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January 19, 2016

“In 2010, the high water mark price per-square-foot (PSF) for Nashville multifamily product was around $1.50. Today, it’s around $3.50 PSF,” says Vince Lefler, Senior Vice President at JLL. “It’s a sign that investors are embracing strong secondary markets as a way to secure yield.”

The momentum is not limited to one type of investor profile: groups ranging from institutions, life companies, pension funds, REITs and private equity all have Music City on their radar. The proof is in the numbers with the market’s multifamily investment sales volumes hitting $1.39 billion in 2015, up from the previous year’s $1.27 billion total.

According to JLL research, plenty of secondary markets are boasting strong multifamily performances, growing 19.9 percent as of Q3 2015. What sets Nashville apart?

Urban design: According to The New York Times, urban design rules the roost in Nashville. Recently, the city’s zoning code was adjusted to promote mixed-use spaces encompassing retail, multifamily, office and entertainment – and in turn, the enviable ‘live, work, play’ atmosphere.

David Hendrickson, Managing Director at JLL points out that the city’s high quality of life and affordability is enticing professionals to pursue Nashville’s growing number of job opportunities, all of which fuels the need for multifamily development.

Consider Nashville developer Tony Giarratana’s latest project, the 505. The proposed 543-foot-tall tower will stand at the corner of Fifth and Church in downtown Nashville and feature 550 residential units, ground floor retail space and amenities like no others in Nashville. JLL just secured $131.5 million in financing for the 505 to break ground, with a bank and a core real estate fund providing the construction debt.

505 Rendering_Nashville

“The new norm for Nashville’s multifamily development pipeline will include a mixed-use component and sophisticated amenities,” says Hendrickson. “With construction levels high, location is becoming increasingly important – deliveries are being well-received but developers need to plan the right property in the right location.”

The rise of the neighborhood profile: Is Nashville primed to join the ranks of urban centers like New York and Chicago? When it comes to neighborhoods, it’s certainly well on its way.

For example, New York and Chicago’s multifamily markets are often described by their neighborhood: think East Village, SoHo or Chelsea in Manhattan and West Loop, Gold Coast and Wicker Park in Chicago. Now it may be Germantown, SoBro or West End in Nashville.

“For the first time, we’re seeing investors and renters view Nashville’s submarkets at a neighborhood level,” says Lefler.  “The vibe and lifestyle can change within a few blocks, making it very exciting to rent here.”

One of Nashville’s up-and-comer neighborhoods is 12South + 8th Avenue and the proof is in the latest trade. JLL recently closed the $61.2 million sale of 23Hundred at Berry Hill, a 266-unit, newly constructed and highly amenitized multifamily asset near Vanderbilt University and Downtown Nashville. The white-hot neighborhood is home to restaurants, entertainment venues and creative office space.

Diverse economy (Yes – it includes tech): Health care, government, education: you name the industry, it likely has a strong presence in Nashville and strong job growth provides the market with a balanced, well-performing economy. In addition, Nashville has a large talent pool close to home as 15 universities are based in the city.

The influence of health care may come as no surprise – according to the Nashville Chamber of Commerce, 16 publically traded health care companies are based in Nashville and directly employ 110,000 workers. What may not be quite as intuitive is the influence of technology.

According to JLL’s Technology Outlook Report, Nashville boasts a high startup opportunity at a lower cost. Traditional tech hubs like Silicon Valley or New York are increasingly pricing out new firms and Nashville is one market poised to capture tech talent.

Tech heavyweights are already on board with Music City: Google Fiber, the company’s internet and television service which offers blistering fast download speeds began as an experimental project in 2010. Since then, Google announced the service will be rolled out to nine metro-areas, including Nashville due to its strong infrastructure, business-friendly environment and population growth. In addition, the search engine giant announced last month that it will invest in a $600 million data center just north of the city.

Another vote of confidence boosting Nashville’s tech rise is TechHire. The $100 million White House initiative seeks to build tech talent and opportunities across the country and Nashville, along with Chattanooga, Memphis and 18 other cities, was selected as a recipient. As tech continues to grow, so will total population and, in turn, multifamily demand.

What’s next for Nashville?

JLL predicts continued multifamily momentum in 2016 due to continued job growth, infrastructure investment and affordability.

“Institutional-quality product in urban, infill locations is in high demand,” says Lefler. “However, value-add is still a prime investment strategy – we’re seeing a 10 percent rent growth in B and C product and up to 30 bids for these assets. There’s an incredible opportunity for investors to renovate and drive values.”

However, Lefler points to a very straightforward reason for the activity and interest in Nashville… “It’s just a fun, cool place to live.”

 

Vincent Lefler
Senior Vice President, JLL Capital Markets, U.S.

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