1400 18th Ave
Confidential Offering Memorandum 1400 18 th avenue south | nashville, tennessee 37212 81,041 SF Class A Office Building
Disclaimer
Cassidy Turley, has been retained as exclusive advisor to Sony Music Entertainment (the “Owner”) regarding 1400 18 th Avenue South (the “Property”) located in Nashville, Tennessee.
The enclosed information has been prepared by Cassidy Turley for use by a highly selected number of parties and does not purport to be all inclusive or to contain all of the information which prospective investors may need or desire. All projections have been developed by Cassidy Turley, the Owner, and designated sources and are based upon assumptions relating to the general economy, competition, and other factors beyond the control of the Owner, and therefore are subject to variation. No representation is made by Cassidy Turley or the Owner as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied on as a promise or representation as to the future performance of the Property. Although the information contained herein is believed to be correct, the Owner and its employees disclaim any responsibility for inaccuracies and expect prospective purchasers to exercise independent due diligence in verifying all such information. Further, Cassidy Turley, the Owner and its employees disclaim any and all liability for representations and warranties, expressed and implied, contained in, or for omissions from the enclosed information or any other written or oral communication transmitted or made available to the recipient. The enclosed information does not constitute a representation that there has been no change in the business or affairs of the Property or the Owner since the date of preparation of the enclosed information. Analysis and verification of the information contained in the enclosed information is solely the responsibility of the prospective investor.
Additional information and an opportunity to inspect the Property will be made available upon written request to interested and qualified prospective investors. Contact with any of the Property’s employees and tenants without prior approval of the Owner is strictly prohibited.
The Owner and Cassidy Turley each expressly reserve the right, in their sole discretion, to reject any and all expressions of interest or proposals to invest in the Property and/or terminate discussions with any entity at any time with or without notice.
The Owner shall have no legal commitment or obligation to any entity reviewing the enclosed information or making a proposal to invest in the Property unless and until a written agreement for the investment in the Property has been fully executed, delivered, and approved by the Owner and its legal counsel, and any conditions to the Owner’s obligations thereunder have been satisfied or waived. Cassidy Turley is not authorized to make any representations or agreements on behalf of the Owner. The enclosed information and its contents, except such information which is a matter of public record or is provided in sources available to the public, (such contents as so limited herein called the “Contents”) are of a confidential nature. By accepting the enclosed information, you agree (i) to hold and treat it in the strictest confidence, (ii) not to photocopy or duplicate it, (iii) not to disclose the enclosed information or any of its contents to any other entity (except to outside advisors retained by you, if necessary, for the completion of your Due Diligence) without the prior written authorization of the Owner or Cassidy Turley, (iv) not to use the enclosed information or any of the contents in any fashion or manner detrimental to the interest of the Owner or Cassidy Turley, (v) not to have any contact with any of the tenants and/or employees of the Property without prior approval of the Owner, and (vi) to return the enclosed information and other materials furnished to you to Cassidy Turley immediately upon request of Cassidy Turley or the Owner.
If you have no further interest in the Property, please return the enclosed information and all other materials furnished to you forthwith and continue to abide by the provisions herein. By accepting the enclosed information you agree to abide by the terms and conditions herein.
Investment Advisors
Crews Johnston III, SIOR 615.301.2901 crews.johnston@cassidyturley.com
Perry Gooch 615.301.2923 perry.gooch@cassidyturley.com
Peter Buckey 212.318.9794 peter.buckey@cassidyturley.com
Table of Contents
Section 1: Executive Summary Executive Summary
4
Section 2: Investment Highlights Investment Highlights
6 7
Aerial
Section 3: 1400 18 Avenue South Property Highlights
9
Stacking Plan
11 12
Floor Plans
Section 6: Market Overview
14
Section 7: Comps Lease Comps
18 20
Sales Comps
Section 8: Financial Information Offering Summary
22 23 24 26
Assumptions
Operating Proforma
Rent Roll
Executive Summary
Cassidy Turley is pleased to offer for sale an iconic Nashville office building: 1400 18 th Avenue South. The 81,041 square foot office building is located on 2.7 acres in the heart of Music Row and Vanderbilt area. This property represents a rare opportunity to purchase a building in a core location that currently has a stabilized rent roll and strong-credit tenants. Among the tenants that call 1400 18 th Avenue home are Sony Music Entertainment, the current owner, and Vanderbilt University. The asset, originally built in 1916 as a convent, was meticulously converted to a Class A office building in 1999 and has been home to one of Nashville’s top country music labels ever since. The property’s attributes make it unique not only to the submarket, but to the Nashville market as a whole. Located across the street from Vanderbilt University’s newly constructed freshman dorms and having a sweeping view of Music Row and the Nashville Skyline, the 3-building property is serviced by a 3-story, 201-stall parking structure (as well as 21 surface spaces). This one of a kind property represents an excellent opportunity as an owner occupied or multi- tenanted facility. The buildings combine the charm of historical architectural features with modern building systems and technology critical for operating in today’s economy. Current systems include T-1 redundant fiber, a back-up generator and the latest in security systems. The state- of-the-art HVAC system not only controls the utility costs for the building as a whole, but also helps individual tenants keep track of their utility usage and allows the landlord to accommodate varying utility needs among
the building’s tenants. The 10 to 12 foot high ceilings, flexible floor plates and architectural detail, combined with the common area features of a chapel/auditorium and cafeteria, create a first-rate leasing environment. In addition, the grounds, outdoor entertaining area and motor court make an impeccable first impression. Music Row is located between Nashville’s premier residential neighborhoods, Vanderbilt University and Downtown Nashville. 1400 18 th Avenue South is an accessible and convenient location for companies seeking space in the Midtown office market. The area is popular for music, educational and local professional firms. It has recently seen numerous residential and urban retail development projects come on-line as both Belmont and Vanderbilt Universities continue to expand their borders. Terms of Offering 1400 18 th Avenue South is being presented to selected investors on an exclusive basis without an asking price. Cassidy Turley intends to conduct a call-for-offers bid deadline and will notify interested parties accordingly with further bidding instructions. Please note that ownership reserves the right to accept offers and withdraw the property from the market at any time.
