Highs and lows set tone for apartments in 2000

Last year's apartment market was one of contrasts. In 2000, Nashville saw the two highest price-per-unit apartment transactions ever recorded along with one of the lowest prices in recent years. Three transactions in the fourth quarter were solely responsible for more than $100 million dollars of Nashville area apartment sales.

"This is more dollar volume in one quarter than in either of the previous two years overall. And two of these transactions really raised the bar on per-unit apartment sales," says Kent Burns, President of Freeman Webb Investments, Inc., a member firm of the Greater Nashville Association of REALTORS' Commercial Investment Division.

The Post Green Hills/Hillsboro Village and Jefferson Cool Springs/Farms properties sold for $100,817 and $76,744 per unit, respectively. Prior to this, the highest per-unit transaction was $68,333. The Jefferson Cool Springs/Farms also marked the largest total purchase price of any apartment transaction in the Nashville area at $66 million. In contrast, the lowest per-square-foot price in several years was Freeman Webb's acquisition of Crown Chalet Apartments at $14 per square foot and $15,730 per unit.

"Although we saw extremes on the transaction side, the `supply/demand side' was much more stable in 2000," Burns says.

According to the Greater Nashville Apartment Association, there are 2,425 units now under construction and only 1,118 units completed as of the third quarter. Third quarter year-to-date equates to approximately 25 percent of what was built in 1998 -- the peak year of this building cycle, when more than 4,300 units were built in the Nashville area.

The pipeline for new construction is almost nonexistent in Nashville, with less than 300 units of conventional apartments in the speculative stage of construction. The Murfreesboro/Rutherford County area has another 600 units on the drawing board at this time, though Burns notes that softness in Rutherford County may deter further construction in that market for the short term. This bodes well for the future of the local apartment market, with the exception of Murfreesboro.

"One of the reasons for this slowdown in apartment construction is the fact that the numbers just don't work with a cost of more than $75,000 per unit for suburban development and more than $100,000 for infill development," Burns explains. "The Post and JPI transactions represent what I would call the best-located infill and suburban sites, respectively, in the Nashville area. If the two best-located sites are in fact break-even -- at the highest sales price ever achieved in Nashville -- then this should deter most developers from developing apartments in Nashville until rents have had a chance to catch up with costs."

While fourth quarter statistics are not fully completed, according to the Middle Tennessee Apartment Association, the third quarter average rental rate for apartments was $662. This is up from $645 at the end of 1999. The demand side seems to be strong as well, causing a continued reduction in concessions. Occupancies have improved to 95.4 percent as of third quarter 2000 versus 93.6 percent for year-end 1999.

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