Velocity in the Gulch Restructures Ownership

velocity in the gulchThis morning the Tennessean reported that the Velocity in the Gulch’s ownership has been restructured. “The new owner of the 265-unit building in the Gulch is Velocity Residential LLC, with its principal offices listed with the identical address as the project’s lender, BBVA Compass Bank.” It should be noted that BBVA Compass in not the only bank who has loaned construction funds, but BBVA Compass is the lead bank.

As one may assume, this news comes as a shock to many in the public who have not followed the progress of the Velocity. However, it may also come as a shock to learn that the Icon in the Gulch went through a similar restructuring just over a year ago. The net result of that restructuring was the acceleration of condo sales aided by the ability to adjust prices and offer more attractive incentives. Since restructuring, the Icon has systematically been able to inch prices up to levels above pre-construction pricing in 2006. There are no guarantees that this trend will continue, but this is empirical proof that restructuring is not a death sentence.

In speaking with a condo owner in the Gulch, he echoed the same sentiment: “While certainly not ideal, hopefully this is the shot in the arm Velocity needs. In the few short months I’ve lived in the Gulch, our building has raised prices a couple times due to steady sales and the same plan as the one we purchased has sold now for $40k more than we paid. There are no other communities, at least that I can think of, in this area that have a bank, multiple restaurants, a salon, a coffee shop, a few clothing stores, a free shuttle to downtown, and will soon have a grocery as well.”

The grocery the condo owner is referring to is the Nashville-owned Turnip Truck which is currently under construction at 311 12th Avenue South in the Gulch. Set to open this fall, The Turnip Truck will open a 9,200 square foot organic grocery store that features a full meat and seafood department, an indoor-outdoor cafe and a selection of fresh prepared-in-house foods.

turnip truck grocery nashville

was built to be the most affordable condo option in the Gulch. But, the world changed during its construction. This ownership restructuring may give Velocity the ability to return to its roots. That change should attract plenty of buyers who want to enjoy affordable living in Nashville’s urban residential district.

Without question, the Gulch has experienced its fair share of growing pains resulting from the economic downtown, mortgage crisis and shrinking credit markets. However, looking at recent sales data, no one can deny that Nashvillians are invariably attracted to this area. Buyers enjoy an urban walk ability that offers convenience, upscale dining, boutique shopping and a bustling nightlife. I cannot see a path that does not lead to a considerable rebound in the Gulch over the next 24-36 months.

See all condos for sale in the Velocity in the Gulch

  • stillcrazyafteralltheseyears

    Do you REALLY believe the following statement, contained at the end of your posting?

    “The Velocity was built to be the most affordable condo option in the Gulch. But, the world changed during its construction. This ownership restructuring may give Velocity the ability to return to its roots. That change should attract plenty of buyers who want to enjoy affordable living in Nashville’s urban residential district.

    Without question, the Gulch has experienced its fair share of growing pains resulting from the economic downtown, mortgage crisis and shrinking credit markets. However, looking at recent sales data, no one can deny that Nashvillians are invariably attracted to this area. Buyers enjoy an urban walk ability that offers convenience, upscale dining, boutique shopping and a bustling nightlife. I cannot see a path that does not lead to a considerable rebound in the Gulch 24-36 months from now.”

    If so, you have become completely detached from reality, IMHO. You can spin it how you want, but anyone paying the prices these projects (Velocity, Terrazzo, Icon) are and have been commanding has more money than sense.

  • http://www.granthammond.com/ Grant Hammond

    The above statement is simply factual. When planning began in 2006, the Bristol Group intended the Velocity to be the least expensive condo option in the gulch. The total price of the condos were modeled to be priced much below both the Icon and the Terrazzo. During the construction period, the total prices in the Icon and especially the Terrazzo dropped. The Bristol Group was not able to drop the Velocity prices in response (this is most likely due to the lender not agreeing to drop release prices). With this ownership restructuring, you will now see the Velocity condo prices drop to a point where they are the most affordable in the Gulch as originally intended.

  • stillcrazyafteralltheseyears

    I agree that Velocity prices, as well as prices other Gulch condo projects, will drop. Like a rock. Look at home sales since the tax credit expired-down over 30 percent. Banks now own more residential real estate than at any time since the Great Depression, and I don't think many will choose to hold these Gulch condos on their books for a decade or longer. Another depression is looking not only possible, but probable. See http://www.forbes.com/2010/06/30/greater-depres…. Look for a fire sale, a la Terrazzo, within the next six months. If you're looking to buy a Gulch condo, I'd wait until then. Just my opinion.

