A studio for $1,100?

Nashville is booming with apartment building construction but certain rental products are lacking

Nashville’s urban apartment building history is based, in large part, on the fact that it is easy to forget that history.

Locals — even those Nashvillians relatively new to the city — are familiar with Eleven North, Note 16, Ryman Lofts and Vista Germantown.

They know that Elliston 23 and Park Central are located within close proximity, understand that the West End Park district is a hotbed for rental residential product and are curious to see if 12South Flats detractors will warm to the soon-to open structure.

They are aware that 23Hundred Berry Hill, 12th and Laurel, and The Melrose are under construction.

They are hopeful about the prospects of SoBro materializing, still refer to Bell Midtown as 1700 Midtown and see Rolling Mill Hill as a renter’s goldmine.

But lost in the mass of countless multi-unit apartment buildings constructed in recent years are the names of those buildings that served as predecessors, of sorts, to the post-2005 boom of product.

Mention these structures to many folks and you might be met with looks of puzzlement.

The monikers include 20 & Grand, Mercury View Lofts and The Cumberland, each no more than 15 years old; modernist buildings Metro Manor, The Americana and The Barbizon; and vintage masonry masterpieces The Blackstone, The Fairmont and The Lee.

These underrated residential buildings, to an extent, set the stage for Nashville’s current boom of apartment construction.

But despite the intensity of development — no fewer than 12 large-scale apartment buildings totaling 2,600 units are under construction in or near the city’s core — there remain deficiencies in product offerings. For example, smallish apartments in new buildings and that rent for less than $1,200 are particularly uncommon, notwithstanding Metro Development and Housing Agency buildings such as Nance Place, Ryman Lofts and Uptown Flats (each of which carries a maximum annual salary limit for its renters).   

“The biggest issue in our market, like so many other markets, is a lack of affordable units within our urban core,” says Russ Oldham, vice president within the capital markets multi-housing group of the CBRE Nashville office and a member of the Greater Nashville Apartment Association. “The economics of these deals simply don’t work with charging rents typical of Class A properties. Land is expensive and construction costs are rising dramatically right now.”

The realities are stark. Studios in Pine Street Flats in The Gulch comprise a modest 430 square feet and command $1,099 per month.  Note 16 in Music Row offers studio units of 488 square feet rent for $1,160 a month.

The soon-to-be-unveiled 12South Flats will have studios spanning 524 square feet with a rent of $1,285.

Such rents for small spaces would have been unthinkable even 10 years ago.

“All of the new product being delivered in the market achieving rents ranging from $1,100 for studio units up to $2,500 for two bedroom units,” Oldham says. “Depending on the square footage and unit mix, this equates to averages of approximately $2 to $2.15 per rentable square foot.”   

In addition to having minimal reasonably priced new product, Nashville lacks apartments in luxury high-rises and retrofitted buildings such as warehouses and former office buildings. Lastly, there is a dearth of new apartment buildings located in moderately urbanized areas between three to five miles from downtown.

With a 22-story apartment tower proposed for Green Hills, Southern Land Co. hopes to target renters wanting both to live in a new high-rise and just outside the city’s urban core.

“Green Hills is a first-tier suburb,” says Tim Downey, Southern Land CEO. “It’s much more urban [than more far-flung suburbs] and on the fringe of the city. The thing we find fascinating is that there will be a variety of people living in the building. A third could be empty nesters. They don’t necessarily won’t to live downtown or in The Gulch. They want that walkable urban lifestyle. We’ve had so many people call us and, oddly enough, asking if we would sell a unit.”

Ray Hensler’s under-construction 12th and Laurel (sometimes referred to as The Mondrian) and Giarratana Development’s proposed SoBro will tower more than 20 stories.

Both can be successful, Oldham says.

“Whether or not new projects need to be high-rise or midrise is really a function of zoning, parking distribution and land cost,” he notes, adding that if the numbers crunch nicely, there will be renters to fill the rental spaces in high-end towers.

Marty Heflin, division executive with Terwilliger Pappas Multifamily Partners, says the luxury rental product is “necessary” but hopes developers “move carefully” with it.

“You don’t want to find deals getting underwritten and then the rents are forced upwards just to make the numbers work,” he says.

Joe Cain, MDHA director of urban development, says regardless of what the city might be lacking in apartment product, developers likely will stay focused more so on location than on any perceived market need.

“[After they find a prime location], developers will then try to provide a product that is distinguishable from other products: amenities, unit mix, layout, price, etc.

On that theme, Southern Land’s Downey says his company is “always looking.” At one time, Southern Land wanted to buy a key site on 17th Avenue in Midtown but eventually passed.

“We’re selective and we’re being cautious about Midtown,” he says. “We’re waiting to see if the absorption is OK. We’re looking at other areas where there might not have as much [product] in the pipeline.

Oldham sees hot areas for construction — including The Gulch, the Midtown/West End corridor, 12South and Germantown — eventually yielding to other areas that offer more land.

“The next frontier is the Eighth Avenue corridor, where there are two projects under construction and developers chasing other opportunities,” he says. “With the access that the Eighth Avenue corridor offers and the amount of under-utilized land, it’s easy to see why developers are making this bet.”

Those developers will also continue to bet that leasing shows no signs of slowing, Oldham says.

“Every community within the I-440 loop has experienced extraordinary leasing velocity, which I think is a testament to the overall growth of Nashville and the desire from people of all walks of life to live in our urban neighborhoods,” he says. “ Based on the pace of current leasing activity, we definitely have not come close to satisfying the demand for high-end rentals. If and when we reach that point is tough to predict. I am bullish on Nashville’s job growth and I believe the supply that we are seeing now will be absorbed just fine.”