This article entitled “Condos face crucial test” appeared in the Nashville Business Journal on March the 6th, 2009. The author is Turner Hutchens:
That was just a couple of years ago, and despite the housing, credit and job busts since, developers argue that it still is.
Of the roughly 1,350 new luxury condo units recently completed in or around the city’s Central Business District, about 60 percent have sold, with residents or new investors closing their deals.
And another 500 such units are coming to the market this year as three more condo buildings are set to open.
Charles Carlisle, CEO of Bristol Development Group, developer of the $105 million, 417-unit Icon that opened last spring and the 265-unit Velocity, set to open this year, doesn’t deny that things haven’t gone perfectly, with slower than anticipated closings at the Icon.
“It’s just a problem with the condo market. It’s not the condo product that’s available,” he says.
After zoning restrictions on downtown residential were eased in the 1990s, and developers worked to revitalized the once blighted area south of Broadway known as the Gulch, a bumper crop of high-rise and luxury condos were announced. For a quarter million dollars and up, buyers could own a decked-out condo in what was touted as Nashville’s up-and-coming urban neighborhoods.
How quickly the nearly 500 units in the Terrazzo, Velocity and Rhythm at Music Row will sell when all three developments start closings in March and April remains to be seen.
“We hope to make money on both projects,” Carlisle says of Icon and Velocity, “and we’re prepared to take two years or more to sell the remaining homes.”
In mid-February, the Rhythm still had a large sign out front advertising a January 2009 opening.
The $68 million Terrazzo was initially set to open in 2007 but was delayed, at least in part, by financing. Once construction did start, the project has continued fairly close to schedule. The condo now expects to start closing on units in April, says Bill Barkley, president of Terrazzo’s developer Crosland Tennessee.
Barkley says Terrazzo has pre-sales contracts on half of the project’s 117 units, and they are seeing brisk traffic.
From the beginning, Terrazzo used conservative projections for sales, and large amounts of equity were put up for the construction loans, Barkley says.
He says the development isn’t competing directly with the other luxury condos on the market. Terrazzo’s units are generally larger and somewhat higher priced. And he’s not expecting any more new competitors to enter the fray.
“I really anticipate it picking up toward the end of the year and in 2010,” Barkley says.
Delays, economy hit projects
It’s not uncommon for large construction projects to have delays, though the delays for the projects now set to close this spring have pushed them into what many economist say is a deepening recession.
Last week Federal Reserve Chairman Ben Bernanke said the recession could last until 2010 unless the financial system can be fixed, and many economists are predicting the economy won’t return to a reasonably normal level until 2012.
The $47 million Fifth & Main condo building was seized by the bank about two months ago after a $380,000 lien was filed against the developer. The project had seen some delays and was facing a grim market.
That project, unlike others, was never intended to be a money-making development. Nashville nonprofit Affordable Housing Resources developed the building to revitalize the area just across the Cumberland River in East Nashville.
“The purpose was to create a gateway,” not to pull down millions, says Eddie Latimer, director of Affordable Housing and principal in the development.
The economic downturn and tightening credit markets were major players in the project’s trouble, though other obstacles included low profit margins and issues with the lender, Latimer says.
He says Wachovia Bank issued a freeze on closings in the project a few days before the condos got approval from the Metro Codes Department to start closing units. By the time the freeze was lifted two months later, the economy and financial markets worsened and buyers who had been approved no longer had lender commitments, Latimer says.
Ron Samuels, president of Avenue Bank, says the Nashville market mirrors what’s happening in similar cities around the country. Slower sales are to be expected, and a project’s success likely will come down to the financial strength of its backers, he says.
“It’s not an easy answer. You try to give people the opportunity to work through this downturn,” he says.
Though the luxury condo market seems overbuilt now, it didn’t always look that way as Nashville’s population and income levels had been steadily growing, Samuels says.
“It’s an awful lot of supply, but when all these projects were on the drawing boards, nobody had ever heard of a subprime mortgage,” he says.
Condo Crunch
Three more luxury condominium projects are set to open this year in downtown Nashville, the latest wave in the area’s condo building boom. It brings another 480 or so units of the high-end housing to the already stretched market.
Project :: Opening Date :: Total units :: Closed units :: Percent closed
Icon :: Spring 2008 :: 417 :: 126 :: 30.2%
Encore :: Early 2008 :: 330 :: 216 :: 65.5%
Adelicia :: Late 2007 :: 186 :: 168 :: 90.3%
Fifth & Main :: Fall 2008 :: 119 :: 6 :: 5.5%
Viridian :: Late 2006 :: 305 :: 305 :: 100%
Terrazzo :: April 2009 :: 117 :: 0 :: 0%
Velocity :: June 2009 :: 265 :: 0 :: 0%
Rhythm :: April 2009 :: 105 :: 0 :: 0%
Total :: 1,838 :: 821 :: 44.7%
Source: Data was collected from Metro Davidson County tax and deed records.
Update 8/1/2009
Since this article, The Icon has really picked up closings as has the Encore. The Icon is now 39% closed and the Encore is now 81% closed. The Rhythm began closing and is up to 18 closed or 17%. The Terrazzo has only close 10 or 8.5%. The 5th & Main still has not closed anything since January and the Adelicia is 1 close from selling out.
