2011 Residential Report

Page 1

A publication of the Nashville Downtown Partnership 150 4th Avenue North, G-150 * Nashville, TN 37219 www.nashvilledowntown.com * 615.743.3090

RESIDENTIAL REPORT: July 2011 Downtown Nashville Available Inventory Drops and Rental Demand Rises Over the past few years, downtown Nashville and the region faced challenges presented by the economic recession, downturn in the financial and housing markets, and the historic flood of May 2010. Downtown Nashville’s housing market has shown strength and resiliency through these difficult circumstances, adapting to the changing market demands through rental conversions and planned rental projects on the horizon. Developerowned condo inventory is being absorbed at a steady pace and projected to be depleted in less than nine months. Nashville Housing Market: The Greater Nashville Association of Realtors mid-year report released in June states that local home sales remain consistent1. Although prices change monthly, the fluctuation of pricing remains within a range denoting a greater level of stability than other parts of the country. According to the Brookings Institution’s 2010 Global Metro Monitor, Nashville’s overall economic recovery has occurred more rapidly than most metropolitan areas worldwide. In fact, it is listed in the top third among 150 metros due to its ―diverse economy and strong, but manageable growth.‖2 In 2010, the homebuyer tax credit and low interest rates served as tools to reverse the downward trend of home sales. Since the expiration of the tax credit, Nashville home sales, although not occurring at the same rate, have continued at a consistent rate. Nashville’s economic strength was recognized again by POLICOM Corporation in its annual economic strength ranking for 2011. Nashville ranked #8 (up from #13 in 2010) out of 366 metropolitan areas for its ―long-term tendency to consistently grow in both size and quality.‖ This study recognizes areas for their economic foundations, measuring twenty-three different economic factors over a twenty-year period to create the rankings. 3

Forbes, in partnership with Praxis Strategy Group, forecasts that Nashville will be the No. 3 boom town in the coming decade. This analysis looked at the 52 largest metro areas in the country and ranked them by job growth and a broad range of demographic components including family formation and growth in educated migration.4 Downtown Market: Residential sales in downtown Nashville have been strong and consistent in 2011. The first two quarters of this year have yielded 98 closings compared with 72 closings the last two quarters of 2010 – a 36% increase.5 The downtown developer-owned condo inventory is being absorbed at a steady rate, and will be depleted in early 2012 with no development in the foreseeable future. The residential population has grown 11.6% since 2010, and is expected to grow close to 9% from now to year end 2012. An indicator of the state of the downtown market is the confidence in the rental market, with construction that has or will be commencing this year on three rental projects that will deliver in 2012 with a combined price tag of over $83 million. In addition, ten public and private development projects have been completed or are underway in the downtown area this year with a combined investment of over $941 million. Retail development is also a strong indicator of the economic vitality and perceived future growth of an area. So far in 2011, 31 local, regional and national retailers have announced or opened their doors in downtown Nashville. Twenty-six of these retailers are local and seven have multiple locations in the Nashville area.

_______________ 1

Greater Nashville Association of Realtors, Greater Nashville Home Sales Consistent at Mid-Year, July 7, 2011, http://www.gnar.org. Brookings Institution, 2010 Global Metro Monitor, November 2010 3 POLICOM Corporation, 2011 Economic Strength Ranking Press Release, May 11, 2011 4 Forbes.com, The Next Big Boom Towns in the U.S., July 2011 5 RealTracs Property Search, http://www.realtracs.net 2

2 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Downtown Residential Overview Downtown Nashville’s residential and housing populations continue to trail peer cities. Void of residential zoning until the mid 1990’s, downtown Nashville was decades behind in its urban residential development. Currently, peer cities such as St. Louis and Charlotte have over twice the number of downtown residents, and Memphis has over four times the number. (Figure 1) Downtown Nashville’s delayed ability to develop urban housing placed the city well behind its peer cities in the number of units and residents living in downtown. Once residential zoning was permitted, a significant number of for-sale projects were planned and delivered at approximately the same time. (Figure 3) The number of purchase product went from 674 units in 2006 to 2,664 units in 2010, a 295% increase over four years, while rental units remained flat. When the economic downturn elicited a tight credit market and bred uncertainty, product sold at a slower pace than was originally anticipated. Two of these projects chose rental conversion, and the gap between rental and purchase product is beginning to narrow. When three planned rental projects are delivered in 2012, downtown Nashville will have close to equal numbers of rental and purchase product. Compared with other peer cities, Nashville holds the lead in rental occupancy rates. (Figure 4) A survey of property managers was conducted in July 2011. The survey evaluated a total of 1086 units in 15 (out of 21 total) properties. Eight of the 15 properties are 100% occupied and several have waiting lists. Rental properties not included were 27 units on the first floor of Market Street Apartments (not available since the May 2010 flood), Residences at 315 due to their short-term leasing status, and rental units that were converted from condos or came online in 2011. This occupancy rate also does not include for-sale properties that have been rented out by their owners.

