Nashville Commercial Real Estate

RE59's picture
Rank: Chimp | banana points 11

What are your thoughts on the Nashville commercial real estate market? Is the short-term rental market going to remain HOT as more hotels continue being built? Nashville real estate company RE59

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Comments (24)

Funniest
Oct 25, 2018

Doubtful. Consumer spending has been high in Nashville for a while (too long) and so has the money pouring in from tourists. It will slow down assuming we enter into a recession in the next two years or so, I would bet at least a few of the trendy things that have only came to be in Nashville in the last 5 years will fail, because they were built on top of a strong economy and a wave of consumer spending. Shooting for any sort of development in Nashville is risky as depending on the project timeline it could work, but if the impending recession comes sooner than expected it will more than likely be a bust.

I talked with the President of the Tennessee division of a strong Southern regional bank recently, and he shared my thoughts as well. He basically told me he has been in Nashville 30+ years, and what we have right now is without a doubt a bubble. And, the logical time for it to pop is whenever the next recession begins.

Basically IMO you are late to the party in Nashville, all the cool people are already leaving or on their way out the door. The people left inside still think it's the greatest party they've ever been to, mostly because it's the only party they've ever been to; and little do they know, the cops have been called and they're in the mood to make some arrests.

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Oct 25, 2018
Liam Gallagher:

Doubtful. Consumer spending has been high in Nashville for a while (too long) and so has the money pouring in from tourists. It will slow down assuming we enter into a recession in the next two years or so, I would bet at least a few of the trendy things that have only came to be in Nashville in the last 5 years will fail, because they were built on top of a strong economy and a wave of consumer spendng

Please please please be the peddle taverns.

Oct 25, 2018

The time to develop or buy in Nashville was coming out of the last recession. Way behind the market right now.

Oct 25, 2018

100% agreed.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Oct 25, 2018

Rating agencies are taking significant haircuts on Nashville hotels nowadays. There is well published data on the oversupply of hotels within the market. Personally, I think there is opportunity in East Nashville but recent sales are too rich for me - maybe during the next downturn....

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Oct 26, 2018

I mostly read only Fitch's presales. They didnt rate any hotel in Nashville in 2018. But two hotels I remember they rated in 2017 was the Holiday Inn Express downtown and Home 2 Suites Airport. One had 13% haircut and one had 18% haircut. It was nothing too unusual. Are you seeing bigger haircuts? 15-20% is alright with me for the deals I underwrite. As I mentioned in another comment in the CBD (specifically couple of blocks from Vanderbilt's campus and Medical center) where I have underwritten deals, I see our properties all having 85%+ occupancy since 2015. On the lower end I see occupancy of 75% which is still decent. I cannot speak to other areas of Nashville. So Fitch applying a 15-20% haircut does not move the needle that much for me as I had taken that into account at the very beginning when I underwrote the deal and it was expected. Of course even Fitch had mentioned the new supply, but Nashville is a market that has averaged double-digit RevPAR growth since 2009. There has also been significant occupancy growth, increasing from 65% in 2012 to 74% in 2017, and as a result, the market has been able to drive ADR and increase RevPAR by almost 70% over the period. So, it appears that new supply can be absorbed. I am a lot more bullish on Nashville than other markets.

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Oct 25, 2018

Total agree with everyone else. My firm has a couple of hotels in Nashville and this is where we're starting to see some heavy misses against our budget.

Oct 25, 2018

Interesting - hearing similar chatter coming out Dallas and Houston as well.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Oct 26, 2018

Where in Nashville? Because in the CBD (specifically couple of blocks from Vanderbilt's campus and Medical center) where I have underwritten deals, I see our properties all having 85%+ occupancy since 2015. Really strong performance.

Oct 26, 2018

Nashville is cooked. Hard costs are 15% - 20% higher than in comparable markets. Dont know how guys are getting deals done (must be underwriting 6% RoC and 14 IRRs

Oct 26, 2018

My firm has a presence in the Nashville market and has rode the entirety of current cycle. Here is what we're seeing today...

