In the wake of the project losing FHA certification, the lender is quietly booting ‘lease purchasers’ out of the building who have no intention of consummating a purchase. Why? It’s simple. Under HUD’s revised rules, a condo development must be at least 50% owner occupied in addition to at least 30% sold or under contract in order to attain FHA certification. A ‘lease purchase’ is not deemed to be a purchase contract, thus, they are all viewed as rental contracts until a purchase is consummated.
One must also keep in mind that these revised FHA certification rules have only been temporarily lowered until the end of 2010. Beginning in January 2011, the rules are expected to revert back to a minimum of 50% of condos under contract or closed and the maximum number of FHA backed loans capped at 30% of the total units in the development. The percentage of owner occupants is also expected to revert back to the 70% range. This could be potentially damning for a condo buying public that has become addicted to 3.5% downtown payment market rate mortgages.
Losing residents in the project is not good news for Allium or Otters Chicken, the two anchor tenants in 5th and Main who are already battling the stigma of being located in a condo project that has gone into receivership. In fact, I would imagine it would feel a little like being married to Ike Turner or substituting yourself as Mike Tyson’s speed bag in the 80’s. Both restaurants have persevered admirably, but I have to wonder when the haymaker will land.
The Future of 5th and Main Condos
As bad as it looks now, the ambient condo prices are simply declining, which is actually very good news for those buyers who have been patiently waiting for a well priced condo in a good location. Unfortunately, a few of the more eager beavers who did purchase will get burned, but the vast majority of buyers will most likely secure a very marketable price. This is not a horrible result for the macro Nashville condo market. The worse result or factor is a stagnating inventory or looming shadow inventory, both of which would be greatly diminished by an onslaught of discounted owner-occupant purchasers in the 5th and Main condo project.
What is 5th and Main in Nashville?
The 5th and Main project consists of a 6 story, 113 condo midrise coupled with 11 separate townhomes located on Main Street at the gateway to East Nashville. There is also nearly 20,000 square feet of retail space on the ground floor as well as 10,000 square feet of office space on the second floor. According to their website, “Fifth & Main offers uniquely modern homes featuring a spectacular blend of exterior resources. A vibrantly colored brick combined with Trespa paneling and expansive glass windows create an enduring streetscape with contemporary flair.”
The original developer for the project was The Home Co., a subsidiary of Affordable Housing Resources, a Nashville based organization that builds low-income housing. The project architect is EOA Architects and the contractor is Solomon Builders, both Nashville based businesses.
When 5th and Main fell into receivership in February 2009, its developers had a $36 million outstanding construction loan according to Eddie Latimer, CEO of Affordable Housing Resources. Both EOA Architects and Solomon Builders were owed fees in addition to 5 other subcontractors that have since been settled.