equity source and as the dollar strengthened it has gotten way more expensive for someone sitting in Korea to buy property here so all of a sudden, they are saying “don’t buy, just hang out.” He finds it interesting that office building vacancy rates are probably lower than what the real vacancy rate is especially looking at who is coming in and out of the office. He’s currently selling three office buildings in Chattanooga, but you wouldn’t know that because tenants are renewing and changing their terms that changes the length of their leases right now. You can buy a building for probably 25% of what it would cost to build. Today that’s a function of cost going through the roof, but it is also a function of nature as some are working from home and not wanting to put money in an office space.
• Jay Fulmer (Fulmer Lucas Engineering, LLC): Jay is a civil engineer and has been in town for 15 years and has seen a lot growth. A big trend that has changed over the last couple of years is the shift of how much design they can do. The city is being stretched too thin and they have staffing issues that make things a lot more challenging. The growth of the neighborhoods has caused a lot of additional work. He was hoping a slowdown would help Metro Water, but people are fatigued in this department, and they are quitting and transferring out of their jobs. He is on a committee that is trying to figure out how to better optimize what Metro Water does and they are making a lot of great strides. Currently, Metro Water has 9 seats filled out of 35 seats, so as you can see it is a challenge. Projects are being put on hold and he is seeing a lot more renegotiations and delaying costs and not as many straight buying. He’s interested to see what happens in the next few years.
• Jim Murphy (Bradley Arant Boult Cummings): Has been at the firm since 1999 when the firm was Boult Cummings Conners and Berry. They changed the name about 2008. Prior to working at Bradley, he worked in the legal department for Metro for 18 years and the last six years, he was a city attorney. His clients tend to be people who have issues with either state or local governments. He doesn’t deal with the federal government because of their dysfunction – “Can’t win, so stay away from them.” He does environmental land use, procurement deals and all types of government related transactions. He’s been in Nashville all his life and has seen it change a lot. He said everyone wants things like affordable housing, but they do not want to do what it takes to provide affordable housing. If we are not willing to take some burden on us as a community, we are not going to solve the problem because that is where it comes from. These are the problems that each individual developer cannot solve. It has got to be solved on a more comprehensive community-wide basis. You have to have more taxes.
• Barry Greer (RK Junior LLC): Barry is an Asset Manager with RK Junior LLC. They also have an investment arm where he does acquisitions, dispositions, intermediary work, and special relations. His bread and butter are luxury homes and custom home building. Although he doesn’t have intelligence on commercial properties, he has been trying to get commercial property for the last couple years. He has one lot that is by the Fairgrounds that he is currently going through the rezoning process with the Council. Even in residential, it is a lot of the same issues that everyone else has been seeing. Interest rates are affecting buyers, there are risks, but not as much. Currently, anything under $750,000 is a little hard to sell and they have kind of backed off and are doubling down on custom homes and what they can rent out in 2024 when we they finished building.
• Casey Estanislao (Hastings Architecture): Casey is the Director of Strategy in Nashville and has worked across a wide range of jobs but does a lot of urban design and planning. Currently, she has her hands in the East Bank Project a little bit. She has been in Nashville for 6 years and prior to that in New York for 10 years. She says Nashville is going nuts but is aware that the market is shifting. She said we have been talking about the downturn for months and months and just this week, she has had her first massive multifamily project pull the plug after being completely through construction draws because of financing. She feels that we are going to see some shift, as she feels the market can stand to be corrected a little bit and we can prioritize some of the things that the city needs – affordable housing, infrastructure, etc. This is not going away forever, but at least for a year.
• Dana Terebessy (Carter Group, LLC): She is an industrial contractor and her projects range in size from under $100,000 to just under $60 million. She feels they are in a really diverse area and some projects have been scaled back because of cost or maybe staffing but they are also seeing a lot of people on the tenant side. Leases are coming due, and tenants have to move, so that part of the business hasn’t slowed down. She is not seeing a lot of movement in a lot of sectors but feels that the ones who are working may be scaling back. Some of her projects are in pre-construction now because of the slowdown in other markets and this is easing the supply chains a little bit. The biggest thing on her end is that she must heavily manage the subcontractors and really vet them to see if they can meet the schedule and have the people to actually do the job.