Figure 1—Year End Projections-Downtown Residents












St. Louis Charlotte

13,029 11,906

13,400 12,880

13,800 12,960

Figure 2—Year End Projections - Downtown Housing Units

Nashville Memphis

2010 3,713 13,765

2011 3,836 14,000

2012 4,503 14,235

St. Louis








*Information provided by: Charlotte City Center, Downtown St. Louis Partnership, Memphis City Center Commission, (July, 2011)

Figure 3—Rental vs. Purchase

Rental vs. Purchase Units 2006-2011 3000 2500 2000 1500

1000 500 0 2006




Rental Units



Purchase Units

Figure 4—Rental Occupancy Rate 2011

Nashville Memphis St. Louis Charlotte

Left to right: Private Residence at Encore Condominiums, Hallway in home at Art Avenue Lofts , Bedroom in private residence at Church Street Lofts

96% 92% 90% 95%

2012 est.

3 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Downtown Housing Categories There are currently 3,836 residential units of which 40 percent are rental, 55 percent are condo, and 5 percent are single family units. At present, the estimated downtown residential population is 5,379. Over the last decade, downtown has seen a 174% population growth. (Figure 5) This is over twelve times the percentage growth in Nashville, over fourteen times in the Nashville MSA and over thirteen times in the State of Tennessee during the same time period. Population Growth



% Growth








Nashville MSA









Source: Nashville Downtown Partnership, EMSI 2011Q2

Figure 5

Rental Market The 1,534 rental units within 21 properties in downtown Nashville make up 40% of the current downtown housing mix. This percentage is up from 28% in 2010 due to two apartment conversions (Velocity in The Gulch and three properties at Rolling Mill Hill) which add 294 rental units to the market, and a new construction workforce housing project (Nance Place) which adds 109 rental units to the mix. The housing market boom from 2000-2006, coupled with ease and availability of financing for both developers and buyers and the demand for urban living options in a downtown residential market, provided opportunity for developers to build for-sale housing. During this time period, developers disregarded the rental market to fill the market demand for purchase property in downtown. Tightening of credit markets and the overall economic downturn as a result of the nationwide recession made homeownership a more difficult choice for many, and increased the demand for apartments. In response to the demand for rental opportunities, local developers have changed course and three rental projects are in the pipeline with delivery of 667 units in 2012 with a combined investment of over $83 million. The addition of these units to the overall downtown residential market will create a new housing mix of 49 percent rental, 47 percent condo and 4 percent single family by the end of 2012. Of the new units, 607 (91%) will be built in The Gulch in two projects - Eleven North Apartments (north Gulch) and Pine Street Lofts. The remaining units will be built at Rolling Mill Hill as Ryman Lofts, an affordable housing project for artists. Downtown apartments have had some of the highest occupancy rental rates in the Greater Nashville area in the past five years. Occupancy rates have remained at 92 percent or above even through the recession.(Figure 6) The Gulch and SoBro have the strongest occupancy rates at 97% and 100% respectively. The Downtown Core has an occupancy rate of 95% and Rutledge Hill is at 92%. Rental Occupancy Rate– Year 2007 2008 2009 2010 2011

Downtown 95% 93% 92% 95% 96%

Greater Nashville 94.84% 90.60% 90.20% 92.54% 93.36%

Source: Greater Nashville Apartment Association Market Survey, NDP Property Manager Survey 2011

Figure 6


Lofts at 160 on 2nd Avenue

The Metro building at Rolling Mill Hill

4 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Two condominium projects under new ownership converted to apartments and began leasing in 2011. Three buildings containing 72 units at Rolling Mill Hill—Metro, Art Deco and Victorian—began leasing in mid-February, and by July are 99% occupied. Units range from 651 square feet to 2,059 square feet, and rent from $850 to $2,350. Velocity began leasing its 220 rental units in mid-March, and is currently 70% leased. Units range from 419 square feet to 1,245 square feet, and rent from $999 to $2,300. Nance Place Apartments, also located at Rolling Mill Hill, began leasing this summer. This is a tax credit project offering 109 workforce housing units, and is prequalified as LEED Gold. In addition to the high downtown rental occupancy rate, the shadow market units (i.e., investor units within condominium properties) are easily rented, and many properties have waiting lists. An estimated additional 400+ of investor units (a conservative number) can be classified as rental property at this time. Most condominium properties have a capped percentage for investor units, but due to the high demand for rental and to prevent some condos from foreclosure, many of the properties have exceeded their cap allowances (Figure 7), permitting ―hardship leases.‖ This common practice is a clause written into Master Deeds allowing Homeowner Association Boards some flexibility for residents in difficult situations to lease their units. With inclusion of the apartment conversions, comparison of 2009, 2010 and 2011 cost ranges for rental properties shows that the primary change can be seen in the studio apartment category. In 2009, the price range for a studio was $540 - $985, and in 2010 the range was $540 to $1,085. This year, the price range for a studio apartment is $540 - $1,185. The high-end of this category increased 20% from $985 to $1,185 over two years. All other rental range categories stayed consistent with 2010 figures. (Figure 8) Property managers for individual rental properties reported increases in rents from 2010 in the one- and two-bedroom categories, up to 12% increases for one- bedrooms and up to 9.5% increases for two-bedrooms. A survey of downtown real estate agents reveals that unfurnished units within condominium buildings are renting for $2.00 to $2.33 per square foot, and furnished for $2.40 to $3.00 per square foot. Furnished units typically receive $100$150 more per month than unfurnished units.