4 | Cassidy Turley
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Investment Highlights
Rare Mid-Town Nashville Office Investment 1400 18 th Avenue South represents the first mid-town office investment of significant size to come to the market in recent years. The area has always been attractive to investors due to strong valuations and proximity to Vanderbilt University. The area, otherwise known as Music Row, sits among the most prominent neighborhoods in Nashville. Opportunities to invest here are coveted. Positive Market Dynamics Nashville continually ranks among the premier cities for corporate relocations, quality of life and pro-business government. Despite the recent downturn in the national economy, the city has weathered the economic storm far better than its peers. Demand for office buildings such as 1400 18 th Avenue South has been and is expected to remain strong as investors seek well- located assets with potential for long term rent growth. These advantages coupled with a highly visible location in the heart of Music Row has the building poised to outperform its peer properties over the long term. Barriers to Entry Despite the strength of the Nashville economy, the region has seen little new speculative construction in recent years. The challenging topography surrounding much of the city limits the cost effectiveness and viability of new projects. While there are some nearby development parcels, it is unlikely that there will be significant speculative construction in the near term without substantial pre-leasing.
Stabilized Near-Term Cash Flows with Strong Upside The property offers both substantial and consistent near term revenue with a tenant base of strong credit companies, Sony and Vanderbilt University. The building is situated in a submarket experiencing significant rental growth due to high demand and the cost of new construction. The asset is expected to generate higher returns after the in-place leases expire. Numerous Area Amenities There are numerous amenities within walking distance of the building including banks, restaurants and general services typically found in a Class A office environment. Given its location close to Vanderbilt University, the area has a higher than average concentration of unique and high-end retail establishments. Discount to Replacement Cost This offering represents a significant discount to replacement costs. Current estimates for comparable new Class A construction in the area are in excess of $275 per square foot.
6 | Cassidy Turley
Aerial
1400 18 th Avenue South
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1400 18 TH Avenue South
8 | Cassidy Turley
Property Highlights
Ceiling Heights Finished ceilings vary from 7'8" on the 1st floor, 10'3" on the 2nd floor, 8'9" on the 3rd floor and 8'8" on the 4th floor Slab to Slab Height 10' to 12' slab to slab height allowing for an exposed ceiling environment of 1'-2' for easy access to the mechanicals, i.e., VAV boxes, pulling cabling, etc. Parking 202 existing spaces for employees. 14 visitor parking spaces & 7 service center spaces Roof Slate roof with clay ridge caps on both the A wing and C building, the B-wing consists of Carlisle 60-mil EPDM with rocks placed on it for the placement of the roof-top chiller unit Life Safety The building is fully sprinkled. The fire pump was replaced in 1998 with jockey pump and controller with 750GPM, 80PSI, 50HP, 460/3/60, the new controller was also replaced with a 208V. All fire extinguishers are located every 75' on each floor as required by codes. Fire pump, sprinkler, strobes and horn tests are done annually and semi-annually on the Liebert units. Current Occupancy 100%
A
C
B
Property Information
Owner Sony Music Entertainment
Property name 1400 18 th Avenue South
Square Footage 81,041 RSF
Address 1400 18 th Avenue South Nashville, TN 37212
Land Area 2.66 Acres
Year Built 1916 (Renovated 1999)
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Property Highlights
