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VOL. 35 | NO. 12 | Friday, March 25, 2011

Downtown do-over

Reduced price points, condo-to-apartment conversions offer new options for urban living

By Joe Morris

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Many of those who wanted to live in or near downtown a few years ago but couldn’t swing the prices may be getting a do-over.

Less than a decade ago, there were few, if any, home-owning opportunities downtown. Then came a wave of condominium rehabs and new construction – and some pretty hefty entry prices.

Still, units in the new buildings sold, some better than others, until the Great Recession. Units sat empty, and those who had bought worried about resale value and what might happen to the buildings themselves.

The latest chapter began a few weeks ago when a flurry of announcements highlighting moves by developers, both old and new, to revitalize the market. With new price points and apartment conversions, everything seems to be on the table as efforts are made to breathe new life into the urban housing market.

“I would say that the repositioning of the condo market has taken place, and now we’re going to find a new equilibrium over the next year or two,” real estate broker Grant Hammond says. “Some of these repositioned condos will sell, and some are going to become apartments and get leased pretty quickly.

“I think in a couple of years we’ll be back to healthy condo market in terms of resale and price stabilization, and the ability of the physical reseller to compete with a developer-owned condo. That’s been the real roadblock up to now — people with one or two units having to compete with developers who still owned many units within their own development.”

The large-scale condo market began to move again in 2010 with the sale of Belle Meade Court, which was bought at a discount by a California developer who has since dropped the prices on unsold units, Hammond says, noting that other speculators seemed to be waiting for someone else to go first before jumping into the Nashville market.

“Then Rolling Mill Hills was finally purchased after a lot of different groups indicated interest, but weren’t able to make the pricing work with their equity partners,” Hammond says. “And then came the new purchase of Fifth and Main, and Velocity, as well as the owners of Terrazzo taking out the developer and deciding to adjust their prices downward with good results. So a lot of these condo question marks are being addressed.”

As further proof, he points out the Adelicia, which posted slow sales until prices were lowered, then quickly began to see units move.

“A lot of the major activity that we needed to see take place has done so, and now we’re going to be in a period of unsold-condo absorption for a while. The prices are going to get to where they need to be, and we might even see a shortage again in a few years.”

Meanwhile, property owners are finding many different routes to profitability.

Fifth and Main, which recently sold in February for $9.333 million, was built to LEED standards and opened during the worst period of the recession.

New owner ACG Equities is working to rebrand the 129-unit, mixed-used project with lower prices, including working with the Metro Housing and Development Agency to promote 23 units as affordable housing. Those units will be available to buyers earning less than 80 percent of the area’s median income. In this case, that means the units will sell for as low as $129,905 when the property goes back on the market in April.

“This property has vast potential, and we are thrilled to be part of bringing it back to the market,” says David Lang, a principal with ACG.

From a supply and demand perspective, he adds, the Nashville urban-condo market is very attractive now.

“The local residential real estate market is on a strong uptick,” he explains. “This has resulted in a dwindling supply of new unsold urban condominiums with no new supply on the horizon. As business continues to rebound, we will see more professionals moving to Nashville looking for an urban living environment, as well as current renters looking to become homeowners.

“The prospect of dwindling supply set against increasing demand was not only compelling to us, but should be very compelling to our buyers from a value appreciation standpoint.”

At the Velocity, where Atlanta-based Pollack Partners has purchased 220 unsold units after only 43 were purchased, a slightly different tack is being taken. The units will be leased as apartments beginning March 25, and the new owners say that this is a more viable option than selling them at this point in time.

“Most Velocity residents moved to The Gulch because they were attracted to an urban lifestyle, which means they like to live in a thriving community with other people,” says Steven Shores, Pollack’s president. “We will deliver on that vision for Velocity by making the units we purchased available for rent. The existing owners in Velocity will continue to own their own units, be a part of the Velocity condominium association for as long as they choose, and will have the option to sell their unit at any time.”

Despite the dual nature of the building’s residents, Shores says Velocity will be thought of as a condo community.

“We chose to make these condos available for lease because the rental market is currently stronger than the for sale market,” he explains. “People want to live in The Gulch but there have been limited opportunities to rent. By bringing a rental option to The Gulch at Velocity, we will fill a void while contributing to the thriving neighborhood.

“Velocity would sit empty much longer as condos for sale rather than for lease, which would be detrimental to the property and the neighborhood.”

The studio, one- and two-bedroom units, which range from 419 to 1,245 square feet, will rent from $950 to $2,000 per month.

Rolling Mill Hill’s new owners, Chartwell Real Estate Partners of Atlanta, paid $7 million for three residential buildings and are in the midst of leasing those spaces. Chartwell has said it will spend around$600,000 on upgrades to the property, and will rent the units at prices from $850 to $2,200.

At the Terrazzo, things have remained a bit unclear. The building’s 117 units were around 70 percent sold as of late last year, and lawsuits are still being sorted out between its builders and developer Crosland.

Terrazzo condo owners have filed suit as well, stating they are not being kept informed by developers. Also, they argue discounted prices that some units were sold for after their own sales were completed have hurt their equity.

But that’s often the real-estate gamble, and Hammond says that those who wait will likely be rewarded.

“In some cases, they won’t be able to sell for as high as they bought, but if they aren’t moving for a couple of years they shouldn’t be nervous yet,” he says. “I think we’ve just completed phase one of this ‘new urbanism’ movement here, and phase 2 will commence about the time the new convention center opens. And if the baseball stadium for the [Nashville] Sounds comes downtown, that will help as well. Both of those things are going to breed activity downtown.”

And for their part, some who’ve made the leap into downtown living say they did so with eyes wide open, and that the pluses outweigh the current uncertainty.

“My husband and I moved downtown after living in Donelson for more than 15 years,” says Nancy Henderson, who purchased in the Exchange a year ago. “Frustrating commutes, a disillusionment with the constant household maintenance costs and the realization that we were spending far too much time at home because going out to do something fun required too much effort led us to look at downtown lofts last year.

“We found one we loved and bought it. We knew coming in that the situation with downtown lofts was pretty grim, but considered it an advantage for us at the time. We got our loft at a reasonable price since we came in after the bubble, and fully expect downtown residential living to thrive in the near future.”

Henderson says she expects the new condo/apartment mix to continue while the area finds its way as a 24/7 community.

“Once everything shakes out there will be a mixture of apartments and condos, because that’s the mix that best serves the population,” she says. “Some downtown residents will move to a house with a yard when they decide to start a family. Some of us are here for the long haul. But downtown living is definitely in Nashville to stay; I’m not worried about that at all.”

Hammond also takes the long view. It’s important to remember, he said, that 10 years ago residential property was limited to a handful of apartment buildings.

It’s also important to remember, he adds, that 10 years ago residential property was limited to a handful of apartment buildings.

“Downtown living is really in its infancy here,” Hammond explains. “In 2004, we saw the Exchange on Church Street, and after that the biggest thing was the Veridian. So we’re not very far into the history yet.

“I don’t think the next building boom will necessarily be high-rise condos, but maybe some more mid-rise apartments or smaller condo developments. But there will be more residential development happening downtown in the next two or three years, and what’s there now will sell.”

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