Is The Nashville Apartment Bubble About To Pop?

Posted at 8:18 PM, Jan 19, 2016
and last updated 2016-01-19 21:45:22-05

An apartment developer in Nashville has planned to slow down its investment in the city's housing market.

SWH Residential Partners, based in Atlanta, has built apartments in Nashville for several decades. They opened Taylor Place in Germantown in 2014, and the company is currently building apartments on Rolling Mill Hill.

"It's been a great market. We've been invested in Nashville every year since 1991. And we continue to be very bullish in Nashville, in the long run," said SWH managing director John Tirrill.

The company has eight additional acres to develop next to its Taylor Place project. SWH has decided to hold off on building anymore apartment units.

"We are not being alarmists, we're just saying, lets be cautious here," Tirrill said. "Today, the market's very healthy. I do think we'll see pockets, sub-markets, or micro-markets of over supply."

Currently the apartments developers are building are priced at the top-tier of the market. Tirrill said the rise in the cost of construction is forcing that price point.

"So developers, like myself, have no choice but to build towards the top tier of the market, if it's conventionally financed," according to Tirrill.

The company may slow down its investment in Nashville, but SWH will eventually build again in the city.

"Kind of wait and let this cycle play out, and develop it in the next cycle," Tirrill explained.

A local apartment expert does not disagree with SWH and the decision to slow its pace in Nashville. 

"I think there's some prudence to say, let's let these work through coming out of the ground, and filling up, before we get too far ahead of ourselves," said Woody McLaughlin from the Greater Nashville Apartment Association.

There are currently 15,000 apartment units under construction in the Nashville region. Another 10,000 units are in the pipeline, but have not started construction. 

McLaughlin said growth in the apartment sector has grown so rapidly over the last 24 months, it has to be expected developers would eventually pull back.

"The demand for apartments is not yet showing a slow down," McLaughlin said. "It's unsustainable for that pace to continue too far into the future."

McLaughlin said more companies will start to renovate their existing properties, which will make those units more competitive, and appealing, for renters looking at the middle tier of the city's apartment market.