Site Plan Doors Main entrance doors to both buildings are solid cherry wood doors Interior doors throughout the building are cherry wood with insulated glass tops and side panels with a stained glass coding on each floor All stairwell and service center doors throughout the building are aluminum and fire rated as required by codes Elevators Two elevators are located in the main building with the smaller elevator accessing the 5th floor. There is no elevator in the C Building HVAC Air cooled chiller, air handler units on each floor, variable freq drive, 2 boilers, 4 Liebert units (1 for comm room), fan coil units, pumps (4), 4 FM 200 units. There are strategically placed VAV boxes throughout the building for managing controlled temps. Electrical Electrical services provided by Nashville Electric Service with electrical rooms on each floor
Plumbing The building consists of 14 bathrooms. The Chairman has a private bathroom, while there are two single unisex bathrooms located on the west side of the 4th and 3rd floor of the main building. There are also 3 unisex bathrooms located on each floor of the C building. Each floor of the main building consists of a kitchenette, which includes refrigerator, microwave, dishwasher and ice maker. There are also coffee bars located on each B-wing and West side of the building, including each tenant having their own isolated coffee bar, microwave and refrigerator for privacy. Generator The building contains 1 (one) back-up generator. The generator was replaced in 1998 to a 100KW Natural gas generator also included was a new transfer switch panel. All batteries were replaced on the UPS system in 2010 Cafeteria Fully furnished with tables/chairs, including soft seating, 600 pound ice maker, television, refrigerator and freezer. This space is also available for private company lunches catered by outside venues. There is also an outside picnic area available with outdoor lawn furniture, including umbrellas for shade.
Energy Management System There are light sensors installed in each office, bathrooms and private areas. Also available is a Digital Control Center with a start/stop optimizer for heating and air conditioning including ease of temperature changes when needed. ADA Compliance The building is currently compliant with the Americans with Disabilities Act Auditorium 2,400 SF available for leasing and/or hosting events such as listening parties, presentations, meetings, seminars, etc. Security System The building consists of a secure card-key access program. The security system is monitored by ACS Monitoring. Historical Landmark The building is also registered as a Historical Landmark .
10 | Cassidy Turley
Stacking Plan
Vacant
2013
2016
Common Area
Building A
SONY 6,970 SF 6/30/2016
ATTIC
1 2 3 4 1 2 3 4 1 2 3
SONY 11,749 SF Expire: 6/30/2016
Vanderbilt University Suite 6,148 SF Expire: 1/31/2016
SONY Suite 6,162 SF Expire: 6/30/2016
Vanderbilt University Suite: 4,728 SF Expire: 1/31/2016
Vanderbilt University Suite: 5,838 SF Expire: 1/31/2016
Auditorium (Sony) 4,467 SF 6/30/2016
Vanderbilt University Suite 2,405 SF Expire: 1/31/2016
Cafeteria 3,172 SF No expiration
SONY Storage Vault 8,407 SF 6/30/2016
Building B
SONY Entire Floor 3,775 SF Expire: 6/30/2016 SONY Entire Floor 3,774 SF Expire: 6/30/2016 Vanderbilt University 3,906 SF Expire: 1/31/2016 Vanderbilt University Entire Floor 3,601 SF Expire: 1/31/2016
Building C
ROAR 661 SF Month to Month
Debra McCloud 902 SF Month to Month
Live Nation 1,214 SF Month to Month Live Nation 1.683 SF Month to Month
*Actual total square footage for the three buildings is 81,041. The square footage referenced in the leases for Building C results in a discrepancy of 527 RSF. It is assumed this RSF is corrected after the first year of tenancy.
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Floor Plans
Vacant
Month to Month 2016
Vacant
2013
2014
2015
2016
2017
2018
First Floor
Live Nation 1,683 SF Exp: Month to month
ic t
R
R
micro
micro
e
intern
intern
counter
counter
copier
36
36
B G R U U B G R U B G R U
36 36
36 36
Vanderbilt University 3,601 SF Exp: 1/2016
UP
counter
worktable
iltn bl e
18"
built-incounter i-ic er
sidedsorter
built-indouble
Vanderbilt 2,405 SF Exp: 1/2016
(N.C.I.)
(N.C.I.)