% Capped

Art Avenue Lofts


Kress Lofts


Church Street Lofts


The Exchange










Harrison Square I & II


District Lofts Terrazzo

15% 10%

Source: Survey of Property Managers, 2011

Figure 7

Rental Market 419 - 4,500 SF


Studio 1 bedroom 2 bedroom 3 bedroom

$540 - $1,185 $600 - $1,700 $790 - $2,500 $1,400 - $4,000


1129 - 1664 SF $1,694 - $2,496

Live/Work Units

Source: Survey of Property Managers, 2011

Figure 8

According to a recent study by Axiometrics, an apartment industry researcher, the average rent paid by Nashville-area residents is up almost 6 percent from a year ago and is ahead of the national average by almost a full point,6 another indicator of the area’s demand for and strength of the rental market.

Left to right: Nance Place Apartments, Stahlman apartment, Eleven North Apartments rendering _______________________________________________________________ 6

Axiometrics, Apartment Market Performance, May 2011

5 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Condominium Market There are currently 2,302 condo units within 40 properties in downtown Nashville. Condominium units make up 55% of downtown housing, and no additional condominium projects are in the pipeline at this time. Approximately 30% of the purchase units are located in the downtown core, 25% in The Gulch, 24% in North Capitol, and 21% in SoBro. The condo market in downtown Nashville is going through an absorption phase. Sales over the past twelve months have been steady and consistent. (Figure 9) The homebuyer tax credit, which acted as a stimulus for condo sales, reached its deadline on September 30, 2010.7 There was a slight drop in sales in November, a spike in December, and then a steady, slow upward trend from January through June 2011. It was anticipated that sales would drop significantly after the tax credit ―high,‖ but downtown Nashville has continued to have an average of 14 closings per month over the last 12 months.

Downtown Condo Sales July 2010 - June 2011 25 20

15 10 5

0 July Aug Sept Oct Nov Dec Jan Feb Mar April May June Figure 9

At the end of the second quarter 2011, the downtown market had 121 developer-owned for-sale units available in three properties and 61 re-sale units on the market. If downtown condo sales continue at the same rate as they have the past twelve months, or approximately 14 per month, the downtown inventory will be depleted in under nine months. A four-month inventory of re-sale units is available. In a little over 12 months, the downtown inventory will be depleted. There are no new for-sale projects in the pipeline, and if there were, it would take a minimum of 36 months for a project to go from planning and schematic stages to completion and delivery. As the inventory decreases, demand for units will increase, resulting in the increase in prices.

Average Price Per SF

Average Sales Price










$0 2004 2005 2006 2007 2008 2009 2010 2011 Figure 10

2004 2005 2006 2007 2008 2009 2010 2011 Figure 11

The average sales price and average price per square foot of downtown housing are both market- and product-driven. Since 2004, both categories have increased and decreased depending on what type of product has entered the market and what the buyer is willing to pay for that product. The first six months of 2011 show that the average price per square foot is down slightly (Figure 10), but the average sales price is up to $252,142 (from $244,223 in 2010) 8 and 46% higher than the Davidson County average at $172,512. In April two penthouses in The Gulch—one at Terrazzo and one at ICON—sold for over $1 million each. The ICON penthouse sold for $1.18 million. The 1,928 square-foot condo sold at $612.03 per square foot, making it the highest residential price per square foot sold in Tennessee history. 9 ________________________ 7

http://www.irs.gov, July 2010 http://www.realtracs.net, July 2011 9 http://www.nashvillerealestate.com, Grant Hammond, July 2011 8

6 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Single Family Market Single-family homes make up 5% of downtown housing inventory. Of the 206 total homes in downtown, 204 are in the Hope Gardens neighborhood. Two single-family residential permits have been issued for Hope Gardens in 2011, but the sites are still undeveloped.10 The other two single family units are located in the downtown core.

Downtown Geographic Boundaries The Nashville Downtown Partnership’s definition of downtown includes properties within the boundaries of the river on the east, the interstate on the south and west, and Jefferson Street on the north. This geographic area is termed the Greater Downtown, which includes the Central Business District (Core), The Gulch, North Capitol, Hope Gardens, Rutledge Hill, Rolling Mill Hill, and SoBro. Germantown is adjacent to downtown, but not included in the residential counts. (Figure 12 )

_________________________ 10

Davidson County Metropolitan Government, Metropolitan Planning Organization, July 2011

Figure 12

7 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Demographic Profile and Trends

Household Status

The Nashville Downtown Partnership’s 2011 Downtown Residential Survey had a 17% response. In June, 2,200 surveys were distributed to homeowners and renters by direct email and via building and condo managers. The survey focused on residents who live in Nashville’s downtown defined by these boundaries: Jefferson Street on the north, Cumberland River on the east and the interstate loop on the south and west.

7% 10% Single

47% 36%

The downtown area continues to attract professional, highly educated residents from across all age groups, enhancing Nashville’s economic competitiveness. Twenty-seven percent of downtown residents moved there from outside the city and 27% percent moved from out-of-state. In addition, 88% of downtown residents hold a college or postgraduate degree.

Separated/Divorced Domestic Partner

Figure 13

Changes from 2010 to 2011 Age of Downtown Residents

Household Status Of the respondents, 47% are single, 36% are married, 10% are separated or divorced, and 7% have a domestic partner. The single percentage is down two points from 2010 while the married category is up two points. All remaining categories show no change since 2010. (Figure 13) The high number of singles corresponds with the Tennessee data from the 2009 American Community Survey, which shows an increase in the live-alone population (28%) and twoperson households (35%) compared with the 2000 U.S. Census.


