Nashville Housing Market Turning Corner?

If you believe that pending sales data represents a good indicator for future real estate closings and market confidence, you are probably feeling quite optimistic. In the year over year analysis of pending sales, you clearly see that the Nashville market has ‘turned that corner’, but you have to ask yourself, “what is driving these numbers?”

February 2009 showed the greatest discrepancy at a 33.5% deficit and steadily closed the gap over the next 6 months until the lines crossed in August. Now, September has proven that the August results were not a fluke and that even seasonality will not cause the year over year gains to be lost.

Pending Sales in Nashville

As I thought more and more about these numbers, I realized that the difference between 2008 and 2009 can most likely be explained by the Housing Stimulus Bill and the ever present first-time home buyers tax credit. While there are no definitive numbers that show how many first-time buyers bought that absolutely would not have bought without the tax credit, it seems reasonable to assume that number to be a small, yet significant number that would affect this particular analysis.

Where does that leave the Nashville housing market?

Once the Housing Stimulus expires at midnight on November 30th, I think that you will see an immediate effect of number of pending sales. Not only will we see the effect in December, but if my theory is correct, we should begin to see a small effect in October and a little larger effect in November’s numbers.

Thus, should we see October’s and November’s pending sales numbers continue to trend above 2008, we will know that the Nashville housing market is not being artificially supported by government and that we are in a true recovery.

Personally, I am still on the fence somewhere between true recovery and artificial simulated market for Nashville as a whole, but I am bullish on certain condo buildings and certain pockets of residential housing in areas of Nashville like Green Hills, Vanderbilt/West End and Brentwood proper.

I also know that several local and regional banks have been holding off on taking back real estate, perhaps optimistically. But, these banks are going to have to take this inventory back sooner rather than later and when they do, I expect buyers to be ready. There most likely will not be any market stagnation for these properties. Rather, I believe that you will see velocity return to the market while pricing averages continue to dip until the majority of these distressed assets are absorbed.

In other words, buyers will be prepared and properties will not last long at their new distressed price. Once that inventory is cleared, do not expect there to be a second round. It’s a one shot deal for the residential buyer looking for premium homesand condos at distressed prices. This isn’t Las Vegas or Phoenix, Nashville did not experience a miraculous run up in pricing and will not experience a miraculous number of steals.

It is worth mentioning that Congress is currently contemplating the continuation of some sort of housing  incentive program that would continue after November 30th.

Harris Interactive Poll Ranks Nashville and Tennessee High

The annual Harris Interactive poll that ranks the 15 most desirable cities and states to live in was released yesterday. Nashville popped back into the list as the 12th most desirable city to live near after having dropped from the rankings for the past 3 years. Tennessee also gained a spot and knocked Oregon down a place to claim the 9th spot.

According to this poll, Nashville ranks higher than Atlanta, Orlando and Los Angeles. Tennessee ranks higher than Oregon, New York, South Carolina, Massachusetts and Georgia.

“The most popular states and cities where large numbers of people would like to live tend to attract tourists and business,” Harris Interactive says. “They are places where people like to take vacations and where companies like to have their offices and factories.”

This poll bodes well for Tennessee and especially Nashville as our city decides whether or not to build a new convention center called the Music City Convention Center. Clearly, the rest of the United States sees Nashville as a great place to work, love and play. When are we going to start to believe it?

Other Poll Results

Coastal states tend to dominate the list. California ranked No. 1 for the sixth consecutive year as the place Americans would most like to live. Florida came in second, and Hawaii was third.

New York City tops the list of cities that people would most like to live in or near, followed by Denver and San Francisco.

Nashville was only 1 of 2 southern cities to have both their state and city ranked in both polls. Atlanta was the only other.

$8,000 First-Time Home Buyer Credit Expires Soon

The Tennessee Association of Realtors made a pretty cheesy, yet surprisingly informative animated video to help us understand the $8,000 first-time home buyer credit. This video touches on how to qualify for the tax credit, who qualifies, how the credit works and how you apply the tax credit to get cash back.

Unless the tax credit program is extended by Congress, and I hope it is, a homebuyer is eligible for the tax credit only if the home is “purchased” before December 1, 2009. That means that you have to find a house, complete a contract, satisfy any contingencies, secure a mortgage and go to closing by November 30th. Accomplishing those tasks by November 30th will become more difficult with every passing day. In today’s market, it generally takes between 30 and 45 days to go from contract to closing and that’s assuming you have found the property you wish to purchase.

