5 Year Nashville Condo Market Analysis

November 2009 condo closed sales comparison

The economic recession has affected the US housing market disproportionately. The problem is that the local, regional and nation media outlets are very good at pointing out the obvious bad markets like Las Vegas, Miami and Phoenix, but they are very bad at explaining where the rest of the local markets are in the housing cycle. In fact, most media outlets are simply content with spouting out static market data without the necessary analysis that would follow in your Economics 101 class in college. This leaves buyers and sellers having to decipher their local housing market riddle themselves.

What Nashvillians believe about the condo market

In an effort to find out what the general public in Nashville thinks about the downtown condo market, I used the oldest method in the book, I simply asked. It turns out that 79 out of 100 people not in the real estate or development industries thought that the Nashville condo market was about to crash. That’s a pretty large percentage.

When I asked how long they thought the condo market would take to turn around, the average answer came out to 5.7 years. That’s a pretty long time to reach the bottom.

When I asked how bad do you think prices are now and what year in the past would you equate our current pricing I got very consistent answers. All 100 said that recent auctions and “too many condos” on the market have driven prices down and made this a horrible time to buy a condo. The average equivalent year in Nashville’s past was guessed to be mid 2002.

When I then asked what defined “the bottom” of the condo market, I got a bunch of media-like answers and a couple more dynamic answers too. Most people said that the bottom of the market was at the point where prices began to go back up. Some said that the bottom was the point at which existing inventory began to appreciate – interesting. A couple others said that the bottom was the point at which developers and banks began to build new high-rises – also interesting.

What the data shows about the Nashville condo market

Let me first start with everyone’s hot button, price. Most are not surprised to learn that the average median price for a Nashville condo is lower than it was for each of the past 3 years, but all are very surprised to hear that all of those average prices are higher than 2005 prices. another interesting fact is that the median price has been rising for the past 2 months and will most likely rise again in December. Have we reached a median price bottom? That is very had to conclude at this time.

November 2009 condo price comparison

When I asked people about their opinion of the bottom of the market, many eluded to a time when the prices began to rise, but some touched on a time when more condos were sold. Looking at the historic data, the Nashville condo market closings are quite strong. So strong in fact that we’ve eclipsed 2008′s numbers and are coming closer and closer to doing the same for 2005′s numbers as well. More importantly, if you only look at the 2009 data line and were to draw a trend line, you’ll notice a bull upward slant for the past 11 months. Even in a time when our traditionally cyclical market loses momentum, the Fall 2009 condo closings are bullish.

November 2009 condo closed sales comparison

There is one area where the general consensus is correct, inventory. Our total condo market inventory is still flirting with 2007′s and 2008′s highs. At the moment, the 2009 inventory levels are lower than each of the past 2 years, but are still significantly higher than 2006 and certainly 2005. None of these inventory levels reflect the shadow inventory, but one must believe that shadow inventory levels are currently higher than they have ever been. The good news is that condo inventory levels have been dropping consistently since May 2009 when developers began to offer close out specials in earnest in an effort to dissolve their higher than usual inventory.

November 2009 condo inventory comparison

Nashville condo market analysis conclusion

It is not mid 2002 again in the Nashville condo market. Prices have not dropped to the pre-boom prices of 2003-2004. Inventory levels are still higher than what our market has traditionally carried and they are ever so slightly falling.

In my opinion, we are at the bottom of the condo market in Nashville. The next 12 months will be the absolute best time to acquire a condo and also be the worst possible time to sell a condo. Condo median prices will more than likely remain stable, but inventory will continue to burn off as the higher priced condos are sold at discounts that include big developer incentives. As a result, the average price per foot in each of the larger condo high-rises with developer owned inventory will fall to net record lows. The number of sales will continue to accelerate as more buyers begin to realize that the most desirable condos are disappearing from the market and jump off the proverbial fence. Buyers who are not equipped with all of the facts will indeed pay a higher amount than those buyers who seek out expert opinions and research. Those with a Warren Buffett mindset will be the ones who profit in just 3-4 years when prices spike due to a shortage of condo inventory.

Velocity Condos in Nashville Sales Update

As of the end of November, the Velocity in the Gulch has closed 20 condos out of a possible 265 (7.5%). Granted, the grand opening was just over a month ago, but sales have yet to set any impressive marks. Surprisingly, the average price per square foot still far exceeds $300/ft coming in at $330.58.

