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Monday, Jan 30, 2023
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New Tune on L.A. Rentals

Los Angeles-based apartment developer and investor has changed its tune in the face of what it sees as complex and costly regulations for development here, going all the way to Music City to put about $330 million into deals over the past year or so.

IMT Capital in Sherman Oaks has acquired nearly 1,500 apartment units in the Nashville, Tenn. metropolitan area. It started last year in the upscale suburb of Franklin, where it acquired and renamed the 386-unit IMT Cool Springs and 474-unit Cool Springs West complexes in 2017. It followed that deal in February with the purchase of a 330-unit complex in Nashville. The company drew headlines just recently by paying about $73 million for the two-year-old, 276-unit Broadstone Germantown complex, also in Nashville.

IMT executives said they have been drawn to the Nashville market in part by economic development incentives and a growing job market there.

The strategy also reflects the company’s shift in building fewer projects locally, a reaction to new requirements and costs added onto projects in the city of Los Angeles, as well as the potential for local governments to get authority on rent control through a statewide vote in November.

IMT pulled out of buying two development sites on Sepulveda Boulevard that would have held the potential for between 200 and 400 units in total.

The sites would have required a zone change, and that would have triggered requirements under Measure JJJ, said David Tedesco, a principal with IMT.

The measure, passed in 2016, requires developers of most large projects to include affordable housing units and pay prevailing wage to construction workers.

“Our approach on construction is still centered on [the] L.A. [area] because we still have crews here,” Tedesco said.

The challenges of local regulation make the company cautious, though.

“Other properties we would like to do things on, we just can’t, and it doesn’t make sense,” Tedesco said. “Two projects in particular – we passed on those we were very interested in…there’s no way to make them pencil out because of JJJ.”

Nashville isn’t the only market drawing IMT’s capital – it was adding existing apartments in Texas, Georgia, Florida, Colorado before it started its most aggressive push in the Nashville area, Tedesco said.

“It (Nashville) is business friendly – reflective of people moving there – and there’s a demand for housing,” he explained. “That has been a driving force there.”

Tedesco said IMT is still active in its home base of the San Fernando Valley. It is constructing 6500 Sepulveda at 6500 N. Sepulveda Blvd. in Van Nuys, a 160-unit complex that it expects to finish next year. It finished 131 units at 5700 Sepulveda earlier this year.

Neither of those properties needed a zone change, said Tedesco, and the company would have taken a pass otherwise.

Music City economy

The economics of Nashville, known as the capital of country music, are attractive to employers, which in turn attract residents and investors.

About 2 million people live in the region, a 11.3 percent jump since 2010, according to the U.S. Census Bureau. Employment in the metro area has jumped nearly 40 percent in the last nine years, according to the Nashville Area Chamber of Commerce.

South Korea-based Hankook Tire plans to add 1,800 jobs at its new area plant, according to the chamber. The area also is considered a hub of the U.S. health care industry, with nearly 400 companies based there.

Courtney Ross, chief economic development officer for the chamber, said the area has a diverse economy, a thriving talent pool, vibrant culture, business friendly environment and central location.

“This has led to tremendous opportunity for investment in our region,” Ross said.

Los Angeles-based CBRE Group Inc.’s multifamily report on the Nashville area’s market for the first half of the year said renter demand and employment are continuing to grow. New apartment construction, meanwhile, is slowing, and bidding is competitive for existing units.

“Although the construction pipeline is peaking, new starts have plummeted, as rapidly rising construction costs and muted market fundamentals are making it difficult to pencil new deals,” authors wrote. “Competition for assets remains fierce, as general enthusiasm for the market is at an all-time high.”

Investment capital buys a lot more apartments in Nashville than in L.A. County. For a recent acquisition in Long Beach, for example, IMT paid about $427,000 per unit, Tedesco said. Compare that to the acquisitions IMT made in Nashville, which cost on average $220,000 to $230,000 a unit, according to Tedesco.

“It’s the type of buildings, and the per-unit cost,” Tedesco said. “You take that same building and put it somewhere in L.A. and it would be a lot more expensive.”

IMT has plans for new apartment projects in California but not in L.A. County, Tedesco said. Much of its business will be acquisitions in California and the other states where it currently owns properties, he added.

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