Over the past few years, Nashville has been teeming with new construction. Jokes have abounded about how the crane is the city’s official bird, and how new cranes are nesting outside of loft windows. Indeed, Nashville has experienced new developments at a previously unprecedented rate. The Metro fiscal year that ended on June 30, 2016 had approved a record of over $3.6 billion in building permits. This was a 50% increase over the previous year, which had set a record of $2.4 billion. The past three fiscal years have all set new records for the amount of development dollars pouring into the county. In other words, this city is on fire.
After watching others make good money in the new construction business, I had been watching and waiting for the right opportunity to get into the game myself. In May of 2016, that moment presented itself.
I came across a property in emerging Buena Vista, a neighborhood in North Nashville that has experienced new revitalization, largely due to its close proximity to downtown. The property I looked at included an old house in terrible condition. It had been vacant for years and the yard was overgrown. As much as I like to see the restoration of historic homes, this particular house had virtually no vintage charm remaining and was in too poor of condition for a renovation to make sense financially. The intelligent decision was to tear it down.
I own a vacant parcel of land in East Nashville that I am attempting to make “buildable.” It was included in a deal that I purchased last year. The seller had a two bedroom cottage on one lot that received the majority of attention, and almost as an afterthought, the listing agent mentioned that the adjacent parcel was also included in the sale. At first glance, the house appeared to simply have an extra large side and back yard, so I’m not certain that all potential buyers realized that there were two separate lots. The listing received plenty of interest from buyers, eliciting nine offers in about 36 hours. I wrote about my reasoning for paying $15,000 over the list price, and one of the reasons was for the potential use of the vacant lot. Before making our “highest and best offer,” I called the fine folks of the Metro Nashville Government to see if the unused lot could be built upon. I was hoping for a simple answer. Now, over a year later, it has become quite clear that the answer is anything but simple.
The difficulty with this lot, and probably the reason that no house exists on it, is due to a large “wet weather conveyance” (aka a creek) that runs right through it. The creek varies between widths of 20-25 feet across and runs the full length of the parcel. It is large enough that the road stops on both sides of it, creating two dead ends, and one lot with basically no road frontage.
Although dry most of the year, this creek carries quite a bit of stormwater that runs off of Ellington Parkway and the surrounding neighborhood during the rainy seasons. The first step in seeing if this lot would be buildable was to file a “Community Water Determination Request.” Essentially, Metro Water Services storm water division had to assess the water quality and decide if this channel was a stream or not, which would impact the widths of the overlaying easement. In short, if there were fish and crawdads playing in the water, the easements would be larger, and there would be no building envelope available.
The early stages of construction preparation have already begun on a new development called Graymont in the Green Hills neighborhood in Nashville, TN. Twenty-eight single family homes will be built on the corner of Woodmont Boulevard and Hopkins Street, just east of bustling Hillsboro Pike. The developers, Landmark Realty Services, are projecting sales prices starting in the $800,000’s and rising to over a million dollars for the larger homes. Sizes will range between 3,600-5,000 square feet and the initial houses should be available for purchase in autumn of 2015.
Preview of Graymont, a 28 single-family home development by Landmark Services.
The approximately $17 million dollar undertaking is on a large, 9.1 acre plot of land. There were previously five rental homes on the site that were demolished for the Graymont plans. Steve Ezell, the president of Landmark said, “We have made great efforts to save the tree canopy and we will add a half mile of new sidewalks.” He added that garages would be on the backs of houses, and private drives would serve trash and recycling pickup and mail delivery.
Landmark Realty Services has completed several other projects in the Nashville area, including Arundel Court, Dorset Park and Moore’s Landing. Highly respected architects Allard Ward will be involved in the design of Graymont, and TriMark Builders will take on the construction.
A new townhouse development named West Mill is planned in The Nations neighborhood in West Nashville, TN. HND Realty has acquired about six acres at the southwest corner of California Avenue and 57th Avenue North. The planned community called West Mill will feature 98 townhouses and a swimming pool. The homes are expected to range in size from 1,150 square foot two bedroom units priced at $199,900 to 1,425 square foot three bedroom units priced at $239,900. The completion date for the first available units is projected for the late summer or fall of 2015, according to Kristin Hostettler of HND. She said, “The Nations continues to emerge as an attractive district for reasonably priced homes.”