  • http://www.granthammond.com/ Grant Hammond

    I completely disagree with your assertion that condo prices in these condo projects will ‘drop like a rock’. Velocity is the only project of the 3 that will even see a reduction on the whole.

    It is true that banks own more real estate than they did in the Great Depression. It is also true that there are 127% more existing homes in the United States now than there were in 1930. Additionally, the population of the United States was 122,775,046 according to the April 1st, 1930 census. In 2010, the population is estimated to be just over 300,000. Of course, banks own more total homes now. It’s simple math.

    Currently, no one from the banks involved with the Velocity or the developers have made any indication that a fire sale looms on the horizon. It’s just the opposite. Both sides have said that the developers will remain in place and will continue to manage the building, market and sell the condos. I expect this restructuring will actually free up capital for the developer that will allow for the commercial space in Velocity to be built out.

  • http://www.granthammond.com/ Grant Hammond

    I completely disagree with your assertion that condo prices in these condo projects will ‘drop like a rock’. Velocity is the only project of the 3 that will even see a reduction on the whole.

    It is true that banks own more real estate than they did in the Great Depression. It is also true that there are 127% more existing homes in the United States now than there were in 1930. Additionally, the population of the United States was 122,775,046 according to the April 1st, 1930 census. In 2010, the population is estimated to be just over 300,000. Of course, banks own more total homes now. It’s simple math.

    Currently, no one from the banks involved with the Velocity or the developers have made any indication that a fire sale looms on the horizon. It’s just the opposite. Both sides have said that the developers will remain in place and will continue to manage the building, market and sell the condos. I expect this restructuring will actually free up capital for the developer that will allow for the commercial space in Velocity to be built out.

  • http://www.granthammond.com/ Grant Hammond

    I completely disagree with your assertion that condo prices in these condo projects will ‘drop like a rock’. Velocity is the only project of the 3 that will even see a reduction on the whole.

    It is true that banks own more real estate than they did in the Great Depression. It is also true that there are 127% more existing homes in the United States now than there were in 1930. Additionally, the population of the United States was 122,775,046 according to the April 1st, 1930 census. In 2010, the population is estimated to be just over 300,000. Of course, banks own more total homes now. It’s simple math.

    Currently, no one from the banks involved with the Velocity or the developers have made any indication that a fire sale looms on the horizon. It’s just the opposite. Both sides have said that the developers will remain in place and will continue to manage the building, market and sell the condos. I expect this restructuring will actually free up capital for the developer that will allow for the commercial space in Velocity to be built out.

  • Falcon2

    I agree with most of what you've said here and I expect that prices in Velocity may drop to as little as $200/sf before they get it sold out. On average, I think thats probably fair value for this project and I don't think there will be much appreciation from that for 5 or 6 years.

  • http://www.granthammond.com/ Grant Hammond

    I completely agree with your price prediction for Velocity. Currently, pricing is in the $250/ft neighborhood. I believe that the Velocity may be forced into dropping their least desirable floor plans and location down to $200/ft, but that the vast majority of the remaining condos will most likely average out in the $220/ft range.

  • Falcon2

    I don't think we'll need to see another Depression to see big price cuts at Velocity, Rhythm and Icon, yes, even Icon. Terrazzo seems to have accepted its pricing at around $235/sf and should be sold out in 5 or 6 months at their current pace. Icon is already selling units well below $300/sf but occassionally they still do see a buyer come in with cash and pay $330 or $340/sf; this is not the norm though. And remember, with all of these 2010 deals the buyers are getting many thousands of freebies thrown in, so the true pricing is probably $12-$15 below what's getting posted on the deed.

  • Falcon2

    Grant, I don't see the 2006 prices that you allude to in your post above. Prices on average are much lower even before you account for the giveaways. And though your linked post forecasted a 2 year sellout last August it looks like they still need more than 2 years to finish up as we stand here today. And that's assuming no fallout from the loss of the tax credit or all the very bad news being posted in the wsj. And then there is that spike in foreclosures. At some point, Rhythm, Velocity, Encore and Icon, and even Viridian resellers, are going to have to duke it out with each other and the increasing number of distressed sellers, foreclosures or otherwise. That will mean big cuts from current asking prices IMO. The projects or resellers that do this first will get the buyers and the rest will still have to cut but it will take longer for them to move the units.