bench
le
le
Sony 8,407 SF Exp: 6/2016
telephoneracks
telephoneracks
computerracks
computerracks
island
island
island
island
DN
sorter
sorter
sorter
sorter
counterformonitors
counterformonitors
42
36
36
30
36
36
42
42
36
36
30
36
36
42
copier
copier
flatfiles
flatfiles
counter
counter
copier
copier
*
42
42
42
42
36
36
36
36
36
36
36
36
drafting (NIC) table
drafting (NIC) table
R
R
water copier
water copier
Cafeteria 3,172 SF
refrig
42
42
36
36
42
42
ice dw
counter
Second Floor
copier
Live Nation 1,214 SF Exp: Month to Month
R
36 36 30 30
micro
1/64" = 1'-0" 1 Level 1- Rentable SF
36
36
36
36
36
36
36
36
36
36
Sony Auditorium 4,467 SF Exp: 6/2016
lowbookcase
R
DW
desk
36 36 36 36
-hig -hi
3-high
Vanderbilt University 3,906 SF Exp: 1/2016
flatfiles
copier
le
UP
3-high
flatfiles
DN
UP
UP
R
R
i
ic e
micro
micro
copier
intern
intern
counter
counter
copier
36
36
h
built-inbar
*
counterwithshelvesabove
counter
36 36
36 36
built-in desk
ice dw
bench
bench
bench
R
copier
Vanderbilt University 5,838 SF Exp: 1/2016
1'-2"
36
36
36
36
30
36
36
36
36
36
30
2'
2'-2"
micro
A/Vcabinets
36
36
36
36
36
36
36
36
36
36
36
36
c
R R
R
*
bartop
built-in desk
Vanderbilt 4,728 SF Exp: 1/2016
shelves above l
copier
counter
UP
DN
counter
t
worktable
lt
18"
i
sidedsorter
built-indouble
built-incounter
I.)
12 | Cassidy Turley
DN 1/64" = 1'-0" 4 Level 2 Gross SF
1/64 1 level
tl n c
(N.C.I.) (N.I.)
(N.C.I.)
bench
telephoneracks tele n c
telephoneracks
computerracks comper s
computerracks computerracks
island
island
island
island
sorter
sorter
sorter
sorter
counterformonitors
counterformonitors
42
36
36
30
36
36
42
42
36
36
30
36
36
42
Floor Plans
Vacant
Month to Month 2016 Common Area
A t t i
Third Floor
Debra McCloud 902 SF Exp: Month to Month (ROAR 661 SF) Exp: Month to Month
Fifth Floor
None
R
R
B R
Buil Gro Ren Usa
Sony 3,774 SF Exp: 6/2016
DW R
DW R
B R
6.75"R
6.75"R
DN
DN
T"57.11
7.
T"57.11
36
36
36
36
36
36
36
36
36
36
ice dw
ice dw
"T
T
7.25"R 11"T
7.25"R 11"T
copier bench bench bench
copier bench bench bench
T
"T
11"T 7.25"R
11"T 7.25"R
DN
DN
DN
DN
R
R
built-indesk
built-indesk
SONY 6,162 SF Exp: 6/2016
Attic - SONY 6,970 SF Exp: 6/2016
7"R
7"R
DN
DN
T"21 T
T"21
9"
9"
36
36
36
36
36
36
36
36
36
36
Vanderbilt 6,148 SF Exp: 1/2016
copier
copier
B R
36
36
36
36
built-inmedia
built-inmedia
*
*
sorter
sorter
36
36
36
42
42
36
36
2' 36 36
36
36
36
42
42
36
36
36
2'
36
36
36
42
42
36
36
36
36
36
42
42
36
36
36
*
*
*
*
micro R
micro R
2'
2'
2'
2'
Fourth Floor
1/64" = 1'-0" 2 Attic - Gross Sf
1/64" = 1'-0" 1 level 3 - Rentable SF 1/64" = 1'-0" 1 Attic - Rentable SF
Build Gros Rent Usab Build Gros Rent Usab Build Gros Rent Usab 1
None
36
30
36
36
30
36
Vacant
2013
2014
2015
2016
2017
2018
*
*
existing files,over files,and flats in
existing files,over files,and flats in
42
42
42
42
42
42
42
42
42
42
42
42
file room
file room
SONY 3,775 SF Exp: 6/2016
3'
3'
42
42
42
42
42
42
3'-6"
3'-6"
R
R
42
42
R
R
3';
3';
copier
copier
elgnis
elgnis l
flat
flat
flats
stacked flats
stacked
copier
copier
*
*
*
*
36
36
36
36
36
36
36
36
36
36
36
36
36
36
36
36
36
36
ice dw
ice dw
DW R
DW R
R
R
30
30
30
30
SONY 11,749 SF Exp:6/2016
42
42
42
42
42
42
42
42
shelvesabove
shelvesabove
42
42
42
42
36
36
copier
copier
6.75"R
li
DN
T"57.11
built-indesk
built-indesk
36
36
42
42
42
42
copier
copier
36
36
counterw/shelvesabove
counterw/shelvesabove
36
36
banquet
banquet
42
42
42
42
42
42
36
36
16'-6" (3pieces)
16'-6" (3pieces)
A/Vcabinets
A/Vcabinets
*
*
4'
4'
ice dw
ice dw
2'
5'
2'
5'
shlvs.
shlvs.
