Fourth & Church, Nashville, TN

Region: Southeast
Asset Type: Urban Office
Size: 265,126 SF
Date Purchased: April 4, 2014
Sponsor/ GP Capital: Albany Road Real Estate Partners
LP Investors: Individual High Net Worth and Family Office Investors
Lender: CCRE; $28,000,000; 10-year fixed rate debt with 4 years of interest-only payments; 5.08% all-in rate

Property Details and History

Fourth & Church (the “Property”) is a high-profile, 20-story office tower located at the corner of Fourth Avenue North and Church Street, a true main and main location in the heart of thriving downtown Nashville. This location in Nashville’s Central Business District (CBD) makes it a superior destination for new downtown office tenants like UBS, Asurion, and ServiceSource, who are looking to capture the young creative class seeking the 24/7, “live, work, play” in an MSA that is among the nation’s leaders in job creation, real estate occupancy levels, and population growth.

Originally constructed in 1967, the Property was extensively renovated in 2008. At closing, it was 96% leased to a variety of tenants, including the aforementioned ServiceSource, a San Francisco-based technology company that is under a long-term lease through 2022.

In a competitively marketed transaction that came back to Albany Road at a discounted price after an earlier suitor failed in its attempt to syndicate their equity, Albany Road paid $33,700,000 ($127/sf) to acquire the Property.  This acquisition was Albany Road’s first in the Southeast, and with it we brought our investors the added benefit of geographical and economic diversity, in a market with which we are very familiar and in which we have been evaluating opportunities for the past several years.  In conjunction with the closing, we established a regional office in the city, with Nashville as our beachhead, and began pursuing opportunities across the Southeast that have similar profiles to our Northeast investments.

The pricing represented a 60% discount to replacement cost, reducing the likelihood that the Property would have to compete (from a rental rate perspective) with any new developments, when and if they were to be undertaken.  Since closing, the Nashville CBD office market has reached a record-low vacancy rate of 3.5% for class-A properties (Fourth & Church itself would be considered Class-B+), with rents reaching all-time highs.  Albany Road bought the Property with a mindset to further the renovation program that had been initiated by the prior owner to ensure that it continues to draft off the true Class-A buildings in the market, while maintaining an appropriate rent delta for value-conscious companies.

The value-add renovation strategy included the $500,000 redesign and renovation of the Property’s main lobby and entranceway, providing a dramatic improvement to its street-level, curb appeal.  With these changes, the Property has been dramatically enhanced and it is well-positioned to keep pace with the rising market. It is now well-positioned to compete with Class A assets that are now commanding rents in the mid to high $30’s/SF.