You have 55 days left in order to qualify for the $8,000 home buyer credit

Under this program you can buy a house, condo, townhome, co-op or even a houseboat. I obviously specialize in the Nashville condo market. Downtown, Midtown, Green Hills and West End are specialties, but I also do quite a bit of work in Brentwood, Cool Springs and Franklin. If I am not an expert in the area in which you wish to purchase, I will point you towards the person who is that area’s expert. Let me know if I can help.

How Nashville West End Summit Became Lake Palmer

Lake Palmer Nashville

Located at the gateway to the West End corridor, Nashville has a new water feature called Lake Palmer. Lake Palmer is not exactly a lake, but is actually the unintentional result of stalled construction from Alex Palmer’s West End Summit mixed-use project. The more than 80 foot deep construction hole appears to be at least 70% full of water at this time, making it about 56 feet deep. I know we are joking about it, but at 56 foot deep, this unofficial body of water would be deeper than most of Percy Priest Lake and Old Hickory Lake. Concerned citizens have complained that the site is a public health and safety hazard, but it remains to be seen what the City of Nashville may require Palmer to do in addition to the current fencing and concrete barriers.

The West End Summit has planned twin 25-story towers, 900,000 total square-foot complex that will house 500,000 square of Class A office space, high-end retail space, 1800-space enclosed parking garage, the InterContinental Hotel and 47 ultra luxury condominium units. It is reported that the 281 room InterContinental Hotel will span floors 1-18 and the luxury condos will rise above the hotel on floors 19-25 in the tower closest the central business district. Initially, the project was slated to be a 1.6 million square foot mixed use site, but was scaled back in 2007 to just over 900,000 square feet. Similarly, the initial construction cost estimates were scaled back from almost $300 million to just over $200 million. Ironically, or maybe not, these construction cost estimates, timelines, and scale backs are very similar to those of Tony Giarratana’s Signature Tower upcoming project in downtown Nashville.

The project had initially been projected to be complete in 2010, but there is no new information on a construction, let alone, completion timeline. It is also rumored that permanent construction financing cannot be attained until more than 60% of the office space is lease on a 10 year lease at $28/ft. Currently, the deed of trust on the property shows Alex Palmer owes Wachovia $21.5 million with no plans to proceed with going vertical.

Condos in the West End Summit

“The Summit Residences, positioned directly above the hotel, have been designed to create the most luxurious condominium experience in the Nashville market. Residents enjoy all the benefits of the hotel amenities while experiencing superior views of Nashville’s beautiful skyline. A private entrance and a dedicated concierge help to maintain the exclusivity one would expect for a development of this caliber.” Owners would have 24 hour access to a 10,000 square foot state-of-the art health club and resort spa, room service from both InterContinental Hotel restaurants, maid service, turn down service and butler concierge.

The condos range in size from 1,100 to 2,100 square feet, were priced at an eye popping $750/foot and ranged in price from $850,000 to $1,533,000. Several condos were originally listed on May 14th, 2007 by Worth Properties, but were all withdrawn from the market 762 days later. It is reported that Worth was only able to place 3 condos under contract during this 25 month period.

Hotel partner in the West End Summit

The Intercontinental Hotel brings a new level of class and amenities to the Nashville lodging market. Elegantly appointed guest rooms with pillow top bedding, floor to ceiling windows and marble baths, create an inviting space for visitors. Guests also enjoy access to a first class resort spa, fitness center and pool conveniently located in the hotel.” It is unclear as to whether or not the UK based hotelier is still committed to the project at this time.

Office building portion of the West End Summit

“The office tower is ideal for companies looking to create the perfect work/life environment for their employees and to convey the highest level of professionalism to those that visit their space. The office entrance sets a professional tone with a first class lobby experience complete with marble floor, exotic wood and glass finishes. The typical 24,000-square-foot floor plates allow for efficient utilization of work space.” However, local commercial real estate agent Todd McCalla points out that the project’s $28/ft asking price is, “clearly much higher than Nashville’s average rate of $22/ft for Class A office space in this district.” McCalla is also quick to point out that West End currently offers over 2.4 million feet of Class A office space and currently maintains a 19% vacancy rate. He is skeptical about this market’s demand for such high-end space during a period when companies appear to be eliminating their excess office space needs.