coats
coats
R
R
copier bench bench bench
copier bench bench bench
Att Pr
R
R
built-indesk
built-indesk
"T
7.25"R 11"T
"T
11"T 7.25"R
DN
9"
9"
DN
36
36
36
36
36
36
36
36
36
36
copier
copier
7"R
DN
T"21
36
36
36
36
n
built-inmedia
built-inmedia
19
*
*
micro R 1/64" = 1'-0" 2 Level 4 - Gross SF
sorter
sorter
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36
36
36
42
42
36
36
2' 36 36
36
36
36
42
42
36
36
2' 36 36
36
36
36
42
42
36
36
36
36
36
42
42
36
36
2' 1/64" = 1'-0" 1 level 4 - Rentable SF * micro R
*
*
*
M
2'
Market Overview
Nashville, Tennessee Nashville is the capital of Tennessee and a vital transportation, business and tourism center for North America. The Nashville MSA, in the state’s center, comprises 13 counties for a total population of just over one and a half million. Nashville continues to impress business leaders and real estate investors alike for its overall quality of life, its pro business government and its rich offering of cultural and entertainment options. Nashville’s strength as a community truly rests on one solid foundation—its economic diversity. It has a high level of entrepreneurial activity, with self-employment above the state and national average and higher than most major metros in the country. With one of the nation’s most diverse economies, Nashville is anchored by health care management, tourism, music and entertainment, auto manufacturing, higher education, and publishing. Regional Highlights & Accolades • Nashville Ranked #3 Overall in America’s Best Cities Travel and Leisure, November 9, 2012 • Tennessee Ranked 8th Best State for Business Climate Site Selection, November 1, 2012
• Tennessee Ranked #1 in Top 10 States for Low Business Taxes & Regulations US Chamber of Commerce, Jan 9, 2012 • Nashville Named One of 11 U.S. Comeback Cities Kiplinger.com, April 11, 2012 • Tennessee Ranked One of the Top 10 Business Climates in U.S. Site Selection, Nov 1, 2011 • N ashville Ranked One of America’s Best Cities Businessweek.com, Sep 22, 2011 • Nashville Named One of Seven Top Spots in Nation for Start-Ups Wall Street Journal, Aug 25, 2011 • Nashville Ranked #3 Next Big Boom Town Forbes, July 06, 2011 • Tennessee Ranked #1 State Most Friendly to Business US Chamber of Commerce, June 23, 2011 • Tennessee #6 for 2010 Economic Growth U.S. Bureau of Economic Analysis, June 13, 2011 • Nashville Named One of the Top 10 U.S. Cities for College Grads Livibility.com, June 08, 2011 • Nashville Has ‘Best Music Scene’ in the Country Rolling Stone, April 20, 2011
• Nashville Ranked #13 of America’s 50 Best Cities Businessweek, September 28, 2012 • Nashville Listed as One of 10 Underrated Hotbeds of American Innovation Fast Company, August 28, 2012 • Nashville Ranked #9 on the List of Cities with Brain Gain Forbes, August 13, 2012 • Top City for Global Trade Global Trade, August 13, 2012 • Nashville Ranked #10 Best Place for Business & Career Forbes, June 27, 2012 • Nashville Ranked #9 of the Hottest American Cities of the Future Business Insider, June 25, 2012 • Ranked #1 Best City for Job Growth Kiplinger, June 12, 2012 • 4th in Job Creation in U.S. Gallup, April 3, 2012 • 2nd Most Cost-Attractive Business Location KPMG, March 27, 2012 • 5th Fastest Growing Job Market in U.S. Bureau of Labor and Statistics, March 19, 2012
14 | Cassidy Turley
31
dersonville Hen
431
Top Area Employers
112
Old Hickory
109
5
1. Vanderbilt University and Medical Center 2. HCA
70
31
L
Mount Juliet
40 3. Nissan North America, Inc. 4. St. Thomas Health Services 5. CBRL Group, Inc. 6. Gaylord Entertainment 7. Asurion 8. VA Medical Center 9. Dell Inc. 10. AT&T Inc. 11. Verizon Wireless 12. Bridgestone Americas Holding 70
12
6
40
Nashville
10
2
12
TN
1
8
41
65
4
440
1400 18 th Avenue South
9
431
7
24
840
LaVergne
31
11
Brentwood
Smyrna
11
840
Nolensville
3
Franklin
46
65
41
31
Murfree
cassidyturley.com | 15
24
431
Market Overview
Nashville MSA Office Market Overview For most office markets around the country, commercial real estate leasing has been in a holding pattern that is beginning to recover. The timing and strength of the recovery is dependent on a number of factors: consumer confidence, increased employment, capital constraints, and commercial and consumer expenditures. Nashville’s office market only saw a small bump in the road from 2008-2009, and has been moving forward ever since. The diversification of industries has provided insulation to adverse changes in the economy, and has been the key to strong leasing and absorption. Direct vacancy for the office market is 8.7%, down from 14.4% in 2009. After small negative net absorption in 2009, absorption has been positive since. Both 2010 and 2011 had absorption figures well above 500,000 SF, and 2012 reported a positive number just over 1.0 MSF.
