The Nashville metro area has experienced record-breaking growth in recent years, with the region adding 29,900 jobs in the first three quarters of 2017 alone. The population followed suit, surging upwards by 11.3 percent since 2010.
This has impacted Nashville’s multifamily housing market, with new residential construction at an all-time high. Developers delivered approximately 9,000 units in the past two years, with 12,000 more units currently under construction as of November last year, according to Yardi Matrix.
The Kirkland Co. opened in Nashville 15 years ago and has been increasingly active not only in central Tennessee but across the southeastern U.S. Currently, it operates across eight states, from Arkansas to North Carolina. William Kirkland, the investment firm’s managing partner, spoke with Multi-Housing News about the changes, challenges and opportunities in Nashville’s multifamily sector and what to expect in the years to come.
Tell us how The Kirkland Co.’s client base has changed in the Nashville area in recent years.
Kirkland: We are very fortunate to have chosen Nashville as a market to cover 15 years ago. Nobody saw the growth coming the way it has, but it really might be the coolest city in America right now. Today, Nashville is a target market for many investment firms that previously felt we were too small. … Our job growth and population growth are discussed monthly by Forbes, the Wall Street Journal and numerous other national publications.
The fact is Nashville has been a top 10 market nationally for almost all of those 15 years we have been here—it’s just not a secret anymore. Technology has also changed the game. In today’s world, you can track buyer activity all over the country and source new potential investors with the click of a button. …
How is the rapidly expanding housing inventory impacting the multifamily environment?
Kirkland: It’s no secret we have delivered too many units in a few submarkets for the time being and have about 10,000 units under construction right now. It’s caused some concession in a few submarkets like Downtown, West End, Charlotte Pike and Germantown, to name a few. Nashville has also averaged about 4 percent employment growth annually since the last downturn, and we have between 75 and 100 people moving to town every day, depending on who you ask. … Leasing might be slow in some areas for a little while but, in my opinion, we are poised to absorb these units and they are still an incredible long-term play. If anything, it’s created a pretty decent buying opportunity in the core Class A space for investors willing to use patient capital.
How has recent rent growth deceleration in Nashville impacted your business strategy?
Kirkland: It’s definitely harder to sell assets when rents are going the wrong direction, but that’s only in a few submarkets around town that have been overbuilt. Nashville has such a diverse economy and so much momentum in job growth and population growth. These submarkets will absorb the slight oversupply we are experiencing and one day we will overbuild these submarkets again. Guaranteed.
All of these submarkets, however, have remarkable long-term strength in my opinion. … As a firm, we don’t want to spend a ton of time chasing product without proper seller expectations, but we believe there is good value on some of the core assets now experiencing larger concessions.
In what ways will Mayor Berry’s resignation impact the city’s housing market?
Kirkland: … I think we give too much credit to politicians when things go well and too much blame when they don’t go well. It’s sad what happened to Mayor Berry, but it doesn’t change the fact that a single mom with two jobs is struggling to pay her rent. I’m not suggesting we don’t need great leaders, but I don’t think apartment owners—or renters, for that matter—care who the mayor is. I’ve never had one investor even ask.
We are growing really fast, rents are rising on lower- and middle-income families, and we need more affordable housing in Nashville. … The true challenge for our market is the availability of affordable units. In previous cycles, in the Nashville market, concessions in the core Class A space would trickle down and translate into lower rents in the B and C space. This is not the case during this cycle.
In which Nashville submarkets do you see most optimism in terms of growth for the next few years and what factors play into this?
Kirkland: I think Germantown is the most exciting for the long term. Currently, it has its share of concessions, but the new supply will be absorbed and I predict demand will stay strong for renters that want to be in a great neighborhood feel with such great access to everything Nashville has to offer. If you picture what it will look like in 20 years, it is going to be really special. …
Germantown has a true neighborhood feel as people walk from their home to the store, restaurant, work or the game. It has attracted some really creative people with some of the best food in town. I could see it being similar to Wrigleyville in terms of walkability, lifestyle and activity.
From a growth standpoint, I think the west side of town has great potential for growth. Nashville has grown north to Hendersonville, south to Spring Hill and east to Lebanon, but west to Dickson has always seemed slightly behind. Topography might be too much of an issue.
What are the challenges smaller firms face in the multifamily environment today?
Kirkland: Owners sometimes still hire brokers based on historical brand name recognition, not on the talent and work ethic of the team they are hiring. … Often, we are competing with a national brand that has a local team with less experience, track record and market knowledge than we do. … The other misconception is that when a firm lists and markets a property, they must have sold it.
Image courtesy of The Kirkland Co.