Woodland Commons

The recent article in the Nashville Business Journal profiles the latest development to scale back its original due to adverse economic conditions. 800 Main apartment project in East Nashville has changed its name to the Woodland Commons and has gone from 336 units to 266.

Friday, May 22, 2009
Developer shrinks East Nashville project
5th & Main woes, more competition force new strategy
Nashville Business Journal - by Jenny Burns Staff Writer


The developer of the 800 Main apartment project slated for East Nashville is scaling back and changing names, in response to the failure of the nearby 5th & Main condo project and the growing competition from downtown condos that are hitting the rental market.

“We are taking a conservative approach to this project,” says Double A Development principal Adam Leibowitz. “The current status of 5th and Main was one of the factors that contributed to doing it in phases.”

To play off the bustling Five Points area along Woodland Street, Leibowitz has changed the name of the project to Woodland Commons.

The project at Main and Woodland streets has just received Metro approval and tax increment financing through the Metropolitan Development and Housing Agency in exchange for offering 20 percent of the units at affordable rents as defined by U.S. Department of Housing and Urban Development guidelines.

Leibowitz bought the former Bank of America processing facility and parking lot at 800 Main Street for $3 million a year ago. He planned to demolish the processing center and build a 336-unit apartment community with 24,000 square feet of shops on the ground floor. Now, he’s downsized to 266 units, at least for the first phase, with about the same amount of retail.

The growing number of downtown condos offered for rent played into his decision. But Leibowitz says his third-party market analysis shows there’s enough demand for him to build 350 units, in addition to the hundreds of new condos downtown, in the Gulch and down the street at 5th & Main, which went into receivership in February. But he says he’s more likely to get financing by shrinking the project’s scope.

Leibowitz hopes to secure financing and start construction by the end of the year.
The project cost is now estimated at $38 million, down from $45 million. Rental rates will be $775 to $1,800 for studio, one and two bedroom apartments.
Condo owners desperate for renters are often willing to take less money than apartment owners, which has put pressure on rents — pressure that will likely escalate, says Ray Hensler, developer of the 186-unit Adelicia condominium.

Critics have cited 5th & Main’s location, just across the highway from downtown, as a reason for its failure. But Leibowitz says it was just too far from East Nashville’s hot spots, such as Margot Café, the 3 Crow Bar and Batter’d and Fried.
“It has a beautiful Nashville skyline view but does not have easy accessibility to the success of East Nashville,” he says. He says his project’s location is better because it is within walking distance to the Five Points restaurants and shops.
Leibowitz’s development partner, Lane Co. of Atlanta, signed on because of a lack of new apartment projects going up in the Five Points area.

“It’s location is unparalleled, in close proximity to downtown Nashville with its job base and entertainment venues, yet walking distance to the vibrant and dynamic neighborhood of Five Points with its cafes, galleries and shops,” says Jeff Sherman, development manager at Lane Co.

Sherman says even if 5th & Main converts to apartments, their market study shows sufficient demand for the Woodland project. Marty Heflin, joint venture partner in the 142-unit Stahlman downtown apartment building with the Matthews Co. and principal of M2H Group, says he’d be concerned about the amount of inventory if Woodland Commons opened now. But because it will be at least two years before the apartments are completed, he thinks there is sufficient demand.

Heflin was the development partner with Trammel Crow Residential, a large apartment company, for 10 years. He says Leibowitz’s location is “spot on” because it’s an established neighborhood. He contends, though, that 5th & Main’s financial problems weren’t about a bad location, but bad timing. The suburban garden apartment concept is no longer, Heflin says, and future projects will be infill urban projects.

Rhythm at Music Row Reception

If you are interested in going to a reception this Thursday at the new Rhythm at Music Row, click here for a flyer with the details. It should be a fun way to get a sneak peak at floorplans and models of the 99 condominium unit developement. Just up from the Tin Roof on Demonbreun, the new Nashville condo complex will be a guaranteed hotspot. Standing 14 stories, Rhythm promises great views of the skyline, Music Row, and The Gulch. There is also a 4th story amenity deck with pool and jacuzzi. Units range in price from $239,900 to $712,900 depending on size and floor. Tour and drinks will be provided from 5:30 to 7:30. The address is 1510 Demonbreun. Be sure to let me know if you plan on going.

The Next Wave of Foreclosures

A new chart is stimulating articles that say a new round of foreclosures are on the horizon, but this time it's the high-end home owner that will be most effected. The article below was found on Seeking Alpha and there is a shorter article on NashvillePost.com. While fairly dire in its predictions, it's remains to be seen how accurate it will turn out to be or if/how it might effect the future of the Nashville housing market.