First quarter 2013 posted positive 146,394 SF – a relatively flat number considering the recent historical absorption figures. The reason for this low figure is simply that there is very little space to absorb and little speculative construction under way. Large users such as Tractor Supply, Amsurg and LifePoint Hospitals are building new headquarters within the MSA and will add to the vacancy rate when they move. Landlords are diligently pre-marketing their existing space with hopes of leasing the space before it hits the vacancy and absorption figures in early 2014. Interest in Nashville remains high, and new relocations are always a possibility. With strong tenant demand and lack of quality “large blocks” of space, the pressure has shifted to the developers to add speculative space, with an emphasis on LEED certification and higher end Class A product both inside the city and in the suburbs.
Construction, Absorption & Vacancy t i , rption, and Vacancy
1,500,000
20.0%
18.0%
1,250,000
16.0%
1,000,000
14.0%
750,000
12.0%
500,000
10.0%
250,000
8.0%
0
6.0%
-250,000
4.0%
Construction
Absorption
Vacancy
16 | Cassidy Turley
Market Overview
Green Hills - Music Row Submarket The Green Hills - Music Row submarket of Nashville, where the 1400 18 th Avenue South Building is located, has been one of the strongest submarkets in the city over the past several decades. While somewhat smaller than most of the submarkets, it commands the highest rents in the MSA. In fact, as of the most recent quarter, Class A asking rents have exceeded $30.00 PSF for the first time. Music related industries and Vanderbilt or Belmont Universities are the leading occupiers of space. Complementing the strength of the office market is the tremendous growth of high-end single family and multi- family residences. Single family residential pricing has surpassed $200 PSF in the area, with builders frequently tearing down older homes as no suitable land exists. The multi-family component has close to 3,000 units in vary- ing stages of construction in the immediate area. All of this residential activity bodes well for office product in the submarket.
The continued growth of Belmont and Vanderbilt Univer- sities has also been a large driver for office demand in recent years. Vanderbilt has expanded their residential campus, one of which sits directly across the street from the subject property, and their Medical Center. Belmont has added, among other facilities, new law and pharmacy schools. The Green Hills – Music Row submarket consists of ap- proximately 1,928,000 SF (626,470 of which is consid- ered Class A). The current vacancy rate overall is 8.1% and 3.4% for Class A space, down considerably from their peak in 2009 of 12.3% overall and 8.1% for Class A. Due to the limited construction in the area, absorption has been relatively light. It should be noted the submarket has not experienced a year of negative absorption in over 10 years.
Class A Rental Rate Growth Class A Rental Rate Growth
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q13
Green Hills / Music Row Overall
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Lease Comps
Property Name Address
Submarket Building Class
Sign Date Start Date Square Footage Starting Rate Rate Type
Bumps Term
Free Rent TI
Picture
Comments
1
Palmer Plaza 1801 West End Ave.
West End Class A
11/2012 1/2013
$26.50 FS
2.0% / Year 60 Mos
0 Mos $14.00/PSF
6,608 SF
New lease
2
Roundabout Plaza 1600 Division St.
West End Class A
8/2012 10/2012
$28.50 FS
2.0% / Year 60 Mos
2 Mos $20.00/PSF
3,248 SF
New lease
3
Terrazzo 700 12th Ave. S
CBD / Gulch Class A
3/2012 6/2012
$26.91 FS
2.5% / Year 62 Mos
2 Mos $45.07/PSF
New lease in first generation space
7,659 SF
4
The Scene Building 210 12th Ave S.
CBD / Gulch Class B
2/2012 4/2012
$21.12 FS
3.0% / Year 45 Mos
0 Mos $6.92/PSF
Renewal and Expansion
2,451 SF
5
Braid Building 124 12th Ave. S
CBD / Gulch Class B
2/2012 3/2012
$22.50 FS
1.5% / Year 75 Mos
5 Mos $4.00 PSF
8,452 SF
New lease
6
1101 McGavock St. CBD / Gulch Class B
12/2011 2/2012
$20.00 FS
2.0% / Year 61 Mos
1 Mos $7.00 PSF
7,935 SF
New lease
18 | Cassidy Turley
1
Palmer Plaza
Roundabout Plaza
2
Terrazzo
3
The Scene Building Braid Building
4
5
6
1101 McGavock Street
6
5
4
1
2
3
1400 18 th Avenue
cassidyturley.com | 19
Sale Comps
Total Square Footage
Sale Price PSF
Year Built
Bldg Class
Sale Date
Sale Price
Picture
Property Name
SubMarket
Comments
1
75K of office/20K of retail 100% occupied at time of sale. New construction. Building was sold as part of a condo regime.
