Nashville Mortgage Rates at Lowest Level in Five Weeks

nashville mortgage rates and commercial real estate

The 30-year fixed mortgage rate fell to 4.91 percent for the week ended Nov. 12, , down from an average of 4.98 percent a week earlier, and has now been below 5 percent for five of the last seven weeks, reports Freddie Mac. Also, 15-year fixed loans fell to 4.36 percent from 4.40 percent; five-year hybrid adjustable-rate mortgages declined to 4.29 percent from 4.35 percent; and one-year ARMs slipped to 4.46 percent from 4.47 percent.

As was discussed in greater detail last week, these low mortgage rates will not last forever. It may seem counter-intuitive, but this may be the best possible time to secure low financing rates and a below market price on real estate in Nashville.

The National Association of Realtors does predict that as home sales increase in 2010 (5% increase is forecasted), so will interest rates. The thought is that as consumer confidence returns to the marketplace, the Fed will slowly respond by inching up the borrowing rates.

Commercial real estate update

According to NAR’s Chief Economist Lawrence Yun, “Who is buying? The answer is no one,” he explained. “The level of transactions is way down. We’re looking at an almost 90 percent decline from peak to current levels.” Simply stated, the commercial real estate market has fallen off a cliff.

One particularly hard-hit area of commercial is the office sector: National vacancy rates are getting precariously close to 20 percent and sales volume has fallen as far as 93 percent from its peak just a few years ago. If your company is concerned about your commercial real estate holdings, you should call or email the guys at Cumberland Commercial in Nashville. Once you read their bios, you’ll understand why.

Nashville Medical Trade Center Close to Reality

medical tradeThis article entitled “Medical trade center closes in on downtown location” appeared in the Nashville Business Journal on August the 21th, 2009. The author is Jenny Burns:

“Market Center Management Company is in negotiations for a downtown location to bring its mammoth medical trade center to Nashville, a move that developers say will bring thousands of health care professionals to Music City annually to a center larger than the city’s planned convention center.

Executives with the Dallas-based Market Center would not yet reveal the site for the $300 million Nashville Medical Trade Center, but say the existing building will allow the company to open 275,000 square feet of exhibit space by July 2010 and then start construction on the remaining phases at a nearby location.

Only a few buildings downtown offer that much space. The AT&T building has 280,000 square feet available, and the new Pinnacle tower slated to open in January has 240,000 square feet available, which wouldn’t be enough room unless they split up the space, says Whit McCrary, office division leader for real estate broker Colliers Turley Martin Tucker.

The entire project is 1.5 million square feet of medical convention and trade center space – larger than the city’s planned construction of the 1.2 million-square-foot Music City Center south of Broadway. The trade center will take several years to complete, but developers don’t have a set timeline.”

You may also recall that Market Center has recently retained long time Nashville resident David Osborn to serve as a key consultant to the project. Osborn has thick Vanderbilt ties as well as ties to venture capital based health care solutions.

Yes, I too think that we are jumping the gun on what only amounts to site selection, but if you’ll recall a very similar flurry of stories hit back in 2005…just before Nissan North America announced its headquarters move to Nashville, TN. However, Nashville has been named to PMI’s top 10 most stable real estate markets and Nashville has added jobs to its city in this exact manner before. If I had to guess, I would say that both the new convention center and medical trade center will be building and/or completed within the next 5 years.

Music City Center Hotel Build Team Chosen

new nashville music city convention center

Phelps Portman Nashville, LLC Selected to Develop, Design and Build 1,000-room Convention Center Headquarters Hotel in Nashville, Tenn.
NASHVILLE, Tenn. and ATLANTA, June 19 /PRNewswire/ – The Nashville Metropolitan Development and Housing Agency (MDHA) announced that it has selected Phelps Portman Nashville, LLC to develop, design and construct a 1,000-room hotel adjacent to the planned new Music City Center in downtown Nashville. Plans call for the hotel to feature approximately 100,000 square feet of meeting space and ballrooms, as well as retail outlets and restaurants.
During construction, the hotel will employ 750 – 800 workers at the height of construction and approximately 725 full-time employees when the hotel opens. The hotel is an integral part of the proposed downtown convention center project.
Phelps Portman is composed of Phelps Development, a subsidiary of Hensel Phelps Construction Company, a leading construction company, and Portman Holdings, a leading international developer of some of the world’s most iconic real estate. They will be responsible for overseeing the project to completion, including design, construction, purchasing and installation of all furnishings and equipment and start up of the hotel in coordination with the hotel operator.
“We reviewed 10 proposals and examined qualifications in detail,” said Phil Ryan, MDHA Executive Director. “A hotel of this scale requires special expertise to bring to fruition. The Phelps Portman group has been involved with the development of 10 hotels with 1,000 or more rooms, including the 1,190-room Hilton San Diego Bayfront Hotel, which recently opened on time and on budget to rave reviews. The Phelps Portman team has completed more than 30 LEED certified projects and this hotel also will be highly energy efficient.”
Selection of the development, design and construction team represents the latest major step in moving the convention center complex project forward. “Design and development currently are underway for the convention center building, and the selection of this team will now get the hotel under way,” Ryan said. “This headquarters hotel is integral to the success of the convention center. Our goal is to open the hotel in the fall of 2012.”
The Phelps Portman team will commence conceptual design of the hotel working in close cooperation with MDHA. Steps to follow include financing, construction and outfitting and start-up of the hotel.
SOURCE Phelps Portman Nashville, LLC

The Terrazzo Gains Commercial Office Tenant

This article entitled “BB&T makes moves to Terrazo in Gulch” appeared in the Nashville Business Journal on April the 13th, 2009. A staff writer wrote:

“BB&T has moved its commercial lending and wealth management operations from Belle Meade to the Terrazzo in the Gulch.

