MARKET SNAPSHOT: Music City USA’s Apartment Market Remains Relatively Stable

By Erika Schnitzer, Associate Editor Nashville, Tenn.—Compared with other Southeast markets, “Nashville is, in general, the best story,” reports Vince Lefler, an associate in Apartment Realty Advisors’ Atlanta office.On a year-over-year comparison, the market is softer, having declined 3 percent in terms of occupancy. However, the market is still holding steady at about 90 percent. Much of this is due to the shadow market from condos and single-family homes, Lefler tells MHN. Currently, there are 3,200 units under construction—which is close to the city’s historical high—in the Nashville MSA, which, Lefler notes, will impact occupancy and concessions once they are delivered. However, approximately half of these units are slated for delivery in the Murfreesboro and Hendersonville/Gallatin submarkets, so Lefler predicts that the majority of the MSA will not be adversely affected too much.In terms of the number of transactions, much like other markets, Nashville is “way off the mark” when compared to previous years. Cap rates are sitting at 7.5 percent to 8 percent, with investors “looking for well-located, decent projects with 8 percent cap rates and 10-plus cash-on-cash first-year deals,” says Lefler.And of those transactions that have occurred, Lefler notes that only about two or three have gone through the conventional market process, while the remainder have been direct bank sales.“Investor interest is guarded and cautious,” says Lefler. “Nashville is still a very popular target. People like that it’s a solid bet; it had a minimal bubble in terms of real estate, it has solid economic drivers. I think it will recover and do nicely.” Despite these figures, Lefler maintains that compared with the other markets he tracks—which include Augusta, Ga.; Savannah, Ga.; Birmingham, Ala.; and Memphis, Tenn.—Nashville is stable, a result of its diverse economy and the fact that no mass layoffs have been reported—at least not at the level of other primary markets, Lefler affirms.Perhaps the biggest potential question mark surrounding Music City USA is the automotive sector—the MSA has two large plants, which could greatly impact the market.Click here for last week’s Market Snapshot on San Diego.