Terrazzo 700 12th Ave South Nashville, TN 37203
CBD/Gulch 95,000 2009 A 10/24/2012 $19,000,000 $200
2
The Carothers Building 9009 Carothers Parkway Franklin, TN 37067
Property includes excess land with 600K of potential class A office development
Cool Springs 498,961 1997 A/B 10/20/2012 $96,100,000 $193
3
The McEwen Building 1550 W McEwen Dr Franklin, TN 37067
Cool Springs 173,044 2009 A 5/1/2012 $40,000,000 $231
Does not include excess land.
4
Baker Donelson Center 211 Commerce Nashville, TN 37201
CBD 225,000 2000 A 3/16/2012 $47,130,000 $209 100% Occupancy at time of sale.
5
Sale also included 71 acres of land for a total sale price of $42 mil. ($28 mil for bldg and $14 mil for land)
Nine Corporate Centre 6550 Carothers Pkwy Franklin, TN 37067
Cool Springs 155,919 2008 A 9/7/2011 $28,000,000 $180
20 | Cassidy Turley
Terrazzo
1
4
The Carothers Building
2
1
The McEwen Building
3
Baker Donelson Center
4
5
Nine Corporate Center
741 Cool Springs
2
5
3
cassidyturley.com | 21
Financial Information
Offering Summary
Price This asset is being marketed without an asking price.
Current Occupancy 100%
Projected Net Operating Income Year 1:
$988,730
Year 2: Year 3:
$1,072,685
$998,203
Investment Overview 1400 18 th Avenue offers an investor the opportunity to purchase an office building in one of the most sought after areas of Nashville. The building offers strong in-place income with good credit tenants, Sony and Vanderbilt University. More importantly, the building offers tremendous upside to a potential investor. Upon Sony’s departure, much of the building could be re-tenanted with higher rents. Additionally, the owner is currently not charging for covered parking in its 202 space onsite garage which could generate an additional $125,000 in annual revenue for the building owner.
22 | Cassidy Turley
Assumptions
Property Assumptions
Market Leasing Assumptions
Analysis Start
August 1, 2013
Rentable Building Area
SF
%
Initial Lease-Up Period
12 months
Occupied
76,390
94.26% 5.74% 100.00%
Vacant
Office Renewal
4,651
Total
2013 Market Rental Rates
81,041
$23.00
Growth Rates
Rent Structure
Full Service
General Growth Rate Operating Expenses Real Estate Taxes
3.00% 3.00% 3.00%
Rent Adjustment
2.50% annually
Annual Market Rent Growth Rate
Lease Terms
36 months
Yr 1 Yr 2 Yr 3
3.00% 3.00%
2013 Tenant Improvements
3.00% New 3.00% Renewal
$15.00
Yr 4+
$5.00 $7.50
Weighted
Miscellaneous Revenue
Future Leasing Commissions New
6.00% 3.00% 3.75%
2013 Miscellaneous Revenues
Renewal Weighted
Parking
$100,000 $100,000
Total 2013 Misc. Revenues
Free Rent (Outside)
0 Month(s) Free
Operating & Capital Expense Assumptions
Renewal Probability
75%
Management Fee (% of EGR)
Downtime Period New
3.00%
6 Month(s) 2 months
Weighted
Capital Reserves
$0.35 psf
FOOTNOTES: Actual total square footage for the three buildings is 81,041. The square footage referenced in the leases for Building C results in a discrepancy of 1,479 RSF. It is assumed this RSF is corrected after the first year of tenancy for the tenants in Building C.
