The real estate business should take a turn for the better next year, but expect a slow and halting recovery rather than a swift one.
The Urban Land Institute, a Washington-based urban policy think tank, presented its annual economic outlook to a gathering of Nashville real estate professionals on Tuesday morning at the Frist Center for the Visual Arts.
The publication’s title, “Facing a Long Grind,” captures the crux of the issue nationally.
“The hard reality is businesses have learned they can increase profits using less, while people just can’t afford to live in more,” according to the study, which is the product of 950 interviews around the country with developers, lenders, brokers and others involved in real estate circles.
Underscoring a pattern seen in Nashville, apartment projects are on the rise as the rest of the real estate industry wobbles.
“It’s pretty extraordinary,” said Dean Schwanke, the institute’s senior vice president. “I’ve heard people in big apartment regions say, ‘I’ve been in the business for 30 years and I’ve been waiting my whole life for the market to get this good for apartments.’”
One real estate professional quoted in the study characterized the apartment boom as a race to get off the ground early “before lenders start questioning the demand for all (these) new units.”
Aside from apartment construction, the study found that office buildings in “24-hour” cities is a bright spot. But industrial, retail and most hotel projects have lagged behind.
Nashville ranks in middle
In a ranking of 51 metropolitan areas, Nashville was 27th for forecasted real estate investment and 18th for real estate development prospects.
In homebuilding projections, Music City ranked 20th for forecast single-family home construction.
Austin, Texas, ranked second in investment prospects and fourth in development prospects, according to the study.
In the Southeast, Charlote and Raleigh-Durham, N.C., had a brighter investment outlook than Nashville. But Middle Tennessee’s investment forecast is stronger than those of Memphis and Atlanta.
In a panel discussion after the presentation, commercial developer Bert Mathews, president of the Mathews Co., principal with Colliers International, provided a vivid illustration of the area’s lending environment.
“Six years ago, lenders spent most of their energy scrutinizing particular projects and far less time worrying about the borrower’s track record. Today, the bank spends 80 percent of its time scrutinizing the borrower,” said Mathews, recounting what a banker told him recently.
“If you can get a project financed today with all the hurdles you have to get through, you have a great project,” Mathews said. “I see 2012 as grinding along as the banks take time to heal.”