  • Solve Et Coagula

    I have toured Velocity, ICON, and Terrazzo. The best price point for my wife and I is Velocity. It is a very nice property. My only concern is the stick frame/ lumber construction, however some units are concrete and steel on the grade level floor, and the units on two above the retail is concrete.

    Those who are critical of the Gulch simply do not have an understanding of its potential. Much like Buckhead in Atlanta, the Gulch will one day be its own thriving city of sorts. Dense and vibrant city living without the constraints of the suburbs. I want to live in the Gulch and decrease my carbon footprint. I am tired of the sprawl in the suburbs and dependence on the automobile to get around.

    Those who consider the Gulch and city living as too liberal, too self centered, too egotistic, too young, too hip etc…simply do not know what you are talking about. World wide demographic studies have indicated that people are moving back to the cities. Dense and vibrant city living are the future of Nashville, country and world. I say with absolute certainty that another condo tower will be built in the Gulch by 2013. Regardless of the real estate market, the costs of building in the suburbs and redeveloping the rural landscape has increased exponentially.

    If you want to be a slave to the automobile, be my guest and many of Grant's clients may be suburban dwellers, but his future clients will be in the city. Many people moving here from other areas of the country want to live in the city. The Gulch will only thrive, it will not fade away like some of you sadly hope. Well the world has changed. The demographics have changed. Get used to it.

  • Falcon2

    I agree with you about the Gulch's potential but as you consider your purchase you need to make sure that your pricing that “potential” and also recognizing that the gulch is at least decades away from becoming as established as Buckhead; this won't help you much if you need to resell in 2-3 years. And then there is the issue of renting vs owning that you should be considering, especially with growing sentiment like this on the rise: http://finance.yahoo.com/tech-ticker/richard-su

    Obviously, Velocity's tiny units, compared to Icon and especially Terrazzo, look cheap from a price point comparison. But don't make the mistake of mixing apples and oranges though by limiting your options to the gulch. Regardless of how much you may like the gulch you should also be looking at small units in other new stick frame developments like Enclave, Bristol West End, and Bristol on Broadway, where short sale and foreclosure opps can be had for under $200/sf. Again, with nothing else small to choose from in the Gulch the Velocity wins the price point contest…but its had this honor for 9 months now and has still sold only a trickle of new units. Be careful out there…

  • stillcrazyafteralltheseyears

    Only time will tell whether overall Gulch condo prices drop. My point is this: developers/bankers will not want to hold these units long-term, they're not selling now in sufficient volume in an environment of historically low interest rates, and they weren't selling in sufficient volume in an environment of slightly higher rates and government incentives. Simply put, if they couldn't sell in those environments, how well do you think they'll sell in an environment of higher interest rates and equally tight credit conditions?

    With respect to residential ownership by the banks, I was not referring to absolute numbers but rather bank holdings as a percentage of total bank assets. I thought that was obvious. I should add: Banks are in the lending business, not the real estate/real estate management business.

    Finally, do you really expect the developers/banks to announce a fire sale before they actually decide to hold one? I don't; just look at Terrazzo's announcement, which came out of the blue one morning on the front page of the Tennessean. Before a fire sale, I believe Velocity will lower its prices substantially, but I still don't think enough units will sell to satisfy the bank. In the deflationary environment we have now, people defray purchases in the expectation prices will be lower later. That's why deflation is so damaging–it brings the economy to a screeching halt. What the developers/banks need is rampant inflation, which causes people to buy now before the prices rise further. The problem, however, is that most won't have the down payment banks are demanding (and should have been demanding the entire time), so they'll have to finance under very tight credit conditions. I don't see a way out for the developers/banks in lieu of a fire sale unless they are prepared to hold the unsold units for a decade or longer. If they choose that route, prices will eventually find a “sweet spot” and units will fetch more than they would in a fire sale. The bank will have to make a decision on the time value of money: do they want less now, but sooner, or would they rather have slightly more, spaced over a period of years? I'm putting my money on the former.

    Here's why I expect a fire sale: you have three (four, if you count Rhythm) in a confined area all selling essentially the same product. None are selling well now and the economic environment is not likely to improve soon. The first fire sale will command the most interest and the highest products. I would expect one (or more) of the banks to want to cut its loses and move on. My guess is Velocity, but who knows. I could be wrong, but that's my thinking.