40% 30% 20% 10% 0%

2011 2010 29 and Under 30-34 46-63 (Baby (Generation Y)(Generation X) Boomer)

64 plus (Veteran)

Age and Gender Figure 14

Respondents reflected the broad cross section of age groups who currently live downtown. Sixty-one percent of the residents living downtown are ages 45 and under, the same percentage as 2010. Generation Y (ages 29 and under) increased by 2 percent while Generation X (ages 30-45) decreased by 2 percent. The Baby Boomer (46-63) and Veteran (64 plus) percentages did not change. (Figure 14)

99% of survey respondents said downtown is a fun place to live!

Male and female residents each represent 50 percent of the downtown population. Male and female percentages continue to vary consistently over the past six years. Of the downtown residents 29 and under, 57% are female and 43% male, while the 30-45 category is 45% female and 55% male. Males and females each comprise 50% of the 46-63 age category and the 64+ age category.

Annual Household Income (in thousands)

Household Income Sixty-nine percent of resident households earn over $60,000 per year. Twenty-four percent earn between $100,000 and $150,000 annually, up 3% from 2010. Twenty percent earn over $150,000, up two percent from 2010. Three percent earn less than $20,000 annually. (Figure 15) Residential Households The average number of persons per household is 1.5. Eight percent of households reported having children, compared to 6% in 2010.

30% 25% 20% 15% 10% 5% 0%



Figure 15

8 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Level of Education Completed Sixty percent of downtown residents have a college education and an additional 28% hold postgraduate degrees. (Figure 16) The percentage of college-educated residents has dropped by three points, but residents with postgraduate degrees increased by three points.

Levels of Downtown Resident Education

12% College Graduate

Downtown has a highly educated workforce in comparison with Nashville and the Nashville MSA as a whole. (Figure 17)


28% 60%

High School

Where Residents Moved From Thirty-six percent of residents moved downtown from somewhere in Davidson County. Twenty-five percent moved from the MSA, 26% moved from another state, 3% moved from somewhere in Tennessee (outside of MSA), and 10% moved from another location in downtown. Work Location Fifty-nine percent of residents responded that their office is located outside of downtown. This percentage is down from sixty-two percent in 2010. The percentage increased from 2008 (52%) to 2010 (54% in 2009, 62% in 2010), and now has dropped slightly. This change corresponds with the ―central location/convenience‖ being the number one influence for choosing to live downtown, and being close to work continuing to be in the top four, with over one-third of residents citing its importance. (Figure 18)

Figure 16

Graduate or 2 or 4 Year Degree Professional Degree Downtown






Nashville MSA



Source: 2011 Residential Survey, American Community Survey 2007-2009 average

Figure 17

Employment Outside of Downtown 65%

Ownership/Rental Changes According to the survey, 66% of residents responded that they own their homes, down from 75% in 2010. Homeownership grew steadily each year from 2008 through 2010. The economic recession precipitated a higher demand for rental, which corresponds with the drop in percentage of ownership between 2010 and 2011. The increase in rental occupancy and the conversion of 292 condominium units to rental units in 2011 also corresponds with the increased percentage of residents who rent. (Figure 19) Quality of Life Factors When residents were asked what four elements most positively influence their continued downtown living, the top responses were the central location/convenience (52%), urban experience (48%), nightlife (33%), and being close to work (31%). The ―urban experience‖ held the spot as the #1 element for the past five years, but dropped to #2 this year. Being close to work and nightlife have continued to remain in the top four. (Figure 20)




55% 50%



45% 2008




Figure 18

80% 60% 40% 20% 0%

Ownership/Rental Changes 2008 - 2011















Figure 19

Elements that Influence Continued Living Downtown Central Location/Convenience (#1)


Urban Experience (#2)


Nightlife (#3)


Close to Work (#4)


Figure 20

9 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Study Area Housing Market The Greater Downtown has 3,836 existing residential units, and an additional 667 units are either planned or under construction. # Units



Property Address


Existing Apartments/Condos/Single Family CBD

112 Second Avenue Lofts


(Downtown Core)

114 2nd Avenue 115 8th Avenue North 123 2nd Avenue 138 2nd Avenue 219 2nd Avenue 320 Broadway 420 Broadway 425 Broadway Ambrose Lofts Art Avenue Lofts Bennie Dillion Original Lofts Berger Building

1 1 1 1 1 4 1 2 21 32 86 3

Capitol Towers The Cumberland/Cumberland Penthouses Church Street Lofts

219 289 17

184 256

James Robertson Apartments The Kress Lofts

123 29


Lofts Lofts Lofts Lofts

8 32 4 47

8 32

74 170 6 4 1 32 11

74 170

2 1 142 18 305 25 10 1,727


above ICHIBAN at 160 at Noel Court at the Exchange

Market Street Apartments Metro Manor Phoenix Lofts Printers Alley Condos Private Residence The Quarters Rhea Building Lofts Riverfront Studios - lofts above Smith House Stahlman Building Residences @ 315 Union Viridian Watauga House Westview

4 -

1 1 1 1 1 4 1 2 21 32 86


35 33 17






112 Second Avenue



114 115 123 138 219 320 420 425 162 231 700 162

2nd Avenue 8th Avenue North 2nd Avenue 2nd Avenue 2nd Avenue Broadway Broadway Broadway 4th Avenue North 5th Avenue North Church Street 8th Avenue North

