Nashville has been diversifying its economy during the past decade, shifting from a tourist-centric metro to one that embraces office-using employees and workers in the logistics sector. This strategy has certainly helped during the pandemic.
Affordable living costs and low tax rates encouraged several companies to move ahead with relocations and expansions during a period that for many others was one of dramatic downtime. The strategy also helped the metro’s unemployment rate improve to 3.9 percent in May, according to preliminary data from the Bureau of Labor Statistics.
With jobs come residents, and with residents come enhanced multifamily demand, boosting rents and property values. The market wrapped itself into an alluring attire, attractive to both local and out-of-state investors who see Nashville’s underlying value—a minor market turning major. To discuss Nashville’s progress, Multi-Housing News reached out to Matt Ferrari, co-chief investment officer at TruAmerica.
Late last year, TruAmerica made its entrance into the Nashville multifamily market with the acquisition of Southpoint at Stones River. What attracted you to Nashville? Was this part of the investment plan before COVID-19 or is it related to the pandemic’s impact on the market?
Ferrari: We had planned to invest in Nashville before COVID-19. In fact, we were very close to purchasing Southpoint at Stones River before the pandemic shutdown, but the health crisis delayed the transaction.
Nashville exhibits many of the characteristics of other markets that TruAmerica has been investing in over the last several years, largely in the Southeast and Southwest. This includes strong job growth and population expansion, a business-friendly climate and no state income taxes.
How did you adapt your business strategy following the outbreak of the pandemic?
Ferrari: Initially, we adjusted our operations to maintain higher than normal occupancy levels. Additionally, we made sure to reach out to all our residents to provide rental assistance and payment plans for those who were facing hardship due to the pandemic.
We continue to do this, although we’re seeing operations normalize as the economy has been reopening. We continue to do everything we can to ensure all our residents can stay in their apartments if they’re facing economic hardship from the virus.
An increasing number of corporations are announcing expansions or relocations in the metro. What attributes contribute to Nashville’s alluring profile?
Ferrari: Nashville’s business-friendly environment, high quality of life and low cost of living—including reasonably priced housing, relative to other parts of the country—and no state income taxes are a draw for companies to expand or relocate. Additionally, the city has a great live-work-play environment, and the climate is relatively mild compared to the Northeast and Midwest.
Which areas in the metro are the most sought-after and why?
Ferrari: Certainly, there has been quite a bit of development in downtown Nashville. TruAmerica continues to invest in first- and second-ring suburbs of major MSAs throughout the country and certainly our investments in Nashville mirror this.
Franklin is obviously one of the best suburban markets in Nashville and we’re happy with our investment there. We’ve also invested in Hermitage, which is proximate to the airport and provides a reasonable commute to downtown.
We continue to evaluate opportunities in the Nashville MSA in order to find great investments similar to our recent acquisitions.
What about shortcomings? What are some of Nashville’s main challenges?
Ferrari: Davidson County is going through its property tax assessment reevaluation and there is the potential for large assessment and millage rate increases this year due to budget shortfalls. This uncertainty creates challenges for investors in underwriting property taxes.
From a unit count/property size perspective, the apartment market is smaller than other Southeastern cities, particularly ’80s and ’90s vintage properties. Consequently, Nashville posts fewer transactions than some other markets.
How has the pandemic affected rent collection at your Nashville properties?
Ferrari: Collections are very strong in Nashville, above 98 percent and similar to many markets prior to the pandemic.
How are you interacting with residents and prospects these days?
Ferrari: Resident interactions are largely back to normal, although we have adapted to still allow virtual tours and handle interactions virtually when residents prefer.
What are some of your concerns, more than a year into the pandemic?
Ferrari: We continue to monitor input costs into our CapEx and operating expenses as the economy opens and inflation increases, which we believe will be somewhat transitory.
What are your expectations for Nashville’s multifamily industry this year?
Ferrari: We expect strong operating fundamentals, with operations returning to normal, healthy rent growth and continued new development to keep up with the growth in housing demand for the MSA.