Photo source HND Realty
The six acres of land for the project cost about $2.45 million, which comes out to roughly $25,000 per unit, a very attractive purchase price. “It wasn’t that long ago that I had a conversation with someone who said the west part of town was going to take off. I said, ‘The Nations?’ ” said Hostettler. “This has all happened kind of overnight; that’s how it feels.” She added, “I think we just got lucky with a giant piece of land that will actually get to be its own townhouse development.” HND has completed other projects in Nashville, TN including the Park at Melrose, the Row At Berry Hill, Hillsboro Quarters I and II, and Vernon Avenue townhomes.
The Nations is an interesting neighborhood where the convenient location about five miles from downtown Nashville is driving the growth. Nearby arterial road Charlotte Pike is
Over the past few months I have asked the question, “Do you think Nashville is experiencing a housing bubble?” to several respected individuals involved in real estate. After talking to a banker, appraiser, commercial broker, realtors, wholesalers, and other investors, the responses have been quite varied. Some seem to think that Nashville is just beginning a growth transformation that isn’t going to stop anytime soon. They believe that with continued population growth continued housing demand will follow. And as long as there is steady demand, prices will justifiably appreciate.
While Nashville’s economy appears to be healthy, others I talked to are concerned that the national economy isn’t very strong and will eventually weaken Music City’s real estate. Many of the home buyers are moving to Nashville from California, New York, and other higher priced areas. Their money goes farther in the mid-south, buying bigger and better houses than coastal options. But any type of dip in the national economy could impact the out of state dollars that have added fuel to Nashville’s housing fire. Even if Nashville’s local market sustains its growth, it isn’t immune to unfavorable outside forces.
It is 2015, nearly eight years since the beginning of the end of the nationwide housing bubble that grew in the mid 2000’s. Different parts of the country were impacted more severely than others, and some areas still haven’t recovered completely. Meanwhile, enough time has passed that a few cities such as Austin, Miami, San Francisco, and Los Angeles are experiencing rapid price increases and heavy demand. Are the real estate prices in some cities becoming overvalued again? What does a housing bubble look like? And how can you tell if you are in the middle of one? It seems like it would be easily recognizable, but history has told us otherwise. Investopedia smartly defines a housing bubble as:
A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts.
Harpeth Development LLC is about to begin a 130 unit affordable condominium project at the corner of Litton Ave. and Gallatin Pike in East Nashville, TN. The one and two bedroom units, sized between 750-975 square feet, will be priced in the $150,000-170,000 range.
Rendering of Solo East, a 130 unit condo project in East Nashville. Image source: bizjournals.com
President of Harpeth Development, Bruce McNeilage said, “”My goal is to have Solo East occupied 100 percent by the workforce – single mothers, nurses, cops, firefighters and musicians. I don’t have to tear anything down, we’re not displacing anybody. I think the minute I do it, others will copy it.”
The difficulty of copying the project is finding a sizable parcel of land that is cheap enough to
The $40,000 property that at this point has more questions than answers.
Last week I looked at an investment property in Nashville, TN that is about as cheap as it gets right now, priced at $40,000. I had previously driven by the property and given it a bit of thought, but I needed to see the inside before I knew what investment options were in play. After meeting the owners and viewing the inside, it turns out that there are a few different strategies for this property. But it seems the most profitable options are all reliant on a higher future value. Guessing that the value will rise is speculation, where the expected profit comes from the future value, not the present value. Regardless of if the guessing turns out to be correct or not, the investor is still taking a leap of faith.
I don’t buy on speculation, but typically only buy properties at a discounted price of their current market value. Of course I try to buy in areas where there will be significant appreciation, but I’m not basing my whole purchase on a future value that may never come. I choose to buy proven value, where my purchase price is 65-70% of market value. But with such a cheap price of $40k, and new construction infill creeping closer and closer to this location, should I take a gamble? Should I bet on future value and speculate?