Condo Condo Condo Condo Condo Condo Condo Condo Condo Condo Condo Rental

510 Gay Street, Suite 108 555 Church Street 301 Church Street

Rental/Condo Rental/Condo Condo


118 Seventh Avenue North 237 5th Avenue North

Rental Condo


107 160 214 309

Second Avenue North 2nd Avenue North 3rd Avenue North Church Street

Rental Rental Condo Condo


150 500 207 211 226 178 166

Second Avenue South Fifth Avenue North 3rd Avenue North Printers Alley 3rd Avenue North 2nd Avenue North 2nd Avenue North

Rental Rental Condo Condo Single Family Condo Rental

210 167 222 315 415 222 179

Broadway 8th Avenue North 3rd Avenue Union Street Church Street Polk Ave. 8th Avenue North

Rental Single Family Rental Rental Condo Condo Condo

4 47


6 4 1 32




142 18



305 25 10 700

District Lofts Harrison Square Harrison Square II Hope Gardens Residences

69 15 48 204


69 15 48 204

Corner of Harrison & 3rd Ave Harrison & 3rd Ave. N. Harrison & 3rd Ave. N. Hope Gardens

Ireland28 Riverfront Condos Row 8.9n

28 145 29 538


28 145 29 538

900 Block of Ireland Street 726 1st Ave. N. 800 Block 8th Ave. N.

Condo Condo Condo

Rolling Mill Hill

The Art Deco The Metro The Victorian Nance Place Apartments

24 36 12 109 181


Rental Rental Rental Rental


Academy Square Condominiums Cardwell Place Condominiums Encore Howell Park

50 4 333 40

100-149 Academy Square Lea Avenue & Rutledge 301 Demonbreun Street 401-479 2nd Ave. S.

Condo Condo Condo Condo

Peabody Quarters Rutledge House Rutledge Terrace

24 41 18 510 418 32 48 117 265 880

310 - 312 Peabody Street 656 Second Ave. S. 430 Second Ave. S.

Rental Condo Condo

222 302

117 43 578





The Gulch

ICON Mercury View Lofts Laurel House Apartments Terrazzo Velocity TOTAL EXISTING

24 36 12 109 181


50 4 333 40


41 18 486 418



24 32 48


600 12th Avenue South 1209 Pine Street 1101 Laurel Street 700 12th Avenue South 300 11th Avenue South

Condo Condo Condo Single Family

Condo Rental Rental Condo Condo/Rental

10 RESIDENTIAL REPORT: July 2011 Downtown Nashville

# Units










North Gulch



The Gulch




Under Construction Eleven North Apartments Planned Pine Street Lofts Ryman Lofts TOTAL UNDER CONSTRUCTION/PLANNED







11 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Assessment of the Downtown Market Over the past decade downtown Nashville has had over $2.8 billion of investment in over 100 public and private downtown projects. Approximately $520 million has been allocated to residential development involving new construction and major renovations or adaptive reuse of historic buildings Over 18% of the total downtown investment over the last decade has been for residential development. With the three residential projects slated for completion in 2012, the investment number increases to over $600 million, 21% of downtown total investment. (Figure 21)

Downtown Nashville Residential Investment (in millions) 2002 - 2012 $250 $200 $150

$100 $50 Figure 21

$0 2002











Figure 21 Currently, residential developer-owned projects delivered since 2008 are 86% contracted or closed. This includes for-sale units in three properties including the ICON, Terrazzo and Encore. Downtown Nashville’s housing product has responded over the years to meet market demand. Rental product was the predominant form of housing in downtown Nashville in 2005 at 83%. In 2006, four apartment properties with close to 300 units converted to condominiums in order to meet demand. At this time there were six condo projects and two apartment projects delivered. By 2007, purchase and rental units were close to equal at 51% and 49% respectively. Over the next four years, no rental projects were delivered, while purchase product continued to grow. The recession limited financing opportunities, increasing demand for rental product, and close to 300 condominium units converted to apartments in early 2011. By 2012, with three new rental projects slated for completion, downtown purchase and rental product will be close to equal at 51% and 49%.

Left to right: The Ragland Building, Trolley Barns at Rolling Mill Hill (rendering), Music City Center (rendering)

