Wednesday, November 29, 2006
I’ve been getting a lot of e-mails about a particular paragraph in my last Nashville essay.
The particular paragraph in question stated:
Giarratana and other Nashville real estate gurus are capitalizing on the influx of young smart professionals by bringing as many condos online as possible. But the scarcity of sites and tight planning controls keep inventories low. At the beginning of 2004, only 13% of downtown Nashville residences were condos. By 2006, it was 58%. In 2007, the number of Nashville condos will have doubled since 2001.
It seems strange to say that the scarcity of downtown residential sites keeps inventories low, and then immediately comment that by 2007 the number of Nashville condos will have doubled in six years’ time.
It all boils down to Nashville’s massive underdevelopment of downtown residential units. In 1993, Tony Giarratana pressured Nashville’s Metropolitan Development and Housing Agency to open its core business district for development. If you’re familiar with the city, this district is bound by 1st Avenue in the East, Charlotte Avenue in the North, 9th Avenue in the West, and Franklin Avenue in the South.
Prior to 1993, there were only 10 residential units in this region. In July 2006, there were 1,606 available units with an additional 2,652 units planned, taking reservations, or under construction.
And yet, Nashville’s downtown residential district is still nowhere close to being fully developed. Let me explain.
Economic Research Associates (ERA) and the Walker Collaborative of Nashville published a report on Nashville’s downtown residential market in 2003. At that time, the ERA reported that there were over 67,000 employees in downtown Nashville. Only 3,800 of them lived there. Put another way, there was only one downtown resident for every 19 downtown jobs. In Charlotte, North Carolina this ratio is one to seven. In Chattanooga, it’s one to five.
In other words, Nashville needed to triple its number of downtown residences to be in line with similarly developed southern cities. The ERA forecast 7,500 new downtown residents by 2010. This translated to 628 new units becoming available every year for seven years. And even then, the market would STILL not be oversaturated.
The demand is ravenous. And I mean RAVENOUS. In July 2006, there were 1,148 units already under construction. At that time, only 32 (2%) weren’t already sold.
In fact, the Nashville condo market is so underdeveloped that banks are lending the money to start breaking ground on new complexes without requiring any residential reservations in place. Tony Giarratana did this with his Encore condominium complex, which broke ground last July. He only opened Encore for sales a month ago. Today, over 65% of the building’s units are already sold. In other words, he’s selling an average of seven condos per day during the holiday season!
I guess luxury condos make great stocking stuffers.
Compare this to Miami, where over 80% of a building’s units have to be sold before a developer can even break ground.
Simply put, there are a ton of people who want to live in downtown Nashville. And they are all competing for a still very limited number of available units. It’s ridiculous. I’ll leave you with the following...
Icon, a 424-unit downtown Nashville residential complex, sold out in 48 hours.
Nashville condos are going at roughly the same speed as Pink Floyd concert tickets.
America’s largest food distributor, Sysco, hits a new 2006 high.
$32 billion market cap energy producer Marathon Oil at new high.