The Next Wave of Foreclosures
May 21, 2009
by Dirk Van Dijik

So you think we are out of the foreclosure woods? Don't bet on it. Take a look at the chart below, created by Credit Suisse (a larger version is available here). It shows the date of first reset or recast of various classes of adjustable-rate mortgages (ARMs). A reset refers to a change in the interest rate, a recast refers to a change in the payment.

For most "plain vanilla" ARMs they are the same thing, but for Option ARMs the payment can change without a change in the interest rate. Option ARMs (the yellow part of the bars) allow the borrower to pay less than the amount of interest on the loan early in the mortgage life, with the difference being added to the principal of the mortgage. Even in a flat housing price environment, this would cause the loan-to-value (LTV) ratio to rise over time. In a falling home price environment, with both the loan growing and the value falling, it happens much more quickly.

The vast majority of the homeowners with these "pick a payment" mortgages pay only the minimum payment. When it exceeds a set level, or at a set date in the future (whichever comes first), the mortgage holder has to start paying the fully amortizing payment of the now much larger mortgage. This can cause huge jumps in the monthly payment, with increases of over 50% not uncommon.

These are the ultimate in "exploding mortgages." The number of these recasts is relatively small right now -- at about $1 billion per month -- but that number is set to grow dramatically over the next few years, exceeding $8 billion per month in the fall of 2011. If the equity in your house is gone and your monthly mortgage payment suddenly jumps from $2000 per month to over $3000 per month, what do you think is going to happen? How about if one or both of the people in the household has been laid off?

This is going to be a huge problem, particularly for Wells Fargo (WFC). The biggest writer of these abominations of housing finance vehicles was Golden West, which was bought by Wachovia, which was then absorbed into WFC. Unlike sub-prime mortgages, these were for the most part targeted at more upscale homeowners. The next wave of foreclosures will be in gated communities, not on the "wrong side of the tracks."

The chart shows that the sub-prime problem is largely behind us (dark grey part of the bars), as most of those teaser rates have now expired. As long as people have some equity in their houses or are less than 5% underwater, it is possible for them to refinance their mortgages as long as rates stay low. The refi of up to 105% is part of the Obama housing relief plan. If people are further underwater than that they are out of luck (and increasingly out of a place to stay).

Refi's have helped many people and have cushioned the impact somewhat. However, their most significant effect has probably not been in preventing foreclosures, but in raising the disposable income of those who would have probably been able to stay in their homes in any case. This has worked like a tax cut and has helped to maintain consumer spending. But in any case, that pig has mostly worked its way through the python.

Instead, the Option ARMs and the Alt-A loans are going to be the big problem. Alt-A loans (green) were offered to people with good credit ratings, but were often jumbo loans, or were low-or-no-documentation loans (aka "liar loans").

The next wave of foreclosures is going to have much higher average loan balances, so each foreclosure is going to hurt the banks more. So far, more upscale communities have avoided the full impact of the housing crisis. Over the next year, they will be the central part of the story.

Foreclosures being dumped onto the market have caused the low end of the housing market to suffer much larger percentage declines in values than upscale areas have seen. Currently, there has also been much more activity in the existing home market at the low end of the market, with about half of all sales being "distressed sales" (either short sales or recent foreclosures).

The high end of the market still remains frozen, particularly for properties that need mortgages above the local conforming limits (max $730,000 nationwide, but varies by local area). This has caused the median transaction value to decline more sharply than if the relative activity between high end and low end homes had stayed constant. As foreclosures move more upscale, we may well see an increase in median existing home sale price. I'm sure this will be spun as good news of a housing bottom. Don't believe it -- it just means that the cancer is spreading.

This wave of foreclosures is over and above the current uptick that is happening due to the expiration of foreclosure moratoria at Fannie Mae (FNM) and Freddie Mac (FRE) and because mechanisms put in place by several states to slow down the foreclosure process have run their course. The vicious cycle continues -- lower home prices put more homeowners under water, which leads to more people walking away or being foreclosed on, which in turn further lowers home prices.

The reduction in wealth associated with this spiral causes people to need to save more, and reduces the amount they will spend. This leads to lower demand and higher unemployment. Higher unemployment then leads to more people being unable to afford their mortgages, leading to more foreclosures.

The housing crisis is not over, not by a long shot. Based on the recast and reset schedule shown below, it could last all the way until 2012.

Lenders take control of Braxton

The following is an article from the Nashville Busines Journal on the bankruptcy proceedings on the Ashland City waterfront luxury condo development, The Braxton. For those looking for potential investment opportunity, this is one to watch....