12 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Demographic Trends Affecting Future Downtown Housing Market Robert Charles Lesser & Co., a real estate advisory firm, predicts that the next ―normal‖ year will be 2013. Currently, the U.S. is in recovery mode, and will see moderate job growth in 2011. Lending standards and regulatory uncertainties will loosen in 2012, and there will be normal market condition in 2013, followed by Boomers and Gen Y entering the market in 2015 and beyond. 11 According to research conducted by RCLCO, three primary groups will create the largest impact on our economy and housing market through the year 2020: Baby Boomers, Echo Boomers (Gen Y) and Immigrants. Life stages of these groups influence their housing choices.12 Baby Boomers are 78 million strong. Four million baby-boomers will retire and enter the market every year for the next 19 years, and 75% of them want to live in urban settings – either central cities or walkable town centers.13 The Boomers are entering an ―urban phase‖ and their preferences include active lifestyles, social interaction, lifelong learning and cultural activities, proximity to shopping, being ―closer in,‖ living in a smaller, less maintenance home in safe urban areas. Consumer research conducted by RCLCO reveals that Tennessee is one of the top five contenders of ―where‖ Boomers will move during retirement (others include the Carolinas, Florida, and Arizona). In deciding where to move, cost of living and healthcare trump favorable climate. 14 RCLCO predicts that the downturn in the market is likely to delay increased retirement demand until after at least 2015. The beginning of retirement may be delayed 3-5 years for many baby boomers as a result of the economic downturn. Depending on how long boomers delay retirement decisions, the peak of retirees may be delayed from 2019-2022.15 Echo Boomers (Gen Y) will be one of the key demographics to watch over the next ten years. The largest group of Generation Y began graduating in 2009. The greatest demand for rental housing began in 2009 and will peak in 2012. The impact of Gen Y on home buying won’t change dramatically until 2016 to 2018. Echo Boomers will choose metro areas based on lifestyle preferences and social and recreational opportunities. Location is major factor in consumer preferences: close to jobs, adjacent to local retail, convenient to regional retail and entertainment, and walkable/transit-rich. According to RCLCO Consumer Research, Echo Boomers will pay more for walkable mixed-use neighborhoods. This group is driven by convenience, connectivity, and a healthy work-life balance to maintain relationships. Onethird will pay more to walk to shops, work and entertainment, two-thirds say

________________ 11

RCLCO, The Future of Real Estate: Demographic Forces Driving Change, March 2011 RCLCO, Post Recession Housing Trends, November 2010 13 RCLCO, The Future of Real Estate: Demographic Forces Driving Change, March 2011 14 RCLCO, Post Recession Housing Trends, November 2010 15 RCLCO, Post Recession Housing Trends, November 2010 12

13 RESIDENTIAL REPORT: July 2011 Downtown Nashville

living in a walkable community is important, and more than half would trade a lot size for proximity to shopping or to work. Even among families with children, one-third or more are willing to trade lot size and ―ideal‖ homes for walkable, diverse communities. 16 Currently, this group is entering the rental market and the greatest number will switch toward home ownership in 2018. 17 A subset of this generation that should be examined is WINKS – Women with Incomes and No Kids. This group made up of working women who are 26-29 years of age (Gen Y is 20-29 years old), not married, professional, have no children and are earning over $50,000 annually. Largely they are live-alone renters, and will purchase a home in advance of marriage or children. They prefer urban or walkable environments and will pay a premium for it. They desire the ability to walk to work, dining, and shopping and expect the following amenities: fitness facilities, trails, running groups, libraries and yoga instruction. They will impact housing product types, floor plans, amenities, and will have the most effect on urban locations. In 2010, women became the majority of the American workforce. Minorities will lead growth in America. At the current pace, minority share is expected to grow from 29% today to 35% by 2020. There will be a growing share of high-income homeowners and buyers among foreign-born and minority households.18 Although there has been a lot of speculation about how the economic downturn has created a fundamental shift in the way people view homeownership (a new Fannie Mae survey finds 67% of Americans believe housing is a safe investment, down from 83% in 2003), an Urban Land Institute survey found that 70% of Generation Y would like to own a home someday. 19 A nationwide survey by Pew Research Center found that 81% of adults say buying a home is the best long-term investment a person can make.20 According to research by RCLCO, 73% of 15 to 24 year olds and 78% of 30-32 year olds anticipate owning their own home by 2015.21 Echo Boomers will impact rentals now and for-sale later. The estimated home-buying age for this group between 2008 and 2030 peaks between 2018 and 2019 for 28 year olds, and then peaks again between 2021 and 2022 for 31 year olds. (Figure 22)

Source of Graph: RCLCO _________________________ 16 RCLCO, Post Recession Housing Trends and Consumer Preferences, November 2010 17 RCLCO, The Future of Real Estate, Demographic Forces Driving Change, March 2011 18 RCLCO, Post Recession Housing Trends and Consumer Preferences, November 2010 19 RCLCO, Outlook for the Residential Market, Webcast with Gregg Logan, Managing Director, November 2010 20 Pew Research Center , Home Sweet Home. Still., April 12, 2011 21 RCLCO, Post Recession Housing Trends and Consumer Preferences, November 2010