Retail space in the West End Summit

Little is known about what retail tenants may have been interested in leasing space, but the development’s website says, “The project is slated to include several signature restaurants, including a World renowned Steakhouse and high-end retail opportunities.” Downtown Nashville is certainly lacking high-end retail space, but the 1600 West End location may not be the most intuitive place to fill this need.

West End Summit

Developer Alex Palmer and Company Sued by Contractor

On November 4th, 2008 the Nashville Post reports: “An engineering contractor has sued the entity behind the planned $200 million West End Summit and its general contractor for nonpayment. Minnesota-based Harmon Inc. has claimed in Davidson County Chancery Court that West End Summit Development LLC, which is being developed by Alex Palmer, and Bovis Lend Lease have failed to pay $120,000 for services performed on what is now a big hole in the ground along West End Avenue.

September Nashville Condo Sales Analysis

I was grabbing a quick bite to eat earlier today at a trendy little restaurant in the Gulch when I overhead the following conversation between two seemingly educated 30-something professionals:

Guy #1: “Wow, this area of town is really pretty cool. I mean, it has some really tasty restaurants and stuff, but these condos are just dying. I hear that the Icon is only 10% full. God, I’d hate to own one of these *expletive * condos!” – laughter and takes another lunch time sip of beer.

Guy #2: “Seriously. I mean, I would live here, but not if I’m going to be the only one [sips a martini looking drink]. Dude, I was at this pool party like 3 weeks ago and it was chop full of hot chicks. It was sick!”

Guy #1: “Yeah man, I have a friend who rents down here and she is a total hottie too…I wonder how many hot chicks live here anyway?”

Guy #2: “Tons. We need to come down here more often. I wonder who these idiots are who are buying these condos?”

Guy #1: “Who knows? Probably no one right now [giggles a little]. I dunno though, I’m thinking that I’ll look into buying one in 2 years or so when the market hits bottom.”

Guy #2: “Yeah, they should be dirt cheap then. There will be millions of these things on the market. I’ll totally go in with you on one dude.” – turns up the glass and finishes drink with satisfied look.

Okay, now I know that the above conversation sounds like a conversation between two half wits, but the honest truth is that I have heard some version of this exact same conversation about a dozen times from very educated folks. It appears to me that everyone in town holds a strong opinion on the downtown condo market, but few seem to have done very much, if any, research. BTW – the Icon is just over 41% closed out as of today, not 10% and they raised prices on downtown facing condos this week.

Here is the year over year condo sales analysis for Nashville:

Condo Inventory Analysis

You’ll notice that in June of 2008, there was a spike in the number of closings that can be partially attributed to the grand opening of the Icon in the Gulch and seasonality. Clearly, the trend lines are narrowing and it will be extremely interesting to see if the remainder of 2009 can exceed that of the previous year. I am not ready to claim a full recovery, but I am ready to say that the market is showing very positive growth signs.

The Icon recently raised prices on all of their downtown facing condos and the Encore has notched another 20 closings during the summer months. It is clear to me that the super steal prices for the premium facing condos in the Icon have most likely come and gone. Now, it’s all about negotiating the non-premium facing condos in certain buildings.

5th & Main Condo Sales Update

Fifth and Main condos Nashville

5th and MainWell, there really is not a whole lot to report here except for the fact that there have been no new closings since my last report in August. Since Wachovia let the East Nashville 5th & Main project slip into receivership, there has still only been 2 brave souls to take the plunge.

The Tennessee Disability Coalition bought the 1,429 square foot condo #602 for $285,000 recorded with the Davidson County Register of Deeds on August 6th, 2009. This condo is a downtown facing 2 bed, 2.5 bath unit that was originally listed for $328,900. The sold price represents a 13.35% discount and totals $199.44/foot.

Mr. B. Teveit bought the 1,144 square foot condo #604 for $206,000 recorded with the Davidson County Register of Deeds on August 12th, 2009. This condo is a downtown facing 1 bed, 1.5 bath unit that was originally listed for $263,900. The sold price represents a 21.94% discount and totals $180.07/foot.

Both of these purchases could be at or even below what their replacement costs would be in 2009.

The 5th & Main project entered into receivership in February of this year (not foreclosure) and has not emerged since. The possibility that this development may be actually foreclosed upon still exists. Village Real Estate is the listing company.

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