Friday, May 15, 2009
Lenders take control of Braxton
Ashland City development behind on $50 million in loans
Nashville Business Journal - by Turner Hutchens Staff Writer

Banks have seized Cheatham County’s first and only waterfront luxury condo project.
Bank of America and National City Bank have called in $50 million in construction and development loans, interest and fees on the 5.6-acre,136-unit Braxton in Ashland City and put the twin high-rise condos in receivership, as well as an adjacent 6.2 acres set aside for future development.

Davidson County Chancery Court Judge Russell Perkins order the receivership on May 1, the same day Bank of America filed suit on behalf of itself and National City. Nashville attorney John Cheadle was appointed receiver of the property May 8.

Cheadle says it is too early in the process to say exactly how the property will be handled. But he says he likely will set up a sales team to sell the condo units and retail spaces individually, rather than seek a single buyer for the development.

“I think they’d be hot prospects on the sales market” given that prices concession are likely, he says. Calls to the Braxton and its attorney were not returned.

The project, which had estimated construction costs of $60 million, has sold about five condo units, though contracts were signed on about 70 units. In September 2006, the developer announced it had received 20 percent downpayments on 83 units representing a total of $44 million. Construction began in early 2007 after the loan was secured.

John Rankin, president of Progress Capital Partners, was the developer and managing partner for the site. He filed a personal bankruptcy last year, and Nashville developer Chuck Elcan assumed the role of managing partner of the Braxton.
According to the banks’ legal filings, the loans matured on Jan. 24, but Braxton didn’t pay the balance owed — a total of $49.7 million in principal in January, plus the $623,664 in interest, fees and other charges on the loan. Those charges and fees have continued to accrue at higher interest rates since the loan went into default.
Bank of America supplied $30.2 million of the original loan, and National City Bank acquired the remaining $20 million loan.

The posh condos were advertised between $450,000 and $1.2 million. Loan documents between Progress Capital and the lenders show minimum sale prices ranging from $175,000 to $1.1 million.

Multiple liens also have been filed against the Braxton since last fall, when the development’s general contractor, Nashville-based T.W. Frierson Contractor Inc., filed a $3.4 million lien because of non-payment. The Frierson lien was released when the development posted a bond to pay the contractor and clear the title so sales could proceed.

In February, Elcan said the liens were a “normal part” of large developments to determine who is responsible for issues that come up during construction. He also said the project was working through the slow sales market, closing about two condos per week.

That same month, 10 condo buyers sued seeking to get out of their purchase contracts, claiming the Braxton had not lived up to its promises.
Rankin also said in February that he had stepped down from any official capacity with Progress Capital. The lawsuit does name Rankin as the primary with the developer.

He also said construction delays had not been a problem for the project’s financing.
“The banks are well aware that things like that happen, so there was not any major issues,” Rankin said.

The bank also has a deed of trust over the Harpeth Shoals Marina, which Progress Capital developed next to the Braxton on property owned by the Ashland City Port Authority, according to James Kelley, an attorney with Neal & Harwell PLC who is representing the banks in the suit.

The banks’ interest in the marina was not included in the receivership request. The port authority has filed briefs objecting to the receivership of the Braxton, citing financial interests in the marina.

Dina D’Gerolamo, a real estate broker who has a listing for one of the Braxton units, says she was disappointed with the poor sales. She hopes the property will come back to life, bringing vitality to the area that’s slated for restaurants and shops as well.

“It’s a beautiful place,” she says. “I wish things hadn’t turned out the way they did.”


thutchens@bizjournals.com | 615-846-4254

Signature Tower drops size, scope

*The following is a reprint of an article that appeared in the Friday, May 1, 2009 edition of the Nashville Business Journal - by Jenny Burns, Staff Writer.

In an earlier post, I mentioned that this change to the Signature Tower was coming. (To see the Nashville skyline with the original plan for the Signature Tower, see the main picture on my web-page).

Signature Tower drops size, scope - Developer cuts floors, condos in hopes of reviving stalled project

Tony Giarratana is a man who thinks big. But to get his supersized skycraper off of the ground, he has to shrink his plans.

The Signature Tower is getting a recession makeover — dropping 20 stories from its original plan of 70 floors, removing all balconies and replacing hundreds of smaller condos with just a few larger, luxurious ones.

At 50 stories, the revised Signature will not be the tallest building in the Southeast as Giarratana had originally envisioned, likely falling to third or fourth behind towers in Atlanta and Charlotte, developers estimate.
It still will be the tallest building in Nashville at about 807 feet, surpassing the AT&T building’s 632-foot stature.