Figure 22

14 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Carol Coletta, President & CEO of CEO’s for Cities was named one of the top 50 of the world’s urban experts. Coletta says we are living in an ―urban age‖ and that downtowns are crucial to America’s future. According to Coletta, there are three success factors for cities: 1) the quality of talent, 2) the quality of place, and 3) the quality of opportunity. The most important driver of success is the quality of talent. Fifty-eight percent of any city’s success can be determined by the percentage of the college educated population. The qualities of ―place‖ and ―opportunity‖ are retainers of talent. 22 CEO’s for Cities just released a report on the migration patterns of 25-34 year olds – the most mobile age group in our society. The more education they have, the more they migrate. In order for an area to retain talent, it must target 25-34 year olds. Since 1980, there has been a steady increase in this demographic to live in Central Business Districts (CBD) or within a three-mile radius of CBDs (called close-in neighborhoods). In 1980, young adult ages 25-34 years of age were 10 percent more likely to live within downtowns or a three mile radius. In 1990, the percentage increased to 20 percent, and in 2011, the percentage is at 42 percent. College-educated adults ages 25-34 were 61 percent more likely to live downtown or within a three-mile radius in 2000, and today they are 94% more likely. Coletta notes that this information comes from 40 years of real trends, and is not simply anecdotal. The college-educated population grew at a faster rate within the three-mile urban core than in the rest of the metropolitan area in two-thirds of the nation’s 51 largest cities. The density of talent within city centers is imperative to realizing economic benefits of cities. By increasing the population of four-year college educated by just one percentage point generates a considerable increase in personal income for the metro area.23 Nashville is in a prime position for recruiting and retaining this demographic. Livability.com named Nashville one of the top 10 U.S. cities for college grads. The website based finding on studying employment opportunities, salaries, population age and night life.24 Forbes Magazine also ranked Nashville as the 4th best city for college graduates.25 According to Rolling Stone’s April issue, Nashville has the ―Best Music Scene‖ in the country,26 and Forbes.com touts Nashville as one of the top ten U.S. Biggest Brain Magnets.27 Entrepreneur Magazine ranked Nashville as one of five U.S. cities to hold the title of a ―creative center‖ because it is America’s second-biggest music production center (after New York) and its recording industry accounts for about 19,000 local jobs. 28 Forbes also ranks Nashville 6th in its annual list of the Best Places for Business and Careers. 29 Walkability has become a chief factor in choosing where people want to live, so much so that venture clients are looking at the ―walkscore‖ of an address as an increasingly important part of underwriting criteria. 30 A study conducted by CEO’s for Cities titled Walking the Walk reveals that the walkability of a city translates directly into increases in home values. In fact, homes located within more walkable neighbourhoods command premiums of $4,000 to $34,000 over houses with average levels of walkability in typical metropolitan areas.31 _______________________________________ 22

Carol Coletta, CEO’s for Cities, Presentation: The City as the Heart of the Region, International Downtown Association Conference, April 2011 CEO’s for Cities, The Young and the Restless in a Knowledge Economy: Update, April 2011 Livabilitiy.com, Top Ten U.S. Cities for College Grads, June 2011 25 Forbes Magazine, Nashville Ranked 4th Best City for College Graduates, February 10, 2011 26 Rolling Stone, Nashville has Best Music Scene in the Country, April 28, 2011 27 Forbes.com, The U.S.’ Biggest Brain Magnets, January 2011 28 Entrepreneur.com, Innovation Nation: 50 cities and 10 lifestyles energizing businesses of all shapes and sizes, August 2010. 29 Forbes Magazine, Forbes’ 13th Annual Best Places for Business and Careers, June 2011 30 RCLCO, A Market and Economic Context for Thinking About Suburban Sprawl Repair, Adam Ducker, June 2011 31 CEO’s For Cities, Walking the Walk, August 2009, 2 23 24

15 RESIDENTIAL REPORT: July 2011 Downtown Nashville

The study estimated how much market value homebuyers implicitly attach to houses with higher Walk Scores. The Walk Score algorithm measures the number of standard consumer destinations within walking distance of a house, with scores ranging from 0 (car-dependent) to 100 (most walkable) (Figure 24). Findings revealed that there is a positive correlation between walkability and housing prices in 13 of the 15 housing markets studied. Homes with above-average Walk Scores are worth between $4,000 and $34,000 more than similar but less walkable homes. An additional point increase in Walk Score was associated with between $700 and $3,000 increase in home values.32 The National Association of Realtors released a report in April showing close to three out of five potential homebuyers would choose smaller homes if they could have a commute of 20 minutes or less, and that 77 percent would look for neighborhoods with sidewalks and pedestrian-friendly components. 33 Consumers and housing markets attach value to living within easy walking distance of service providers, restaurants, retail, schools and parks. Higher levels of value are associated with areas where one does not have to be car-dependent, and transportation alternatives are available. Generally, places with a high level of walkability also offer a myriad of other related characteristics that are appealing: they are usually denser, offer transportation options, are more centrally located, and have a diverse mix of land uses.34 Walkability is increasingly becoming a fundamental measure of urban vitality. All of downtown Nashville’s residential properties have Walk Scores that are considered a ―walker’s paradise‖ or ―very walkable.‖ (Figure 23) Fourteen out of the fifteen properties located in the downtown core are considered a ―walker’s paradise.‖ By contrast, some of Nashville’s suburban areas have very low walkscores, showing they are ―car-dependent.‖ 35 According to a survey conducted jointly by Urban Land Institute and Lachman Associates, walkability is now the most important community feature to Echo Boomers. Seventy–one percent identify a walkable neighborhood as a vital decision factor in choosing where they want to live.36 Downtown Nashville’s transportation options are growing. Alternate transportation options introduced over the past several years include WeCar, a car-sharing program offering four cars for use by downtown residents, businesses and employees, and the Music City Circuit, a downtown circulator by Metropolitan Transit Authority (MTA), offering free transportation from various sites in the downtown core to The Gulch and the Farmers Market in the North Capitol neighborhood. MTA has also engaged the community along with consultants to participate in a Broadway/West End Corridor Study to consider the creation of a public transportation system for Nashville and the Middle Tennessee Region.

