Nashville braces for major influx of apartment buildings

Some 3,100 rental units are slated to come online by 2015. Can we handle them?

In the mid-1990s — long before dirt was moved for his Viridian and Encore condominium towers — Tony Giarratana held a vision at which many locals likely scoffed.

The Nashville-based developer strongly believed downtown needed a high-rise apartment building — despite the city’s having seen, for years prior, minimal construction of large-scale rental residential buildings within four miles of the central business district.

Indeed, The Cumberland, which opened in 1998 on Church Street, was cutting-edge — if not in design, then clearly in model.

“It required a lot of selling, not just of The Cumberland to the residents but also the concept of the lifestyle,” said Woody McLaughlin, a member of the Greater Nashville Apartment Association and that entity’s expert on the city’s rental residential property statistics.

“[But] Tony is a super salesman, and if anybody could have done it, Tony could.”

And Giarratana did, as The Cumberland quickly garnered  notice and popularity. However, it failed to spur additional large-scale urban apartment development. Instead, the early to mid-2000s saw a major construction boom of massive, multi-unit condominium buildings in Nashville’s urban core.

The activity was, by Nashville standards, dramatic — and resulted in an overbuilding. The condo crash of 2008-'10 and a recession, which spurred many jobs-concerned folks who were considering buying to opt for renting instead, refocused attention on rental residential development. Now, developers of multiunit apartment buildings targeting urban districts are bullish on the city. In fact, Nashville is poised for the construction of 15 apartment buildings with 50 or more units each located within the city’s Interstate 440 loop.

Five projects — Eleven North, Elliston 23, Midtown Place, Ryman Lofts and Vista Germantown — are under construction.

By spring, onsite work could possibly have begun on six others — the Centennial Park-area Park 25 (a Giarratana project), West End Village (slated for West End Park and led by the Atlanta-based The Residential Group), Gatewood (a Metro Development and Housing Agency workforce housing building on Dickerson Road), The Melrose (a co-development involving The Parkes Co. and Fulcher Investment Properties), MarketStreet’s Gulch-based Pine Street Flats and a Music Row-area five-story building that Atlanta-based Stonehenge DCM plans to contruct at 16th and Horton avenues.

In addition, Bristol Development Group is shooting for a 2012 start on a 240-unit mid-rise, with a possible grocery store, at the Music Row Roundabout, and Phoenix-based Alliance Residential Co. plans to build the 235-unit Broadstone at Centennial on Charlotte Avenue near HCA.

Lastly, Ray Hensler, who developed the handsome Adelicia condo tower in Midtown, and Giarratana are both eyeing high-rise apartment towers, the former in The Gulch and the latter in SoBro.

The result would yield — assuming all 15 materialize — more than 3,100 for-rent units located no more than 3.5 miles from the city’s central business district. Six of the 15 are likely to be mixed-use, including retail, and all but four would have 150 or more units. Five of the 15 could rise seven stories or more. Twelve would be sited on parcels that are either empty or underutilized.

The addition of 15 medium- to large-scale buildings physically placed within a relatively tight geographic area could clearly alter Nashville’s manmade fabric.

“It will have a [visual] impact similar to the impact the condominiums [built in the 2000s] had, but the massing won’t be quite on the same scale,” said Marion Fowlkes, principal of Green Hills-based Centric Architecture.

“We don’t need to be building outside the core. We need to build inside. The infrastructure is already in place.”

Stephanie McCullough, Nashville Civic Design Center communication and community outreach coordinator, said a major infusion of large-scale residential buildings would “provide density that will encourage economic development, complement the goals of the 2035 Transportation Plan, increase street-level [pedestrian] activity and diversify the housing stock with more affordable options.”

The apartment association’s McLaughlin, chairman of Parthenon Properties, said GNAA’s last survey of apartment buildings of 50 or more units in the West End-Downtown submarket  yielded a response that shows approximately 3,900 rental units. Even if there are 2,000 additional units — in those buildings for which there was no response, in smaller buildings that were not surveyed and in, for example, duplexes and  homes — to bring the total to about 6,000 units,  the planned projects would represent an almost 50 percent increase in the area’s apartment numbers during a limited time span, from early to mid-2012, when the first development (Vista Germantown) comes on line to, say, mid-2015 when the last (likely the Hensler and/or Giarratana towers) could be completed. And that raises a question:

Can Nashville’s urban core accommodate such a major influx of apartments over a relatively brief time period?

“My peers in the apartment business in Nashville would have a healthy dose of skepticism and ask, ‘Are we building too many?’ ” McLaughlin said. “When I started looking at GNAA statistics, there were about 23,000 apartments in the sample [submarkets], and a banner construction year was about 2,000 units for Davidson and Rutherford counties,” he said. “In absolute terms, this [building boom] is unprecedented.”

Aaron White, president of Core Development, said supply has been “pretty limited,” creating the chance for a numbers adjustment.

“I’m building, so we believe that they will rent,” White said with a chuckle. “But occupancy and rental rates … might take some time to absorb and stabilize. It will affect rent growth and, maybe, rent levels. We don’t really know. You’re talking about a two-year period [for all buildings to come on line].”

Given Nashville’s overbuilding of condos that came on line in the mid- to late-2000s and an expected continued influx of young urbanites looking for rental space near restaurants and shops — a trend that started in the city in the 1990s and has accelerated — the construction flurry of major in-town apartment buildings is not surprising, McLaughlin said.

“Apartments are now a favored source for new financing,” he said.

McLaughlin said Nashville’s urban core absorbing 3,100 apartment units during a two- to three-year span will depend on three factors: jobs, amenities and population growth within the demographic that favors renting in an urban setting. The GNAA’s full coverage area currently sees a 94.6 percent occupancy rate.

“The market will be bigger than it is now,” he said. “Perhaps the infrastructure for downtown — grocery stores and mass transit — will all be more developed and proven.”

And if there is an overbuilding?

“If there is more supply than demand, we could face some uncertainty,” McLaughlin said. “It may well be that to fill up some of these buildings, the owners may have to offer concessions — and lower the rents.”

All interviewed for this story said the first building to come on line will rent quickly. The last few in the race could face major uncertainty.

David Hanchrow, Bristol Development Group chief investment officer, said he feels “many” of the 10 proposed projects will materialize.

“[However], the ones that are going to have to get north of $2 a square foot [in rent] to get the required return on investment will be somewhat challenging,” Hanchrow said. “And the projects that will suffer the most will be those that have the least walkable amenities,” he added.

But when assessing the 10 proposed projects, even the three with seemingly the fewest “walkable amenities” — Midtown Place, Broadstone at Centennial and Eleven North — are each within no more than four blocks of at least two current or proposed major amenities.

Regardless, Hanchrow said he is comfortable the city is not at major risk of seeing a troubling rental residential excess simply because “Nashville is still behind the curve in terms of urban living.”

Multiple  experts interviewed seemed to reach the same conclusion: With its numerous colleges, diverse economy and national brand, Nashville will continue to draw young, educated people — the types who
demand a small, yet nice, space in which to eat and sleep while devoting their free time to living an urban lifestyle. 

Core Development chief White said the apartment boom is a “bet on Nashville’s growth.”

“These are not crazy numbers,” he said, “for the city the size of Nashville and for [this type] submarket.”