Key Take Aways from December November Meeting!
• Barry Greer (RK Junior LLC): Barry says they are receiving more package deals where they have already done all the work and it can’t be built because they do not have the money. He feels that this is a good thing and a bad thing because now, they have a lot of deals, but they are telling their clients to “slow down” some. Barry is seeing the same problem with the banks shutting down. They do work in Nashville and Memphis, but they are looking at Chattanooga and Birmingham for the future.
• Jim Murphy (Bradley Arant Boult Cummings): If there is a slowdown, it hasn’t shown up in the entitlement process as everyone is still moving forward and going through their entitlements. He does have a few people that have said that they will wait until they get through entitlements and see how the market sorts out in the next quarter or two. He has not seen a significant slowing in the demand but have seen it on the production side. Jim feels that part of the concern is that they are not staffed well enough to be able to handle the volume. He said it has always been that the city is reluctant to hire enough people permanently as they are trying to do more work with outside contractor review to offset this deficiency. He has noticed that outside contractors are slower, but he feels that it’s a reluctance of them to be criticized and possibly lose their contract job. He says another really big problem is getting NES to give you an electric meter because they have a huge shortage of meters. He says his people are worried if there will be an electric meter when they need it. It isn’t a real solution to this issue because they will just make you wait.
• Mia Keller (The Pizzuti Companies): She feels that the main expense for industrial users is transportation. Even if they had to pay double on real estate, she doesn’t believe it will impact them as much as the oil prices are impacting them. With the high demand that we have in Nashville, the shortage of supply, and the vacancy rate at 3%, she feels you will have to pay more in rents. She is excited about the development of industrials that she is currently doing. She is currently focused on multi-family and industrial right now although her multi-family has shifted more to the suburban than urban. As a developer, she’s collecting the sites that are being dropped and feel that there is a lot of opportunity, which may lead to a gap in supply. She is trying to wait for seller expectations to ease and to change a bit, but also waiting for the banks to open their capital because the larger lenders are still closed. Some feedback that she has received from her institutional partners is that they are waiting for the second half of 2023, even the 4th quarter of 2023. In light of everything, she feels like we are in a great spot being in Nashville.
• Richard Warren (Bradley Arant Boult Cummings): This month he has good news! Although last month he reported a client leaving money on the table and walking away, this month he has a client with a multi-family unit that closed on December 14. This shows that there are still people in the industry that are managing to make things work. This deal took about 18 months because of having to extend the inspection period, but it made it to the finish line!! It is a downtown property, by the NES substation by the downtown Y. It’s public record but this is a $17m for a one-acre site development. The great thing is that it will be walking distance to Amazon and this is where people want to be. Richard went on to mention that Giarratana has two sites going up that is essentially adjacent to this property. One of which will be a 60-story building, He never thought he would see a 60-story building in Nashville. It’s coming!
• Sam Sarbacker (Oman-Gibson Associates): Sam began with the thought of people saying that we are in a recession. He says maybe we are or maybe we aren’t in a recession, but one usually lasts for 17 months, and we have been in one for a while and hopefully we will get out soon. He says the interest rates have not capitulated yet but a positive is that because of inflation, people should get a raise this year. He went on to say that the CPI data is trending downward, which was acknowledged by the market. OGA is in the healthcare industry and with Baby Boomers retiring, he feels there will be a strong demand for their services. He feels with regulations moving towards more outpatient care and moving away from hospitals, this service continues to be bullish, as well as surgery centers. One favorable thing that is happening regulatory-wise is that there is a huge growth in cardio space but he did acknowledge that access to capital obviously remains a huge factor and hopefully you can sell yourself and get a deal.
• Lauren Long (W.E. O’Neil Construction Co.): A big focus has been risk mitigation. With the potential of uncertainty in the economy, they have lowered their target range for projects and are focusing on small projects. She said that they are seeing a similar trend with developers where they are more interested in investing $10 million, instead of $50 million, in projects. She did mention that she was talking with a lender, and they are more akin to do the larger projects than deal with the smaller ones, at this point. Another thing that she has noticed with the high construction prices and labor issues in Nashville, is turnaround time with permits and codes. This is a huge risk for a contractor, and it really impacts the bottom line of the construction of the project.
• Declan McGarry (NAI Nashville Stanton Group): Declan is a commercial real estate broker in Nashville and specializes in office leasing. He feels that the speaker, Mike Cobb’s, outlook pretty closely mirrors what he is seeing in Nashville. With the exception of the 2,000 – 3,000 sq. ft. demand, those are going pretty quickly. A lot of landlords are building out smaller spec suites and they are having great success with this concept. This concept may not be perfect, but it is ready to go with high-end finishes. He feels that landlords are investing in their space. He is seeing it with the Highwoods, and Boyles and he feels that they are on to something. He has seen clients in a Class B building that was subleasing 12,000 sq. ft. and they are moving to Brentwood and will lease 1,500 sq. ft. because they are allowing their employees to work from home. He had another client that wanted nothing to do with downtown and decided to invest in a new build because they wanted to pull in their employees. He also mentioned that Pinnacle is sending all of their employees back to work in January 2023 so he’s looking forward to seeing if there will be attrition or if employees will stay where they are.
• Jeff Hammers (Real Estate Ventures): Jeff does brokerage with small footprint retail. He, like others, are waiting for expectations to drop. He feels that timing is one of his bigger issues. Timing on due diligence. Timing on permitting. Timing on instruction. Being part of the smaller footprint, he feels that you do not get the same amount of attention. What used to take 30 days, is now taking 60-90 days. He also feels that a little bit of a slowdown is not necessarily a bad thing as it will give everyone a chance to catch up a little bit and begin to see things stabilize. Some of his clients have already pulled back and will “wait and see” what happens. He works almost exclusively with restaurants and some of his restaurateurs are still optimistic, but they would like the prices to stabilize. Even the developers are looking for a higher rate of return. The costs are going up and the margins are getting squeezed because of labor. Overall, Jeff is cautiously optimistic.
• Greg Spon (Ware Malcomb): Greg Spon is with Ware Malcomb, which is an international architectural and engineering firm. He said that they see a lot of demand for industrial engineering especially in the Southeast and specifically in Nashville. He worked in Southern California for 12 years and the ports in Seattle and Long Beach are so messed up that all the logistics are now being transported to the southern ports. This means that there will be a demand coming from Florida and Alabama, through the I-65 corridor from Huntsville, up to Louisville. He currently has about 20 million square feet on his books laid out in the Nashville area. He has people asking for anything from 50,000 sq. ft up to 1 million sq. ft. He mentioned that there is still a strong demand for industrial, people are asking to extend their due diligence period, but there is a big demand for cold storage. Amazon has spoiled us – we order in the morning, and we want our frozen food that night.
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