Residential Property Walkscore Downtown Core Ambrose Lofts 98 Art Avenue Lofts 98 Bennie Dillon Original Lofts 95 Church Street Lofts 98 The Kress Lofts 98 Lofts at Noel Court 98 Lofts at the Exchange 98 Phoenix Lofts 98 Printers Alley Condos 98 The Quarters 94 Viridian 98 Watauga House 98 Westview 95 Capitol Towers 86 Cumberland Penthouses 100 North Capitol District Lofts 74 Harrison Square 74 Harrison Square Phase II 74 Ireland28 71 Riverfront Condos 72 Row 8.9n 77 SoBro Academy Square Condominiums 85 Cardwell Place Condominiums 85 Encore 92 Howell Park 85 Rutledge House 86 Rutledge Terrace 85 Gulch ICON 82 Terrazzo 80 Velocity 88 Figure 23

WALK SCORE DESCRIPTION 90–100 Walker's Paradise — Daily errands do not require a car. 70–89 Very Walkable — Most errands can be accomplished on foot. 50–69 Somewhat Walkable — Some amenities within walking distance. 25–49 Car-Dependent — A few amenities within walking distance. 0–24 Car-Dependent — Almost all errands require a car. Figure 24 ______________________________________________ 32

CEO’s For Cities, Walking the Walk, August 2009, 3 National Association of Realtors, NAR Study Finds American Prefer Smart Growth Communities, April 2011 http://www.walkscore.com, accessed July 2011 35 http://www.walkscore.com, accessed July 2011 36 Urban Land Institute/Lachman Associates Survey, Summer 2010 33 34

16 RESIDENTIAL REPORT: July 2011 Downtown Nashville

Housing Needs and Opportunities A publication titled Housing in America: The Next Decade (Urban Land Institute) suggests that emerging trends and consumer behavior will be major drivers of new housing opportunities, resulting in a considerably different residential market than before the recession. Those entering the housing market in the future are more likely to rent for a longer period of time, and purchase housing merely for a place to dwell rather than for investment purposes. 37 This bodes well for continued high rental occupancy rates and encourages additional development of rental product in downtown Nashville. A publication undertaken jointly by Urban Land Institute and Pricewaterhouse Coopers, reveals that the U.S. is going through an ―Era of Less,‖ in which homeowners will begin to accept that they can live affordably and comfortably in smaller spaces and gain economies from driving less. Twenty-four hour neighbourhoods and infill areas in cities become more desirable to the large contingent of empty-nest baby boomers and echo boomers. Fringe suburban areas begin to lose their appeal. 38 Brookings Institution states that the healthiest cities have 2% of the city’s metropolitan area living in downtown. This idea has been coined the 2% solution, what cities should strive to achieve in order to create a critical mass needed to spark a cycle of growth in the city and metropolitan area overall.39 Two percent of Nashville’s MSA is 32,636. Downtown Nashville would need over 27,000 residents in order to meet this challenge. City officials, developers and property owners need to be committed to add investment in and promotion of downtown living opportunities as well as working together to overcome challenges to further development. Pledging to meet these goals will benefit the economic vitality of the entire Metropolitan Nashville area. Downtown is off to a good start, offering a variety of housing types and price points, but in order to sustain growth will need to continue to develop housing for first-time buyers, workforce housing, and multifamily rental. The Metropolitan Development & Housing Agency delivered Nance Place Apartments in 2011, and plan for Ryman Lofts to be available in 2012. Both projects will offer moderately priced rental options. Developers are currently working to meet market-rate demand in the growing rental market through other planned/under construction projects. Developers that have abandoned condo projects should take a second look at future changes in demographics, as downtown Nashville will be out of inventory in 2012. Echo Boomers have begun to enter the home buying market and demand will peak between 2018-2022. Baby Boomers will be looking to downsize and live in walkable city centers or close-in neighborhoods, and Tennessee is in the Top 4 places they want to retire. In late 2009, the Tennessee General Assembly approved changes to the tax increment financing (TIF) statute for housing and development authorities, providing flexibility to the use and scope of these funds. For the first time, TIF funds can be utilized for the cost of incorporating green design features into projects. 40 Demand for green, energy-saving housing options are on the rise, and this new mechanism can be used by developers to fund projects that urban residents desire.

Conclusion Harris Interactive conducted a poll asking people where they wanted to live, if they could live anywhere in the nation. Nashville was chosen as the 7th most popular city in the U.S.41 The Western States Arts Federation conducted a study that revealed Nashville ranks 4th in overall ―cultural vitality‖ determined by the number of creative professionals, as well as the amount of total spending on creative life in the city.42 Forbes ranked Nashville as one of the best cities for jobs and 8th best city for job growth. 43And the accolades continue, revealing Nashville’s strengths. Downtown Nashville is poised for growth in jobs, residents, and development. Continued investment in public and private projects in the downtown area as well as increasing urban amenities, strong occupancy rates, increases in transportation options and nationwide trends of urban movement in several demographics set the stage for a bright future. In order to build on its accomplishments, Nashville’s public officials and developers must work together to help plan and provide for a diverse housing mix geared toward changing demographics and lifestyles.

________________________ 37

Urban Land Institute, Housing in America: The Next Decade, March 2010 Urban Land Institute, Emerging Trends in Real Estate 2011 Brookings Institution, A Two-Percent Solution for Downtown Rochester, February 2008 40 Waller Lansden Dortch & Davis LLP, Tennessee’s Expanded Tax Increment Financing Statute Includes Sustainability, August 2009 41 Harris Interactive, The Harris Interactive Poll, October 2010 42 Nashville Metro Arts Commission, Press Release, November 22, 2010 43 Forbes, The Best Cities for Jobs, May 2011 38 39