BB&T signed the lease for space in the $68 million mixed-use tower in early 2008, when it was the first commercial tenant to lease space in the building.

The bank’s commercial division has been located at One Belle Meade Place for five years. BB&T’s Nashville insurance arm, Cooper Love Jackson Thornton & Howell, will stay at the Belle Meade office.

The Terrazzo location downtown makes a statement about BB&T’s commitment to our clients, Nashville and Middle Tennessee,” says Natalie Ruggiero, who heads BB&T area operations, in a release.

The bank will hold a grand opening soon for a full-service retail financial center to be located in the Terrazzo.

BB&T opened its Nashville based commercial lending operation in 2004. The bank has two other Nashville area branches, one in Green Hills and the other in Cool Springs. BB&T operates 1,500 financial centers in 11 states and Washington D.C.”

This is certainly great news for the Terrazzo as well as for the other condo developers in the Gulch. A commercial tenant as prestigious as a commercial banking tenant is not easy to land in today’s volatile market. For more Nashville office space news, check out what the guys at Cumberland Commercial are doing.

See all condos for sale in The Terrazzo

Landmark Commercial Real Estate Sold Cheap

This article entitled “Is the Distressed Sale Price of Boston’s Hancock Tower a Harbinger of Things to Come?” appeared on the National Real Estate Investor website on April the 1st, 2009. Sibley Fleming wrote:

“From a seller’s perspective, the sale price of Boston’s iconic John Hancock Tower yesterday was anything but positive. The 60-story building, the tallest in the city, was purchased at a foreclosure auction in New York City by a partnership between Normandy Real Estate Partners and Five Mile Capital Partners for $660.6 million.

That price represents a 50% discount on the $1.3 billion Broadway Partners paid Beacon Capital Partners for the property in December 2006. Beacon paid an estimated $586 million for the asset in March 2003. Normandy Real Estate Partners and Five Mile Capital Partners reportedly had acquired $75 million of the debt on the 1.7 million sq. ft. property in June. Early this year, Broadway defaulted on the loans, putting the lenders in the position to buy the property. The $660.6 million sale price also includes a 2,013-space parking garage and 26,642 sq. ft. of retail space.

“The high levels of indebtedness that commercial properties incurred during the past cycle are adding tremendous pressure in the current downturn, given rising vacancies and falling operating incomes,” says Kyle McLaughlin, a Reis analyst.

Prior to the foreclosure auction, which lasted just 10 minutes and drew a single bidder, Reis estimated the property’s value to be in the range of $650 million to $750 million.

The firm’s valuation was not based on cap rates or comparable sales, given that overall office transaction volume plummeted from $101.5 billion in 2007 to $34.5 billion in 2008 – a whopping 67% decline. Instead, the New York-based research firm arrived at its price based on rent, occupancy and expense projections over a 10-year holding period.

So was the $1.3 billion price tag merited? “In 2007, it certainly seemed like it was justified,” says Victor Calanog, director of research for Reis. In 2006, cheap debt and a robust securitized lending market “allowed a lot of people to raise capital.” In 2007, office rents nationally grew by 10.6%. In New York, over the same period, rents jumped by more than 25%.

Whether or not other trophy properties acquired at the height of the boom will meet a similar fate will largely be dependent upon a given property’s fundamentals as well as the financial health of the property’s owners. “If these are big owners and they have fairly deep pockets elsewhere that can support debt payments for even a property that might not be meeting its actual debt service, then they might be okay,” says Calanog.

During the peak, says Calanog, Reis witnessed transactions closing anywhere from 25% to 30% higher than fundamental values derived from income. “There were deals happening where we couldn’t justify the value on the income the property was generating, even if you were very optimistic about rent growth,” he says.

Reis also conducted an income-based valuation on 666 Fifth Avenue, the former Tishman Buiding. The iconic New York structure was purchased by Kushner Properties for $1.8 billion in January 2007 from Tishman Speyer Properties and German investment firm TMW. The hefty sum was reportedly the highest price ever paid for an individual building in Manhattan.

Valued by rental income in the third quarter of 2008, says Calanog, 666 Fifth Avenue is now worth $1.25 billion, or roughly a third of its 2007 purchase price. The valuation was based on full occupancy and the assumption of a slight rise in vacancy in 2010 and 2011.

But here’s the good news. Unlike past downturns where the office market recovery lagged job growth by 18-24 months, Calanog expects the sector to recover in 12 to 18 months. Why will recovery occur more quickly than in past recessions? The problem today is lack of demand, not overbuilding. “If the economy recovers in 2010, we might see a recovery in early to mid 2011 for rents and occupancies,” says Calanog.

As for a recovery of valuations, he projects, “No time soon.”

Commercial Real Estate and Relief

The “NAR released a statement this week regarding the Commercial Leading Indicator, a tool that assesses market behavior in thirteen major commercial real estate sectors. Lawrence Yun, NAR Chief Economist, said all components of the CLI were down with the exception of personal income, but he commented about an encouraging possibility – that the Treasury Department is considering using the Troubled Asset Relief Program to help revive the commercial real estate debt market.”

Read the full news release

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