  • Multifamily offering 2 and 3 months free because there is so much supply.
  • Multifamily trades are happening all over the place at record numbers, despite the above.
  • We're not seeing a lot of office volume, but deals that come out get national attention and competition is fierce.
  • We've seen two trophy office assets in the CBD go for sub 6 caps this year.
  • Everyone is doing a hotel nowadays.
  • We have ~1.5MM feet of office under construction, mostly spec and at top of market rents.
  • We have ~2MM more feet of office in the pipeline.
Oct 30, 2018

Going to piggyback on Mr. Queban's supply comment. I expect the modest decline in rents seen the past few months to continue. In regard to short term rentals, I am unsure but there is a large supply and more on the way. As others have said, Nashville's heyday may be in the rear view, at least until demand catches up with the zeal of developers.

Nov 14, 2018

Don't know much about the NAShville from a market research perspective. All I do know is we had a couple deals there that weren't the easiest to obtain financing/equity for. Seemed that both sides had general concerns about the growth prospect of the market.

Nov 16, 2018

Not disagreeing with anyone's comments here. Do you guys feel any differently now that Amazon announced adding 5,000 jobs here (not the 25,000 in NYC or DMV, but a huge per capita impact)?

Nov 16, 2018

To be honest no, I don't see there being much of an impact. A lot of the hype has missed something kind of important about Nashville. The schools. They are dog shit in Davidson County. They have said the average pay for these new jobs will be $150,000. I'm already a bit skeptical of that, but assuming it's true, you are most likely talking about mid career corporate professionals that almost assuredly have kids or are having kids. That means they are going to spread out in pockets outside the city, Franklin, Murfreesboro etc. We also don't know how many people will be hired locally, in which case the net change is 0. So while it's a decent amount of jobs, I don't believe that it will have a sizeable effect on real estate in particular.

Nov 16, 2018
Liam Gallagher:

To be honest no, I don't see there being much of an impact. A lot of the hype has missed something kind of important about Nashville. The schools. They are dog shit in Davidson County. They have said the average pay for these new jobs will be $150,000. I'm already a bit skeptical of that, but assuming it's true, you are most likely talking about mid career corporate professionals that almost assuredly have kids or are having kids. That means they are going to spread out in pockets outside the city, Franklin, Murfreesboro etc. We also don't know how many people will be hired locally, in which case the net change is 0. So while it's a decent amount of jobs, I don't believe that it will have a sizeable effect on real estate in particular.

They could also send their kids to private school like everyone else in the top tax bracket who doesn't live in Brentwood or Franklin

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Nov 16, 2018

I'm not disregarding that, but your options in Nashville where these people would actually want to live are relatively limited. The amount of people that actually live in Nashville, averaging $150k a year, with families, are vastly, vastly outnumbered by their counterparts in Brentwood and Franklin. So sure, some will live in Nashville, but I doubt the majority will.

Most Helpful
Nov 16, 2018

Sure, tons of Amazon employees will live in Williamson County. I think you're disregarding the fact that 5,000 new jobs will be coming downtown, though. Amazon will all of a sudden be a top 5 employer in the Nashville area.

I think the biggest benefit here is that they are taking down 1MM SF of spec space and will anchor a development that will really change the city as a whole. Everyone here is excited because it helps solidify Nashville's value proposition and I think we'll see more and more announcements like this one. It "take the lid off" essentially.

Also, I think we will start to see some national real estate brands launching regional offices in Nashville as we become seen as a more institutional market.

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Nov 16, 2018

Good points, I guess I'm just a bit cynical about the value that is always promised by bringing large firms into cities, and the actual value generated later on. It really will depend on whether they actually blow the lid off like you said, or it becomes a sort of one off. Time will tell. An interesting thing to watch for will be how Nashville real estate fairs against comparable cities in the next year or two.

Nov 19, 2018

Thanks for the reply, guys. Really interesting to hear people's take on a market that I'm not in, but often wonder about.

Nov 20, 2018

Did they announce (or is it locally known) which project they'd be taking? AllianceBernstein took the one on Broadway, right?

Nov 20, 2018
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Dec 3, 2018
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Dec 4, 2018