Date Name Unit Price Sq Ft Price/ft
6/17/2009 Nashville Urban Ventures, LLC 247 $190,400.00 543 $350.64
7/14/2009 P. Copeland 112 $203,950.00 621 $328.42
8/3/2009 J. Williams 337 $137,500.00 442 $311.09
8/4/2009 D. Lee 301 $144,000.00 419 $343.68
8/5/2009 B. Frazier 108 $208,400.00 621 $335.59
8/18/2009 M. Abdallah 327 $273,700.00 840 $325.83
8/31/2009 J. Osborne 103 $134,900.00 419 $321.96
9/1/2009 J. Johnson III 428 $231,900.00 710 $326.62
9/4/2009 R. Canos 114 $309,900.00 840 $368.93
9/18/2009 J. Linares 312 $199,400.00 621 $321.10
9/23/2009 B. Applegarth 132 $190,000.00 621 $305.96
9/29/2009 W. Hartness 456 $220,000.00 710 $309.86
9/30/2009 R. Schuman 425 $190,800.00 543 $351.38
9/30/2009 R. Grantham 441 $146,500.00 419 $349.64
9/30/2009 T. Mikula 274 $180,000.00 543 $331.49
10/22/2009 E. Davidson 248 $182,750.00 543 $336.56
11/9/2009 J. Crafton 251 $330,000.00 960 $343.75
11/20/2009 J. Calhoun 237 $137,000.00 442 $309.95
11/25/2009 G. Papica 200 $280,000.00 865 $323.70
12/2/2009 P. Bell Jr. 427 $265,000.00 840 $315.48
           
  Average Price Paid   $207,805.00  628 $330.58

 

What’s next for the Velocity

Sales prices are going to have to come down in the building for these condos to sell. To put this into prospective, the 22-story Icon next door has averaged just over $295/ft for their last 20 closings (includes 5 price controlled MDHA condos). If you take out the 5 MDHA condos, the last 20 sales average $315/ft. I cannot see how the Icon is going to be less valuable than the Velocity in the long term.

On the rental front, a 2/2 Flash floor plan on the first floor rented for $1,695, a 1/1 Speed floor plan on the 4th floor rented for $1,375 and a 1/1 Speed floor plan on the 3rd floor rented for $1,295. There is a 1/1 Jet floor plan that is having trouble leasing for $1,100 due to its 543 square foot size. Potential Velocity renters are just not interested in condos this small when there are other options available. The Jet floor plan condo is the only unrented condo I am aware of in the building.

While the Velocity appears to have a very low vacancy rate, there is no debating that condos rent for higher amounts in the Icon.

5:52pm Note: I have been told that I am missing 1 sale. I will verify that sale when I pull deeds again at the beginning of next month.

See all condos for sale in the Velocity in the Gulch

Tennessee Mortgage Delinquencies and Foreclosures

foreclosure sign

foreclosure sign

Mortgage delinquencies and foreclosures were weak in the second quarter. According to Tennessee Housing Market, a publication of MTSU’s Business and Economic Research Center, “The continued weakness in mortgage loans is a consequence of the financial stress Tennessee households are experiencing as unemployment rises and household incomes fall. Mortgages past due in Tennessee rose to 10.33% in the second quarter, higher than 10.09% in the first quarter. New foreclosures in Tennessee continued to climb, reaching one percent of all mortgages. The current inventory of mortgages in foreclosure recorded its largest increase yet, rising by 0.26 percentage points from the previous quarter.”

These type of numbers put Tennessee right in the middle of the pack as the 24th ranked state for number for mortgages that are under water. However, only 1 in every 100 mortgages being in foreclosure puts Tennessee as the 18th healthiest state.

Nashville Medical Trade Center Announced

Media Trade Center Exterior

Nashville Media Trade Center Legends Corner

The Market Center Management Company on Monday announced plans to build and operate a $250 million Nashville Medical Trade Center on the site of the city’s existing convention center that officials say could create 2,700 jobs.

Market Center Management officials plan to construct a 12-story tower above the existing convention center with more than 1.5 million square feet of exhibit space, including permanent exhibit space for 600-1,000 medical equipment companies, display space for temporary trade shows and a medical education and symposium center. In all, the project would bring the total available space at the Nashville Medical Trade Center to approximately 2 million square feet. The company is also exploring a possible public interaction center facing Broadway, such as a museum or a broadcast center devoted to health care issues.

The new Medical Trade Center is projected to attract more than 150,000 estimated annual visitors to Nashville. This is a significant number of visitors spending a significant amount of out of State dollars.

“The trade center represents a transformative change and an opportunity for progressive health care innovation,” said Jeffrey Balser, M.D., PhD, vice chancellor of health affairs, Vanderbilt University. “A single location showcasing best practices in products, services, research, training, and education is a uniquely creative approach to bridge industry and institutions.”

Governor Bredesen, who founded and ran Nashville-based Coventry Health Care before entering politics, said the a medical mart is overdue in the health field.

“In one place providers will be able to do something we consumers have taken for granted for years, which is to comparison shop,” Bredesen said. “The end result will be smarter decisions on the part of physicians and hospitals and clinics, along with greater efficiency.”

When will construction begin?