cassidyturley.com | 23
Operating Pro-Forma
1
2
3
4
5
6
7
Year Ending
PSF
Apr-2014
Apr-2015
Apr-2016
Apr-2017
Apr-2018
Apr-2019
Apr-2020
RENTAL INCOME
Base Rental Revenue
$20.56 ($0.53) $20.04
$1,666,451 ($42,566) $1,623,885
$1,724,950
$1,756,173 ($108,282) $1,647,891
$1,941,314 ($248,161) $1,693,153
$1,985,730 ($25,624) $1,960,106
$2,038,302 ($118,323) $1,919,979
$2,107,260 ($207,364) $1,899,896
($8,805)
Absorption & Turnover Vacancy
Total Rental Income
$1,716,145
Per Square Foot
$20.04
$21.18
$20.33
$20.89
$24.19
$23.69
$23.44
OPERATING EXPENSE RECOVERIES
$0.08
$6,609
$19,236
$29,592
$21,434
$44,693
$56,041
$29,029
Per Square Foot
$0.08
$0.24
$0.37
$0.26
$0.55
$0.69
$0.36
MISCELLANEOUS INCOME Parking Total Miscellaneous Income
$1.54 $1.54
$125,000 $125,000
$128,750 $128,750
$132,612 $132,612
$136,591 $136,591
$140,689 $140,689
$144,909 $144,909
$149,257 $149,257
Per Square Foot
$1.54
$1.59
$1.64
$1.69
$1.74
$1.79
$1.84
EFFECTIVE GROSS INCOME
$21.66
$1,755,494
$1,864,131
$1,810,095
$1,851,178
$2,145,488
$2,120,929
$2,078,182
Per Square Foot
$21.66
$23.00
$22.34
$22.84
$26.47
$26.17
$25.64
OPERATING EXPENSES
Repairs and Maintenance
$1.23 $0.40 $0.85 $1.09 $2.18 $0.65 $0.25 $0.44 $2.37 $9.46
$100,000 $32,416 $68,885 $88,725 $176,600 $52,665 $20,000 $35,658 $191,815 $766,764
$103,000 $33,389 $70,951 $91,387 $181,898 $55,924 $20,600 $36,728 $197,569 $791,446
$106,090 $34,391 $73,080 $94,128 $187,355 $54,303 $21,218 $37,830 $203,497 $811,892
$109,273 $35,422 $75,272 $96,952 $192,976 $55,535 $21,855 $38,965 $209,601 $835,851
$112,551 $36,485 $77,531 $99,861 $198,765 $64,365 $22,510 $40,133 $215,889 $868,090
$115,927 $37,579 $79,856 $102,857 $204,728 $63,628 $23,185 $41,337 $222,366 $891,463
$119,405 $38,707 $82,252 $105,942 $210,870 $62,345 $23,881 $42,578 $229,037 $915,017
Landscaping
Cleaning
Security and Safety
Utilities
Management Fee
Administrative Expense
Insurance
Real Estate Taxes
Total Operating Expenses
Per Square Foot
$9.46
$9.77
$10.02
$10.31
$10.71
$11.00
$11.29
NET OPERATING INCOME
$12.20
$988,730
$1,072,685
$998,203
$1,015,327
$1,277,398
$1,229,466
$1,163,165
Per Square Foot
$12.20
$13.24
$12.32
$12.53
$15.76
$15.17
$14.35
CAPITAL EXPENDITURES Tenant Improvements
$0.00 $0.00 $0.35 $0.35
$0 $0
$34,453 $12,186 $29,215 $75,854
$211,856 $74,933 $30,092 $316,881
$428,409 $143,447 $30,994 $602,850
$50,133 $17,732 $31,924 $99,789
$231,501 $81,881 $32,882 $346,264
$405,716 $143,499 $33,869 $583,084
Leasing Commissions
$28,364 $28,364
Capital Reserve
Total Capital Expenditures
Per Square Foot
$0.35
$0.94
$3.91
$7.44
$1.23
$4.27
$7.19
CASH FLOW
$11.85
$960,366
$996,831
$681,322
$412,477
$1,177,609
$883,202
$580,081
$11.85
$12.30
$8.41
$5.09
$14.53
$10.90
$7.16
Per Square Foot
24 | Cassidy Turley
cassidyturley.com | 25
Rent Roll
Current Rent Roll
Future Rent Increases
Aug-2013 Rent
Tenant
Suite
SF
Recoveries
Commencement
Expiration
% of Building
Date
Amount
A301, A200, B100 and 200 A400, A302, A100S, B300 and 400
$24.00 $24.50 2.5% bumps
Vanderbilt University
26,626
$23.50
2/14 2/15
$5.62 base stop
2/1/2011
1/31/2016
32.85%
Sony Music
37,382
$23.00
Annual
Base Stop
8/1/2013
7/31/2016
46.13%
Sony Attic
Building A
6,970
$5.00
None
8/1/2013
7/31/2016
8.60%
2.5% bumps
Sony Cafeteria
Building A
952
$23.00
Annual
Base Stop
8/1/2013
7/31/2016
1.17%
Live Nation
C100 and 200
2,897
$17.00
None
7/1/2013
MTM
3.57%
Debra McCloud
C301
902
$17.00
None
7/1/2013
MTM
1.11%
ROAR
C302
661
$26.05
None
7/1/2013
MTM
0.82%
Total Occupied Space:
76,390
Occupancy:
94.26%
Vacancy/Non-Revenue Space
Tenant
Suite
SF
Rent
Escalator
Expense Recoveries
Commencement
Term % of Portfolio
Vacant space
1,479
$23.69
Annual
2.5% bumps
8/1/14
36 months
1.83%
Cafeteria (non-revenue)
3,172
3.91%
Total Vacancy/Non-Revenue Space:
4,651
* Actual total square footage for the three buildings is 81,041. The square footage referenced in the leases for Building C results in a discrepancy of 1,479 RSF. It is assumed this RSF is corrected after the first year of tenancy for the tenants in Building C.
26 | Cassidy Turley
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