  • Falcon2

    I think you're analysis is spot on. Velcocity has all but announced it will be making big cuts if you read between the lines in the business journal article today:

    http://nashville.bizjournals.com/nashville/stor

    and Rhythm is already quietly selling units for about a third less than their original pricing but still can't manage to sell many. As the economic outlook continues to deteriorate and there is no more free down payments from the feds I think it's going to become a feeding frenzy for the few buyers that will be willing to pull the trigger in such terrible conditions.

    2 months ago the economies hopes were hinged by a thread on the consumer who we've been told needs to deleverage. I certainly don't see them buying much over the next few quarters when their two biggest sources of wealth, their home and their 401k appear headed for another goring. I look for all those consumer confidence polls later this month to be in the toilet.

  • Bubb_rubb23

    Young attorney working downtown and interested in place close to downtown. Looked at Velocity about six months ago and was offered very deep discount from list price. The “discounted price” was still absurd. Many Velocity units are too small. As with the gulch in general, I wouldn't want to pay much to live beside a highway and with a train track running though my back yard. Many of the people living in the gulch borrowed way too much money to get in or were “young professionals” with substantial economic assistance coming from their parents to make a down payment. I think it would be nuts to touch the velocity for above $200/SF. Maybe $220 for the very absolute best units in the place. Also, with some of the crazy association fees on some of these places, you lose the benefit of home ownership pretty quickly. If like many young professionals, you don't know if you'll be in the same city 3-5 years from now, the numbers simply don't support buying an overpriced condo with high association fees, when you could just rent with much less risk somewhere like the Cumberland.

    The gulch is highly overrated. Don't believe the sales people or the mortgage brokers. How much would you pay to be stuck owning a condo in a downtown market with tons of inventory, a high association fee, a highway next door, a train in your back yard carrying god knows what, and an economy that tells you that you may need to move for a new job sometime in the next 3-10 years. Oh yeah, they do have restaurants nearby. Those are also overpriced for what you get. Cantino Laredo is an overpriced On the Border. The Turnip Truck? How about freakin Kroger or Wal Mart neighborhood market that won't rob you for enviromentally friendly fruit? If you want to check out at the hot chicks who are playing around at the Icon pool on the weekend, save yourself some money and just make friends with someone who lives there.

    Speaking of the Icon pool, I'm not sure there has been a peer reviewed economic study done on this, but count the number of back tatoos while you're there. Then think to yourself, if all the people living here are spending all their money on tatoos and tanning fees, how are they going to pay off their variable rate mortgage when rates go up?

    Increases in home prices are largely determined by increasing employment and rising incomes. How much of that do you expect in the near future.

  • Agree that Gulch is overated

    Speaking of the gulch and how it is “invariably attractive” has anyone ever lived with train tracks in their back year? Trains create rail dust. It's the result of the friction between the metal wheels of the train and the metal on the track. It creates an iron/metal dust. If you've ever purchased a car/truck that was transported to the dealer via train, you may have seen the resulting rust spots on the car that result when the rail dust gets wet. This is one of many, many reasons I would have no interest living with a train passing through my back yard.

  • backtattoo

    This post really made me happy. I've lived in the Gulch for 6 years, before the sidewalks & traffic lights. I watched all of these condos being built. I find it pretty amazing, and see it getting better and better all the time. It's nice to know that you, with your pessimism & general bitter attitude on life, are not going to be my neighbor.

    Why are you even looking for a place near downtown? You are complaining about the economy, the restaurants, the highways, the locally-grown produce market, & the girls at the pool. What did you expect? Sure Walmart, Kroger, & On the Border are great, but it's like you are looking to buy a motorcycle and then complaining that it goes too fast.

    These things you see as faults, are why I chose to live here. Walk downstairs & grab a bite to eat. Down the street & have a beer at the brewery. Walk to a Titans game, hear some bluegrass at the Station Inn, or just grill out at the pool and enjoy the Nashville Skyline. I was born here in Nashville, and am proud to live here. It's nice to see the city I grew up in becoming more dynamic. Are your 3 to 5 years up yet?

