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Multifamily Investors Await Clarity on Nashville’s Economic Recovery

Out of state investors are driving acquisition activity in Nashville. Recent examples include Virginia-based Snell Properties purchasing Retreat at Iron Horse (pictured).

Owners and buyers remain apart on pricing. Unlike some densely populated urban areas where the extent of the damage to local commercial real estate operations is unknown, the gap in Nashville persists due to uncertainty regarding the upside potential rather than downside risks. Owners are hesitant to list properties because the metro remains a safe portion of their portfolios. If this disconnect persists, pricing will return to pre-recession levels before many other areas of the country.

In the early months of the COVID-19 pandemic, multifamily transactions slowed to almost a standstill.

David Stollenwerk, Marcus & Millichap

However, transaction velocity picked back up and made a strong rebound between the third and fourth quarters of 2020. Although total sales volume dropped from $1.9 billion in 2019 to $1.6 billion in 2020, it was still the third-highest sales output since 2010 and cap rates averaged 5 percent, down 28 basis points year-over-year.

California-based investors represent the lion’s share of investment activity, purchasing over $650 million of assets in Nashville in 2020. We are seeing more cities buying into Nashville such as Virginia-based Snell Properties, which purchased Retreat at Iron Horse in the Nashville suburb of Franklin for $306,000 per-unit in September. San Antonio-based Embrey developed the Class A community, which was designed by Greg Gamble of Gamble Design Collaborative.

Out-of-state investors like Snell Properties continue to be attracted to Nashville due to its job and population growth. E-commerce giant Amazon announced it is ahead of schedule hiring its thousandth employee for the company’s Operations Center for Excellence, where it will house 5,000 employees at the Nashville Yards development in central Nashville. Amazon credited the milestone to the area’s strong and diverse talent pool.

The Metropolitan Council adopted a funding plan for Monroe Investment Partners’ $265 million mixed-use development River North, which covers a roughly 105-acre swath of industrial land immediately north of the Topgolf sports and entertainment venue on the East Bank of the Cumberland River. The Council’s vote comes as software giant Oracle pursues a major office hub on the surrounding land at River North that could involve thousands of jobs, according to multiple media sources.

Despite COVID-19’s negative impact, Nashville continues to display resilience, as shown by U-Haul’s 2020 Migration Trends Report that ranks all 50 states by migration growth. Tennessee claimed the No. 1 spot for the first time, while California drops to Number 50. In the recent Milken Institute’s report: Best Performing Cities, Foundations for Growth and Recovery, Nashville ranked No. 8 out of 200, up from No. 14 in 2019.

As the city of Nashville has demonstrated resilience, so has its apartment market, with rent growth increasing by about 1 percent year to date. This increase in rents is being driven by suburban assets. The best performing year-over-year rent growth is happening in markets such as Lebanon (3.3 percent), Hermitage (3.2 percent), LaVergne/Smyrna (2.7 percent) and Hendersonville (2.5 percent).

The suburban attraction is supported by some of the world’s most well-known employers. Amazon is constructing a five-story, 3.5 million-square-foot distribution center in Mt. Juliet, which will bring 1,000-plus jobs to the Mt. Juliet/Lebanon market. Additionally, Facebook will build an $800 million, 1 million-square-foot data center in the Gallatin submarket.

As growth continues, Nashville’s International Airport (BNA) plays a vital role. BNA is the fourth-fastest growing airport among the top 50 airports in North America. The airport’s “BNA Vision” initiative is the dynamic expansion plan designed to get in front of Nashville’s growth and maintain BNA as a world-class transit hub. BNA Vision includes an international arrivals facility that is set to be completed by late 2023. The opening is anticipated to increase direct international flights, which added British Airways flights to London in 2019.

— By David Stollenwerk First Vice President, Marcus & Millichap. This article originally appeared in the February 2021 issue of Southeast Real Estate Business.

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