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IMT Hears Opportunity Calling in Music City

Faced with complex and costly regulations governing development in Los Angeles County, Sherman Oaks-based apartment developer and investor IMT Capital has followed the music playing outside the state. That has taken the company to Nashville, Tenn., or Music City, where it has acquired nearly 1,470 apartment units to the tune of about $333 million in the last year or so. IMT Capital bought the renamed IMT Cool Springs and Cool Springs West, two sister complexes with 386 and 474 units, respectively, in Nashville’s affluent suburb of Franklin in 2017. It followed that deal in February with the purchase of a 330-unit complex in Nashville. Its most recent deal was paying about $73 million for the two-year-old, 276-unit Broadstone Germantown complex, also in Nashville. IMT is responding to Nashville’s economic development incentives and growing job market, but the strategy also reflects the company’s shift in building fewer projects locally, a reaction to new requirements and costs added onto new projects in the city of Los Angeles and statewide. For instance, IMT pulled out of buying two development sites on Sepulveda Boulevard and chose to not construct between 200 and 400 units there. 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 L.A. and outside of L.A. because we still have crews here,” Tedesco said. “Other properties we would like to do things on, we just can’t, and it doesn’t make sense. Two projects in particular – we passed on those we were very interested in but there’s no way to make them pencil out because of JJJ.” In response, IMT has increased its acquisitions of existing apartments in Texas, Georgia, Florida, Colorado and most recently, 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 is quick to point out that IMT is still active in the 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. And earlier this year, it finished 5700 Sepulveda, 131 units also in Van Nuys. However, neither of those properties needed a zone change, Tedesco said, and if they had, IMT wouldn’t have built them. 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 Metropolitan Statistical Area has jumped nearly 40 percent in the last nine years, according to the Nashville Area Chamber of Commerce. Companies are relocating and expanding in the right-to-work state, including South Korea-based Hankook Tire, which plans to add 1,800 jobs at its new area plant, according to the chamber. The area is considered the nation’s health care hub, with nearly 400 health care companies. 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. In addition, new apartment construction is starting to slow, which means existing units are attracting fierce competition. “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.” Going forward, 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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