  • gulchresident

    Backtattoo, very well said. I am also a resident, although new to the gulch, and love the conveniences of local retail, restaurants, and entertainment. One thing I find interesting from various online critics of downtown/gulch living is their assault on downtown markets or ‘high-end’ groceries. A major oversight is that we also have Walmart Market or Kroger alternatives just a short drive away. It takes us 5 minutes to drive to either Harris Teeter or Kroger on 8th South which is comparable to the drive time when we lived North of downtown. Also, while some of the local restaurants may be pricey, most places in the Gulch offer discounts to Gulch residents that quickly make prices very competitive. I certainly wouldn't be critical of suburban living because I know there are great options available. It is shocking to me how passionately critical some are of downtown/gulch condos although they've not experienced living there first-hand.

  • http://www.granthammond.com/ Grant Hammond

    Bubb_rubb23, urban living is certainly not for everyone, especially in a city with a 2008 county population of 626,144 and MSA population of 1,550,773. Nashville is not Chicago or San Francisco, we understand that there simply are not as many urban shopping or retail choices. Retail follows rooftops and rooftops are what is lacking in this equation. That being said, we are a growing metro. Despite what might look like a current glut of condos, our metro area is disproportionately underserved by this product type when compared to similar size US cities. I am not saying that condo prices will not adjust in the short run. What I am saying is fast forward a half decade and you’ll find another urban building boom as construction capital and mortgage credit becomes more readily available.

    I do expect good news to be coming out of the Gulch soon. My guess is that we will see retailers announcing their intentions to fill the Velocity’s retail space as soon as a month from now. I also expect to see either Pine Street Flats or Griffin Plaza make strides in securing financing to go vertical as a multi-family mixed-use development.

  • Solve Et Coagula

    I don't see the logic in your statements. Cantina Laredo like On the Border? Cantina Laredo is a chef driven restaurant, On The Border is not. You obviously have not done research on cities and in particular demographics and worldwide living trends. I urge you to look at the following websites to better educate yourself:

    http://www.skyscraperpage.com
    http://www.skyscrapercity.com
    http://www.cyburbia.org
    http://www.urbanplanet.org
    http://www.ctbuh.org

    Those sites will show you that worldwide trends are moving back to the cities with the cocentric zoning models. Cities with mass transit are experiencing monumental population growth. In America alone, city populations will increase as people relocate to America from Europe and Asia where they don't have the luxury of suburbs and dependence on the automobile.

  • Guest

    I don't really see the post above as pessimistic but rather than some much needed skepticism on the gulch. I agree that Gulch is overpriced and in that sense overrated.

  • Bubb_rubb

    Whoa there guys. Chill out.

    I want to clarify my post and correct some apparent misconceptions. Outside of college and grad school I am a lifelong nashvillian and am also proud that Nashville is progressing. I am not “passionately critical” of downtown condos or downtown living. I live in one and walk to work. So no, I am not a suburb loving, SUV driver bashing downtown living. I love the convenience of downtown living. I simply think the gulch is overpriced and overrated.

  • Bubb_rubb

    I see I may be over my skis here. I have no idea of what chef-driven means. I assume it means, overpriced. I am no expert, I just go out to eat almost every night, love good food, and am chubby. So here is my logic,

    Dinner at On the Border (and almost all other Mexican restaurants that are above average) = 7-10 plus tax.
    Cantina Laredo (also above average) = 15-25 plus tax

    Thus, cantina laredo is overpriced.

  • Bubb_rubb

    It sounds like you and I aren't really disagreeing as far as my comments about the Gulch being overpriced right now. I am also frustrated that every time I talk about the Gulch being overrated, someone comments, “Well maybe urban living isn't for you.” I have been an urban dweller for all of my adult life. I live and work downtown now. I walk to work. I simply think the Gulch is overrated.

  • Guest

    Odds that Velocity is an apartment building within the next year? I can't imagine that the owners are not seriously considering this.

  • http://www.granthammond.com/ Grant Hammond

    There is no doubt that the Bristol Group, MarketStreet and Compass Bank are kicking themselves for not building the development as an apartment project, but hindsight is 20/20. You must remember that this project pre-sold towards the end of the boom with great momentum in 2007. The world changed soon after and everyone (including the builders, developers and pre-sale buyers) were caught up in the aftermath. From what I can tell, Compass Bank remains committed to selling the Velocity as a condo project. They are lowering prices to become the lowest priced condos in downtown and providing financing for first-time buyers. I only hope that Compass Bank will fund the development of the retail space as there are several signed tenants (restaurants & shops) who desperately want to open in this location.

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