This is an unusually interesting question. Since the official vote to create a replacement convention center has yet to occur, it is hard to say when or if construction could begin. If all plans fell into place, construction could begin as early as mid-2010. For this to occur, the city council needs to vote to approve the creation of a new convention center in Sobro, the remaining land needs to be acquired for that new center, bonds need to be issued for construction and oh yeah, 400 to 500 medical trade space tenants need to sign pre-leasing agreements.

I am obviously not in this line of business, but it would seem a rather tall task to obtain that many tenants that quickly. I hope that someone in this industry can comment below to help enlighten us.

Should all of the above pieces fall into place, the Medical Trade Center could open just as the new convention center does in 2013.

Media Trade Center Location Map

Where will the Medical Trade Center go prior to 2013?

The word in the development world is that Market Center Management is very close to signing a 3 year lease agreement on the vacant 250,000 square foot LifeWay space located along 9th and 10th Avenue North in downtown Nashville. I have no verification of this information other than a few anonymous, yet trusted sources.

What will be the real estate impact for Nashville?

The most obvious answer is that the creating of a Medical Trade Center, a new convention center and all of the ancillary business that accompany these projects will help boost downtown land and building values. It will also create an increased demand for residential housing and may be the catalyst that devours the remaining condo inventory.

I would not be shocked if a new downtown condo project were to rise in Sobro or in the Gulch within 4 years as a result of this increased demand. Additionally, current condo owners in all of the CBD, Sobro and Gulch areas should see their prices increase quite nicely prior to the completion of any new residential units.

What you don’t know about the Medical Trade Center

Dallas based Market Center Management Co. is in direct competition with two rival medical mart projects being pursued in Cleveland and New York.

Bill Winsor, chief executive of Market Center Management, said he expects the Nashville mart to prevail as New York is too expensive and because “Cleveland, in our mind, is not a health care destination.”

The Cleveland project would be operated by Chicago-based Merchandise Mart Properties Inc. County commissioners there increased the sales tax in 2007 by a quarter percentage point to help pay for the proposed $425 million project which has suffered continual setbacks.

More pictures of the Nashville Medical Trade Center

Update 11/22/2010

Is Nashville falling behind Cleveland in the race for a Medical Trade Center?

 

Brentwood Homes Price Value Analysis

I was recently asked by a client to research all available homes in Brentwood priced above $500,000 that were built after 1997 and have at least 4,000 square feet, 4 bedrooms, 3 bathrooms and a 3 car garage. This particular executive client is in search of a primary residence in Brentwood, but would like to ensure that he is buying the best mixture of value, location and quality. Prior to speaking with me, this particular client was very focused on the distressed short sale and foreclosure markets and was led to believe that market would provide the biggest bang for the buck.

As a broker who has a wealth of experience in the short sale and foreclosure markets, I agree that this market segment can provide great value, but not to the exclusion of the traditional for sale marketplace. It would be a rather egregious mistake to ignore either market when seeking the highest and best values.

In order to investigate and ultimately prove the above assertion I gathered the current market data below which ranks the 209 homes that match my client’s specifications by price per foot. I do realize that price per square foot is only one facet of measuring value, but it does provide a quick insight into the point that the traditional marketplace does offer comparable value to the distressed market in Brentwood. Obviously, I dug further into the data creating a metric that ranked other factors that determine value like location, lot size, age of construction, school zone and current condition (I am not going to share that spreadsheet in order to protect my client’s privacy).

According to the price per foot analysis below, indeed 3 of the top 6 deals are distressed homes. However, the two best deals are homes listed on the traditional market. Looking further down the chart, you’ll notice that the distressed sales are not priced any better than the traditional sales and in some cases, the distressed Brentwood homes continue to be listed at premium prices.

While this article was not meant to discuss the Brentwood housing market as a whole, I do find it interesting that more than 200 homes are listed in this rather exclusive price range. Additionally, only 9 of the homes currently for sale (4.3%) are listed on the distressed real estate market. However, 209 homes does represent a 13.2 month supply of homes in this price and size range based upon a current running 6 month average of 15.83 homes closed a month.

Highlighted in yellow denotes distressed sale.

Brentwood home price comparison

Advice for Nashville Condo Buyers

Quite a few people have been calling, emailing, Facebooking, instant messaging, tweeting and texting me with a million different variations of basically the same two questions. 1) I am a potential condo buyer, where can I buy the best deal in Nashville and 2) Which building(s) are the safest for condo investment?

General advice for condo buyers

Now is a great time to be a buyer, in fact, the next 12 months might be the best time in the history of Nashville to be a condo buyer. Obviously, there are traps one could fall into, but for the most part, the landscape is pretty clear cut. For instance, we know that there are now a finite number of condos that will exist in downtown Nashville for at least 5 years. Should our inventory absorption continue at the past 6 month’s pace, it is reasonable to assume that a developer will begin building another condo project in downtown by 2015 (most likely in the Gulch).