“When Signature is built, Nashville is no longer the same city,” says Tony Giarratana, president of Giarratana Development, who’s still determined to build his high-profile project. Giarratana has built several downtown high-rises including the Viridian condos and Cumberland Apartments on Church Street.

Signature Tower, planned for the corner of Fifth Avenue and Church Street downtown, has seen several incarnations. It was originally announced as a 55-story office, hotel and condo project in early 2005, then changed to just residential with retail on the ground floor.

A hotel was added in 2006 pushing it to 65 stories, and the tower later grew to 70 stories because of the condo boom. Giarratana got the city permit to start the project in 2007, but it stalled when it couldn’t get enough condo pre-sales.
As the condominium market took a nosedive and credit markets froze, it was evident to Giarratana that Signature would have to change too. The revised plans look like this:
• The bottom levels include retail, restaurants, meeting rooms, a ballroom, a bank and pool decks.
• Above that will be 172,000 square feet of top-tier office space.
• Up next is the hotel, which has grown from 198 rooms to 304 rooms.
• And the number of condos planned for the top floors of the structure have shrunk from 400 to 50 units.
• And underground, the parking garage has been cut from 630 spaces down to 360. Fewer condos means fewer parking spaces, and the move will save about $2 million, Giarratana says.

Giarratana’s team has searched for ways to cut the building’s price tag without sacrificing quality because the cost of capital has gone up tremendously. Giarratana says the amount of debt he can finance has dropped about 25 percent.

Giarratana says he would have had to use a New York contractor to build the 70-story Signature, but now he can hire a Southeast contractor for the shorter version. And the estimated 20 percent drop in construction costs helps too.

However, Giarratana says he isn’t certain yet how the changes will impact the tower’s original price tag of $250 million because of recent drops in materials and labor costs.

And the cuts don’t mean that financing is waiting in the wings. Giarratana says it’s unlikely that traditional construction financing will be available this year. That’s why his financial advisor, Chicago-based Jones Lang LaSalle, is looking for off-shore investors.

“Our advisors indicate that they are cautiously optimistic that financing can be obtained within the next eight to 12 months,” he says.

Office broker Rob Gage with Colliers Turley Martin Tucker says Giarratana is an accomplished developer, but questions the reality of getting financing for a skyscraper in today’s tough economic times. Gage estimates that any lender would require significant condo pre-sales and pre-leasing of the office space.
The downtown office market is at a 17.3 percent vacancy rate, not including the 240,000 square feet of space opening soon in the under-construction Pinnacle at Symphony Place.

No office tenants have been signed for Signature. Because the downtown vacancy rate is expected to reach 20 percent by year’s end, Giarratana says he will need to pre-lease 50 percent to 75 percent of the office space before starting construction.
“This is an unprecedented opportunity for a company to anchor a 50-story tower in downtown Nashville,” he says.

The tower’s 350 condos were cut because of an oversupply and limited demand. In Nashville’s 30 newest condo projects, about 1,420 condos are available but sales have been slow.

Office developer Barry Smith, president Eakin Partners, says Signature’s new make-up definitely is reflective of current demand for the condo market. The building wouldn’t open for three to four years, and in that time, Smith says the existing inventory for both condos and offices should be absorbed.

The redesigned condo units include five full-floor homes at the top, six two-story homes with oval staircases, four townhouse units and 35 flats. Instead of balconies, the condos have solariums, all-glass rooms where the windows open for fresh air. Many have exercise rooms and studies, and five units have outdoor terraces.
The units have not been priced, but the market for condo units above $1 million is limited in Nashville. In the past four years, 17 condo units have sold in new projects above that price point.

“I don’t have a crystal ball, but I don’t think the next four years is going to look like the last four years,” condo developer Ray Hensler says.

As for the expanded hotel, Giarratana says he’s not worried about the struggling hotel market, where occupancy and average daily rates have dropped during the recession. The city’s proposed convention center, he contends, will increase demand for high-end rooms downtown.

GUIDELINES FOR THE FIRST-TIME HOME BUYER

I know I’ve said it before, and I’ll say it again. This is a great time to buy real estate. Interest rates are low, prices are down, and most sellers are willing to negotiate to get the deal done. For what many are paying in rent, they could be building equity in their own home. So, if you have a job and a decent credit score, here are a few tips when you go house shopping:

1. Talk to a mortgage lender at a bank and find out how much house you can comfortably afford. I can give you an idea of what price range you can handle based on how much you can spend per month. However, a mortgage lender can tell you exactly what your payment would be, your interest rate, and what kind of loan would be best for you. A mortgage lender can also pre-qualify you for a loan, so when you find that perfect place, you can present a much stronger offer. When a contract comes in accompanied with a pre-approval letter, the seller knows the buyer is serious.

