January 20, 2017

The most patient money in Nashville’s boom

It was November 2015, and finally, the bold bet Henry Lange made was making headway.

Lange and Northwestern Mutual Real Estate, where he is a regional director, had been shepherding the Capitol View mixed-use development for close to a decade by that point. It had taken about six years to buy 32 acres from about two dozen entities, in an area at the base of the state Capitol historically known as Hell’s Half Acre. Northwestern Mutual had endured the worst of the recession, bought out its development partner, almost sold most of the site to a large retailer — before backing off that plan and pursuing development again, this time with Boyle Investment Co.
As 2016 neared, HCA Holdings Inc., the nation’s largest for-profit hospital chain, was building a $200 million high-rise in Capitol View. Northwestern and Boyle had announced a start date for their own first building, with apartments, office space and retail. The periodic questions Lange faced from colleagues — “Hey man, are we ever going to get there?” — were dying down. And then a Milwaukee-based architect for the insurance giant raised a relevant point: The outdoor amenity areas for the “Capitol View” apartments didn’t actually have a view of the state Capitol.

It’s a moment where, yet again, Northwestern and Boyle showed patience. The $750 million Capitol View project, one of the biggest underway in Nashville, stands out amid the swarm of developers swooping in to capitalize on Nashville’s boom and create high-rises seemingly overnight. In that hyper-competitive frenzy, Northwestern Mutual and Boyle delayed Capitol View by four to six months to redesign the 378-unit apartment complex — prizing methodical diligence over hurried decisions and flashy theatrics.

‘Big bet’ on Nashville

For Nashville, Capitol View can be a catalyst that swings real estate investment back to the north part of downtown, counterbalancing the blitz of construction in SoBro. At a time when office space is historically scarce, the project has become the landing spot for two of downtown’s largest private employers, HCA and LifeWay Christian Resources. Thousands of people could live or work in the development if fully built — the size of a crowd that could support more mass transit on a main corridor, should Nashville voters ultimately decide to expand that network.

For Northwestern Mutual, the development is a signature piece of a portfolio that, in size and longevity, represents a lot of confidence in Greater Nashville. Northwestern Mutual has $600 million of debt and equity invested in Middle Tennessee, from office buildings in Brentwood to the loan on CoolSprings Galleria to the Meridian mixed-use development in Cool Springs, which Boyle developed. In the Southeast, only the Atlanta metro area — a market with triple our region’s population and economy — has more Northwestern Mutual investment money in play.

“It’s a big bet for us. Nashville has a disproportionate amount of our investment dollars,” Lange said. “It’s certainly unique in scale for us. We can do a $25 million or

$30 million investment here or there, and it obviously doesn’t impact our portfolio as much as this. We wanted to create a special place for the long term … to transition an area from being rough to being hopefully one that is prosperous.”

In their first joint interview, Lange and Jeff Haynes, co-managing partner of Boyle’s Nashville office, said they believe that approach will give their development staying power and steady profit. Even with prioritizing that patience, all the key players needed convincing all along the way.

“A lot of other groups would have plowed ahead and said, ‘We have to get to market as soon as we can.’ You’re not generating a return on a land investment, so it is not a super-positive thing for our portfolio to have it just sitting there,” Lange added. “Quite frankly, a lot of people thought we were crazy in the first place. It took a lot of vision to really feel like you could make something happen.”

Not even the investors who created the Gulch saw this coming. That would be members of the Turner family, founders of Dollar General Corp.

One of the first buildings the Turners co-developed was the Icon in the Gulch, with 417 condos. The land was home to a BellSouth maintenance facility (now AT&T), and the Turners agreed to pay for a new facility. So they bought 3 acres of land 1.1 miles away.

“We thought, ‘This is plenty far away. … Surely to goodness, nothing’s going to happen here,’” recalled Jay Turner, managing director of MarketStreet Enterprises. “Boy, were we wrong.”

That was around 13 years ago. Today, that site is at the back of Capitol View.

“[Capitol View] is exactly the project we’d hoped and dreamed would result as a small part of what we did here,” Turner said. “Already having HCA there has changed the dynamic of the Gulch. … Both economically and socially, it just feels different.”

Convincing HCA

HCA buoyed the prospects for Capitol View in fall 2013, when the company scrapped plans to locate at the West End Summit site in Midtown. Initially, HCA executives didn’t see eye-to-eye with the vision Lange and Haynes had nurtured, which called for street-level retail. HCA just wanted an office building.

“We had written this 100-page document of design guidelines. They were buying the land, and they didn’t really want to adhere to those guidelines,” Haynes said.

So HCA executives joined Boyle and Northwestern Mutual on an April 2014 trip to the nation’s capital. The group explored a dozen mixed-use developments in two days, noting the width of the sidewalks and how retail deliveries were conducted to avoid awakening residents or disrupting office workers.

“Building standalone projects is easy, in my world,” Haynes said while sitting in HCA’s lobby. “Building large mixed-use projects well … having the storefronts work and coordinating that with everything above — it’s hard to execute.”

The 17-story HCA building has 23,000 square feet of street-level retail space.

“It’s only the beginning, folks,” Dr. Tommy Frist Jr., an HCA co-founder, said at a ceremony last month. “The Charlotte [Avenue] corridor’s got an unbelievable future.”

On ‘front end’ of downtown boom

The site’s history illustrates that transformation. It is part of an area near the state Capitol once known for rampant lawlessness in the late 1800s. The Nashville Civic Design Center describes it as a “slum featuring unpaved streets and dilapidated structures.” As recently as 2009, the most notable thing on the property was a car dealership.

Charlotte-based developer Crosland LLC began buying the land in fall 2005. In December 2007, Crosland and Northwestern Mutual announced a joint investment fund and said they anticipated spending $225 million on land in the Southeast, focused on urban redevelopment.

That month turned out to mark the beginning of the Great Recession. Like many real estate developers, Crosland suffered financially. Northwestern Mutual bought out Crosland in fall 2011.

The first thing Lange did was call Haynes. He asked for a favor: Could Boyle help Northwestern Mutual regroup? At the time, Lange still needed to acquire three small pieces of land, buy out tenants leasing buildings and then demolish those structures.

Haynes said he had started seeing the revitalization of cities across the country. A 302-unit apartment complex was under construction across the street. Still, he said this prospect didn’t initially click. Memphis-based Boyle has become one of the biggest developers in Middle Tennessee since opening an outpost here in 2001. To this point, Boyle’s projects in Middle Tennessee had been suburban.

“I was a little suspect. I told him, ‘I’m not quite sure what we’d do with that,’” Haynes said. “We came to see an ability, at an interstate exit, on a main state thoroughfare, at the base of the state Capitol, to create something unique. The city had made significant investments in itself, and that gave us comfort that we were not on an island.”

“We were definitely on the front end of that trend, especially as it relates to Nashville,” Lange added. “Nobody would have come in and said, in five years, this thing is going to be what it is today.”

Which brings us back to the overhaul of the apartments that comprise the top four floors of a six-story building across the street from HCA. Construction began last month, and the building should open in the fourth quarter of 2018. Boyle now is prospecting for office tenants who would spur construction to start this year on another chunk of Capitol View.

That would leave Lange and Haynes in control of one remaining development site. No surprise: They are not in a hurry. Haynes expects to wait to build there during the next real estate uptick.


Originally published in the Nashville Business Journal 

By Adam Sichko