We also know that several developers still have excess unsold inventory. The Icon and Velocity each have more than 200 unsold condos and 5th & Main has around115. The Terrazzo has right at 100 unsold condos and is hosting a 30 condo auction this coming Saturday. The West End is also planning on an auction to relieve excess inventory, selling 45 of their 70 unsold condos on December 5th. The Encore and Rhythm each have around 78 unsold condos and both are offering heavy discounts to move that inventory. Not to mention that Rolling Mill Hill has 72 units and sits idle in receivership with no condos listed on the MLS.

The rest of the Nashville condo story

Everyone knows the above information, but very few know the whole story. Which buildings are the best projects from an investment standpoint? Which projects have the possibility of going bankrupt? Which projects have the best pure deals with the lowest risk? These are all questions that I know the answers to because I know all of the players involved.

As an example: The Encore is 80% sold and closed out, leaving 78 unsold condos on the market. There is a pervasive rumor in the real estate community that Tony Giarratana is going to lose those 78 condos plus the 18,000 square feet of retail space in that building because his development partner, Novare Group out of Atlanta, is going to file for bankruptcy in the near future. It is also a consensus that $5 million of the original construction loan still exists as secured debt on the Encore project.

This sounds like a good theory, but I rate the Encore as the second safest place to buy a condo in downtown Nashville behind the Adelicia in Midtown. I also rate it as the best place for an investment minded buyer to purchase for 2 year appreciation. Obviously, I don’t buy into the rumor that Giarratana is going to lose the building. What do I know that you guys don’t know? Yes, has loans coming due on several development sites including the Signature Tower site on 5th Ave and Church Street, but will that fact affect the Encore? If so, how will Encore be affected? Are the banking entities and financial partners all the same on all of the deals? The answer is that several partners are involved in several deals, but there is an angel among them who shall remain nameless on my website.

BTW – anyone notice the site work being done on the lot next door to the Encore and just behind the Pinnacle office tower? The Sobro Development Company owns about half of that city block, C B Ragland owns the rest with a small sliver still owned by Norma Crow. Three guesses who is a development partner is the Sobro Development Company? That’s the easy part, now guess what they are clearing that land for (gravel top parking lot is not the end use). Hint – the Mayor’s office, Governor’s Office and CVB are all working behind the scenes to make this happen.

I digress. The point is that if you are a condo buyer, do your research, don’t just buy a condo because someone tells you it’s a good deal (especially the onsite agents who all work for the sellers, not you). Tour all of the buildings and create a spreadsheet that compares the prices, views, unsold inventory, retail and location in town. Be patient – do not walk into a development one day and write a contract on a condo the next day. Negotiate – figure out what else you can get other than a price concession. There are other items like closing costs, HOA forgiveness, appliances, storage units, parking spaces and property management fees that can all be throw-ins to get you the best possible deal.

Be mindful, but don’t wait too long

I don’t know about you, but I love the Oracle of Omaha and his everyman’s sayings. Here’s the one that you need to embrace at this very moment: “Be fearful when others are greedy, and be greedy when others are fearful.” The deals are happening now while the developers are fearful of their construction lenders, but it does not take long for those developers (and banks) to regain confidence. Case in point, the Icon negotiated several sweetheart deals on downtown facing condos in the tower section of the building this past Spring, but as soon as they got to 60% sold out, the deals stopped that day. Now, if you want to negotiate a juicy deal in the Icon and want a downtown view, you have to settle for a condo in the mid-rise. The moral of this story is that there is a point at which the developers will hold onto their best inventory and if those condos are the ones you want the most, you better negotiate before they sell too many.

Of course, there are times when the opposite is true to. During the “sell out” phase of a development, typically the last 10%, you can normally wheel and deal your way all the way to the end on any of the condos. The downside is that last 10% of unsold condos are typically the least desirable floor plans and views.

Should I negotiate myself or use a real estate agent?

Working with a buying agent is not going to cost you a penny (condo sellers pay all commissions) and and buyer agent’s advice will typically save you from making a mistake. The mistake could be in scheduling the punch walk too close to your closing date and not having a fully completed condo on the day you close. It could also be smaller, like forgetting to secure contents insurance. It could also be huge, like leaving $14,450 on the table during negotiations (sorry Mike). Always work with a real estate agent who knows this market and the dynamics that drive it. I am not saying that I am the only agent who ‘gets’ it, but I am saying that the typical suburban agent does not. There are plenty of us who thrive on market knowledge, who own a copy of The Plan of Nashville, who attend community action meetings to learn about what might be coming or closing, who talk to the developers, banker and appraisers…and who have data based every single downtown condo closing from 2008 until now; well, maybe there aren’t that many of us.

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