A Condo Convert

NASHVILLE–At a time when there’s a widely acknowledged housing shortage, why is apartment building so popular with both lenders and investors, and new condo construction so scarce? Developer Meg Epstein has some answers. She blames it partly on the lenders.

“Banks hate funding condo projects. They can’t repossess a condo project and just rent it out and wait to sell it. If it goes bust, they lose a lot of money. They are just too conservative, despite the risks not actually being that much greater than multi-family, when you factor in supply/demand,” she tells GlobeSt.com.

The US housing crunch has brought a daily diet of new multifamily projects. New condo development has lagged far behind. But they are a safer and better investment for both investors and lenders, believes Epstein. In fact, she projects condo investment returns of up to 18%.

She had some varied observations on the current housing situation and the state-of-the art Florida condo market in particular. Among other opinions: She does not think Florida’s market will appreciate at its present rate but will remain an overall future positive investment.

Epstein is the owner-founder of the Nashville-based CA South Development.

A Ten-Year Building Veteran With a Wide Range of Projects

She has spent the last 10 years in luxury residential real estate, developing everything from celebrity homes to luxury wine country retreats to mid-rise condos. She has been involved in the development and construction of over 260,000 square feet of residential and commercial construction representing $150 million.

Epstein is also working on a mixed-use office/retail/condo development in downtown, a 140-unit condo tower in Chestnut Hill, two mid-rise condo buildings south of downtown and a 38-unit townhome community in Belmont/Hillsboro, which is a well-known Nashville neighborhood listed on the National Register of Historic Places.

Her most current project is 35-unit River Tower overlooking the Cumberland River in Nashville. She makes the point that Nashville, in common with many other markets, is finding robust apartment building but far more limited new condo construction.

She says downtown Nashville is adding 2,213 apartments and just 71 condos this year, leaving it with only two months of inventory.

Epstein chose Nashville for River Tower for her first Nashville condo project for a variety of reasons, including its location as the only new real estate condo development directly on the Cumberland River and its proximity to downtown’s business and entertainment options.

Why Condo Returns Can Outpace Apartments

She thinks investors can earn higher returns investing in condos compared to apartment buildings. Nashville is an example.

“There is an oversupply of apartments in Nashville, as evidenced by the rent incentives; one or two months ‘move in specials.’ There is an undersupply of condos as evidenced by the short number of days on the market and lack of supply when searching for condo product,” she says.

The future population change in the US will affect the housing situation in various ways, especially in southern areas.

“You’re seeing a mass migration out of primary markets into secondary markets,” she says. Reasons include cost of housing and living in general, increased taxes in blue states, increasing traffic and higher traffic congestion in big cities. Both employees and employers are moving. The result: “The Southeast is where the growth will be in the next 10 years,” says Epstein. The widespread healthy appetite for apartments has sent their prices soaring. That impact has also been felt in the condo market. ”They are going to increase more and more. Only the ultra-rich will be able to afford condos if more aren’t built,” she says — a reflection of the robust South Florida condo market where there’s an oversupply of luxury units.

Florida’s Sophisticated Condo Market

Florida has some of the oldest and most sophisticated condo development companies and markets in the country. “They are 20 years ahead of what’s being done here in Nashville. Condos are a high art-form in Southern Florida and capital to fund adventurously big or complex projects is almost limitless right now.”

The South Florida market has the perfect mix of condo incentives, including world class amenities, entertainment and dining, and easy access to the investor market of South America and the Caribbean, Epstein believes. ”If you’re an international real estate investor, and you want to protect your capital, you don’t know about places like Nashville or Austin so you put money in Florida or New York. As long as international residential real estate prices in international markets — where the same group of wealthy investors and tourists invest continue to converge — I think you’re going to see prices hold strong.”

What kind of returns should investors expect from condos? “The main advantage that condos offer is you’re building into almost zero supply, so you’re almost guaranteed to have a deep pool of buyers. You should expect a 15-18% return for investing in condos,” she says.

Investors can tap into Epstein’s opinions this November when CA South Development launches a $100 million equity fund placing capital in projects in and around Nashville and other markets in the Southeast.