• Dawn Gonzalez (Dawning Design Studio): Music City Center brought her husband here in 2012 when there was an average of 88 people a day influxing into Nashville. After he fell in love with Nashville, she followed him in 2015 and was one of the influx of 110 people a day moving to Nashville. She has lived in Nashville for seven years and began working at H Michael Hindman Architects in Brentwood. After seven years of working with H Michael Hindman Architects, she started her own firm, Dawning Design Studio. She is in Bedford County, Shelbyville and is on the Shelbyville Planning Commission where she has watched the growth in Bedford County and was extremely intrigued to come and listen to Davidson County’s plans. They have a lot of industry coming to Bedford County and currently have about 14,000+ new residential homes coming in the next couple of years, but they do not have the commercial infrastructure. She said a couple of her manufacturers told her to hold off bidding until February 2023 because they anticipate a price drop.
• Deneen Owen (International Workplace Group): Deneen does co-working office space and has been with the company for 12 years. She works alongside some commercial brokers and gets a lot of smaller leads. Her niche is a month-to-month up to three-year leases. They work with individual clients that have been there for four years or they are a stopgap for larger companies, like Mitsubishi, Amazon while they are waiting on their buildouts. They currently have 12 locations in the market but when she started, they had two locations. They are currently in the final plans for another center to open next year. They are global and are in 120 countries. She has helped and leased space in many areas including Nashville and New York and has the ability to lease individual tiny spaces or large suites. She can lease anything from 60 sq. ft up to 1,500 sq. ft. as an individual space, but she has multiple options. She has seen a huge interest in what she does and is extremely busy because her clients are trying to figure out the hybrid options.
• John Agee (Terracon): His staff on the front end is doing the environmental/geotechnical due diligence, checking on the wetlands. He has been in business for nearly 33 years and his first 15 years were in East Tennessee based in the Knoxville market. They are very diversified with who they work with and right now he is working a lot with retail, fast food and national accounts, industrial warehouse, hospitality. If it touches earth and rock, he plays with it so to speak.
• Renee Shipley (Cardinal Glass Industries): Her company manufactures mostly insulated glass units that get rebranded, so they make Anderson, Pella, Marvin and Kohlbe windows. Their closest plant is in Church Hill, Tennessee. She is not anticipating any slowdowns because they are oversold. She was part of an acquisition about a year ago, probably one of the largest in glass history, where Cardinal Glass purchased AGC Glass from Japan because there has been a global glass shortage and it takes three years to build a glass manufacturing plant. It was faster to buy another company. Cardinal is privately owned, and they are trying to keep the American factory worker really strong and are not importing workers. Their biggest problem as a company is having enough factory workers because most of their plants are in little towns so they are competing with a Target or Amazon distribution centers. She was on the American Society of Interior Designers for six years so if anyone needs connections she have a lot of friends but also if anyone is just curious about glass or how things work, let her know. Also, she is working on her WELL AP certification so if anyone wants to painfully study together, please let her know.
• Steve Cotton (BIM Consulting, LLC): Steve is the owner and operator of structural engineering and owner representative. He does not see any slowing down from the projects that he has in-house. He has done custom builds of 30,000 sq. ft. homes in Franklin, TN, which is more of a commercial venture than anything. He has done resorts in Washington state but is a native of Nashville for 43 years and has seen the growth. He was able to visit the Williamson County Commission’s Office and they were talking about Franklin losing its character with the higher interest rates, higher taxes. He wanted to know has something like this come to play in Nashville and tenants moving out because of the retail spaces having higher taxes?
• Steven Culp (W.E. O’Neil Construction Co.): Steven is with W.E. O’Neil of Tennessee. Some may have heard of W.E. O’Neil SouthLand. W.E. O’Neil is a national building construction firm with a local presence. He has been in the business for 44 years and began when he was 19 where he has been in a variety of disciplines – bridges, dams, new plants, industrial, water and wastewater, and now on the building side. On the construction side of business development, he interacts with a lot of developers, financial people and architects. Lately, he is seeing properties that have been tied up for six months, planning is underway, proformas are done, some even have had a run through the planning commission and those deals are falling apart. He is hearing some predictions where we are going to look kind of like a hockey stick from 2023 to 2024 and a lot of folks are onto capital right now because they are unsure where the market is going and believe that it is going to come loose in 2024 driven by need.
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