2. Unless you’re a seasoned pro at investing in real estate, a good Realtor is the best investment you can make. (Besides, the Realtor’s commission is built into the seller’s costs, so it doesn’t cost the buyer anything). A real estate agent will help you find the best areas and neighborhoods, and then zone in on the house or condo specifically for you. While I encourage my clients to actively search for their home; many times, I find the one they end up buying. Finding the home is only the beginning…. A Realtor negotiates the price and conditions of the contract; then walks their client all the through to the closing.

3. When working with a new buyer, I define their home search as much as possible. The more information as my client can tell me about their dream home the better… The parts they aren’t sure about, we can figure out together. Location (along with price) is probably the most important factor. Age of the house, square footage and number of bedrooms, and any special features are all helpful things to know. “I want a home in Brentwood with 4 bedrooms, 3 ½ baths, and an in-ground pool.” That’s a specific house that I can find. Then there is that non-quantifiable factor, when the buyer walks into a house and just knows this is home.

4. When you walk into that house that you want, go ahead and make an offer. So many times, we have found a place that fits their criteria and the buyer absolutely loves, but they let it get away. It might be early in the search process and the buyer felt like they should see more houses before committing. Or, maybe they just drag their feet about filling out a contract. For many, making an offer is a nerve-wracking experience and I understand that. Some buyers (especially first-time home buyers) have to lose out on their first home before they get serious and realize that when they see what they really want, go for it.

5. When you write an offer, (almost) always make it contingent on an inspection. This way, you can get out of the contract if you discover during the inspection process that the house is going to need more repairs than you bargained. Some properties are listed “As Is,” which means the seller is not open to doing any repairs. These properties should already reflect a price reduction built-in and might be a good deal if you are not afraid of doing some work yourself. Most buyers are willing to do a little bit, but they expect a home in excellent condition. Even if a home is in great shape, an inspector will almost always find a list of things that need to be fixed or replaced. The buyer can then ask the seller to make the repairs or provide financial compensation so they can fix them after closing. Sometimes, fixing the problems yourself is the best option since you know you will do the best job possible.

6. Try not to get too personally involved in the negotiation and let the process play out. Sellers are financially, and often emotionally, invested in their house. On the other hand, buyers obviously want the best deal possible. In-between, there are a lot of opportunities for emotions to flair and the deal to derail. This is where agents really pay for themselves. By maintaining a buffer zone, the agents can usually work out a reasonable deal for both parties. In the end, the buyers and sellers are usually extremely happy and relieved that the deal is done.

If you are looking for a new home, I hope you'll consider letting me help you. I can be reached at 615-545-8611 or jefffulmer@comcast.net. Thanks!

Music City Convention Center - If You Build it....

If you build it, they will come… At least that’s the hope for this Nashville’s $635 million dollar (*latest estimate) convention center. Located downtown, the goal for the "Music City Convention Center" is to land the bigger tradeshows that the current convention center cannot handle. Of course, more shows translate to more tourist dollars being spent downtown on entertainment, food, parking, and hotel accommodations.

There are many naysayers that are against the city spending so much public money on a project in these tough economic times. They argue that the days of the big tradeshows are on the decline and that a new convention center will never be a money-maker for the city. This is a complex question and one I am not prepared to attempt to answer. What I do know is that - assuming that all goes as planned - the new 1.2 million square feet of convention space will be open for business by 2012. That means property will begin being bought up this summer and break ground in the fall of 09.

The area for the new convention center will be 15 acres along Demonbreun, just to the east of Broadway. Whether it’s economically feasible or not, it should greatly enhance the downtown area, fitting in nicely with the new Country Music Hall of Fame, Schermerhorn Symphony Center and new high rise condos in the Gulch. I recently looked at a commercial property on Fifth Avenue South that has potential to be converted from office and industrial warehouse space to cool office lofts.

There are quite a few adjacent or nearby buildings and lots that are for sale, although they may not be listed on MLS or Realtracs. While many have adjusted their prices to reflect the coming economic boon, there is still opportunity to find value. Mixed used industrial will eventually give way to more urban retail, office, and residential spaces. An investor or group of investors with a vision for the area, as well as a particular building site, could still get in on the ground floor of Nashville expansion.

If you are interested in discussing further, feel free to get in touch with me at jefffulmer@comcast.net or 615-545-8611.