January 19, 2017

Exclusive: Nashville has an unusually big sum of this giant’s money. Here’s why.

Henry Lange had a lot of reasons to smile when I met him, not least of which was the soundtrack of percussive pile drivers throughout our conversation in the lobby of a new office building in the North Gulch.

That building holds some 2,000 employees of subsidiaries of Nashville hospital giant HCA Holdings Inc. (NYSE: HCA), and that construction equipment next door was laying the foundation for the next piece of the Capitol View mixed-use development at 1100 Charlotte Ave. — funded by the real estate arm of insurance and financial giant Northwestern Mutual. Lange is a regional director at Northwestern Mutual Real Estate, overseeing its investments in the Southeast.
While tons of investors have poured into Nashville during its recent boom, few have the combination of size, caliber and tenure that Lange represents. Northwestern Mutual is an institutional investor, the kind of big money (like a pension fund or endowment) whose involvement in a project or city can elevate its stature in the eyes of other investors. Northwestern Mutual has $600 million of debt and equity active in Middle Tennessee, everything from the commercial loan on the CoolSprings Galleria to the Tapestry condo building in Brentwood to the Meridian mixed-use development in Cool Springs, created in partnership with Boyle Investment Co., one of the largest developers in the region.

The 32-acre Capitol View project now stands as one of the biggest active projects in Nashville, of such a size that it can be a force to swing real estate investment back to the northern part of downtown, after several years of SoBro claiming the mantle of the epicenter of Nashville’s real estate and construction frenzy. At a time when available office space is scarce, Capitol View has become the landing place for two of downtown’s largest private employers; between just HCA and LifeWay Christian Resources, the project will host more than 3,000 workers. The $750 million development, at an interstate exit and on a main corridor into the heart of downtown, also is scheduled to contain 340,000 additional square feet of office space, some 600 apartments, 130,000 square feet of retail, two hotels and an urban grocer.

In an exclusive interview, Lange talked about why the region enjoys a “disproportionate” share of Northwestern Mutual’s money, what spurred the bold bet on the Capitol View site almost a decade ago and why he’s been so patient with it. For the inside story on Capitol View’s rise, check out our cover story Friday. What follows is a Q&A edited for clarity and length:

NBJ: Where does Nashville fit in the scheme of the whole Southeast region that you cover?

Lange: Nashville has a disproportionate amount of our investment dollars. We have the second-most dollars invested in Nashville, equity-wise, than any other city in our territory. Put that in perspective of the size of the population and the market. We cover Atlanta, South Florida, Charlotte … Nashville is not that big of a city. Atlanta would be No. 1, and that’s a city of, what, 5.5 million or 6 million people?

We have a lot more invested in Nashville than you would think if you were just looking at a typical peer. It’s a big bet for us, so we’re always focused on what’s going on in Nashville.

Put the Capitol View project, specifically, in context of your overall portfolio. Is this the crown jewel?

It’s certainly unique in scale. We can do a $25 million or $30 million investment here or there, and it obviously does not impact our portfolio as much as this.

That being said, it’s a really unique opportunity to create something that will be a special place for Nashville well into the future.

Northwestern Mutual was active in Nashville years before our current boom. Why?

What attracted us initially was that it had good strong economic fundamentals. It’s not a boom-and-bust kind of market. In partnership with Boyle, we found we could achieve good, steady returns in comfortable, bite-sized pieces. … Probably just as important is the fact that there is a very strong functional government that is very pro-business. We invest in a lot of markets, and we don’t see that everywhere. When you’re here, you take that element for granted.

And, frankly, there wasn’t a lot of strong institutional investment coming here. It was under the radar. Over this last cycle, you’ve seen Nashville hit the radar and all of a sudden, all the big institutional investors want to be here. We kind of wish it was still a little bit of a secret, you know? But that’s the way it is.

What was Nashville like in 2007, when Northwestern Mutual became the main money in Capitol View?

Quite frankly, a lot of people thought we were crazy. This area of the city was not very attractive or appealing. The Gulch had just kind of started, and you could see ultimately, down the road, maybe it would happen here. … At that time, it took a lot of vision to really feel like you could really make something happen.

How aggressive of a bet was it at the time?

We were definitely on the front end of that trend [of revitalization of urban cores around the country], especially as it relates to Nashville. Nobody would have come in and said, in five years, this thing is going to be what it is.

It was an educated risk, for sure. … Look, we are investors, right? To the extent we have money invested and we’re not getting a return, because you’re not generating a return on a land investment, it is not a super-positive thing for our portfolio. Sure, there were folks internally who were like, ‘Hey man, are we ever going to get there?’ It took a lot of patience, and that’s the main thing.

How do you size up Nashville’s sizzling growth of late?

Obviously, there is a lot of supply coming, whether it’s apartments or hotels. Nashville has really matured and grown up. We are long-term investors. We’re doing this for the long haul. If you’re short-term, you might be concerned about a supply blip.

A lot of investors have come in and done one nice project. We wanted to create a special place for the long term. We are very close to making that a reality.


Originally published in the Nashville Business Journal 

By Adam Sichko