Mixed Signals

Email | Print By Steve Bergman

09-01-2001 12:00 AM — Late one Friday evening about two years ago, Tom Frye, then a senior vice president of SunTrust Bank, was driving home via the Demonbreun Street viaduct when, in the hazy light of dusk, he noticed two figures standing on the bridge acting unusual. His first thought was that the two were going to jump, but as he got closer he realized they were people he knew. Frye pulled off into a parking lot and walked out onto the bridge to talk with Steve Armistead and William Barkley.

Armistead explained to Frye that he had just called Barkley out of their development on Demonbreun Street to see something that caught his eye down below in the Gulch. Frye looked. It was nothing more than a plot of ground with a concrete block building. Armistead, pointing to the building, suggested to Barkley that this should be their next project, but Barkley exclaimed, “Why don’t we do the whole damn Gulch?” Frye assumed he was joking.

As it turned out, he wasn’t.

Frye has since moved on to become managing director of CB Richard Ellis in Nashville, while Armistead Barkley Inc., along with MarketStreet Equities Co., a Nashville-based private investment firm, has accumulated 22 acres in the Gulch. The city’s Metropolitan Development and Housing Agency (MDHA) recently granted the Armistead Barkley and Marketstreet partnership, called Nashville Urban Venture LLC (NUV), exclusive development rights to more than 30 acres of the blighted industrial district called the Gulch.

“It is an underutilized industrial area that people have tried to develop for years. It clearly requires a major investor-developer as a catalyst,” observes Gerald Nicely, MDHA’s executive director. “They have assembled a substantial amount of land to create a mixed-use development that we hope will increase the residential base near downtown.”

MDHA’s enthusiastic support of Nashville Urban Venture’s $400 million Gulch redevelopment project typifies the level of excitement and support demonstrated by the greater real estate and development community. Still, NUV faces a long, tough slog going forward as it works to transform the desolate landscape into a hip, bustling district that appeals to both businesses and residents. And if the rest of the Gulch development proceeds the way the early stages have gone, NUV can expect years of alternating elation and disappointment.

The bad news first. The Gulch redevelopment effort shifted into high gear just as the nation’s economy encountered an extended speed bump. As a result, the old Braid Electric Building at 1100 Demonbreun, one of the first projects Armistead Barkley developed in the area, sits largely unoccupied despite its attractiveness after a complete overhaul. Some of the building’s early tenants, namely small high-tech companies such as SmallBusiness.com, have since scaled back operations or closed up shop altogether. SmallBusiness.com was flying high at the beginning of 2001, securing $1.5 million in venture capital from private investors. But by mid-April, the knowledge-sharing platform’s foundation began to crumble, prompting the company to cut its 23-person staff to 13. Those employees that remained have since been let go.

According to Vickie Saito, head of Central Business District Services Group for Grubb & Ellis|Centennial in Nashville, roughly one-third of the old Braid Electric building’s 62,500 rentable square feet was available by early summer. The occupancy situation has gotten worse.

Frye’s first association with NUV was as a SunTrust banker. Now, as managing director of CB Richard Ellis in Nashville, he looks at the project with a Realtor’s eye. “In the spring, Braid Electric was 82% leased. Today, it’s 40 percent because of the lousy economy and some tenants that had gotten upside down and didn’t pay rent,” he says. “Then there was the telecom hotel in a 24,000-square-foot Gulch building that went from start-up to belly-up. Armistead Barkley has its problems.”

Frye is referring to Factory23, which opened a 24,000 square-foot data center at 1209 Laurel Ave. in the Gulch at the end of 2000. The Nashville-based IT service provider ceased operations six months later.

Still another stumbling block to NUV’s efforts to fill up Gulch office space came when biotechnology incubator concept ScyTech announced that it would not be following through with plans to locate a biotechnology community in the old Quest Diagnostic Building on 12th Avenue South and Demonbreun Street. Codes issues and other delays prompted several biotech startups planning to locate there to find space elsewhere. With the deal unraveled, NUV has been forced to find new prospects for the space.

While the Gulch’s nascent, 800,000-square-foot office market has stumbled out of the gate, NUV’s retail efforts should do a bit better, as new development has done surprisingly well. NUV has had some good fortune here—the biggest new retail player, the restaurant/bar called 6Ëš, opened before NUV formalized its arrangements with the city and has already given the Gulch a bit of buzz.

As restaurateur Kevin Boehm tells it, 6Ëš was pure happenstance. Boehm, co-owner of the restaurant bar, had sold a restaurant in Seaside, Fla., and planned on opening a new restaurant in the Midwest, either in Springfield or Chicago, but a friend of his, singer Kim Carnes, suggested Nashville. Carnes’ son works for Armistead Barkley, and that was Boehm’s first contact with Nashville.

Boehm visited Nashville and met with Armistead and Barkley. “I saw what they saw here. This is an amazing area. The location is perfect.”

Opened at the end of 2000, the restaurant, which can seat 225 people, is on track to do as much as $3 million in revenue for its initial full year in operation, according to Boehm. Despite these numbers, the restaurateur has taken active steps in recent weeks to squelch rumors that 6Ëš is closing. A full-page ad that appeared in the Aug. 9, 2001 issue of the Nashville Scene reads:

“Pop Rocks and Coke will not kill you. Cindy Brady is still alive. We just spent $1,117.05 on this ad to stop a ridiculous rumor that 6Ëš was closing. Don’t worry folks, we aren’t going anywhere. Man, rumors can be expensive.”

The first official retail coup for NUV, however, is Provence Breads and Café, which will open an expanded baking operation and storefront café. Provence took 8,000 square feet in the Farber Building at 401 12th Ave. South.

“The Gulch is an attractive alternative to the outlying areas,” says Elizabeth Whiteside, vice president of retail services at CB Richard Ellis Inc. in Nashville, “And these developers are very visionary, clever guys with great reputations.” Unfortunately, retail development sometimes functions with all the creativity of lemmings going off a cliff. As Whiteside notes, “National retailers require more of a critical mass. They don’t want to be the first store and right now in the Gulch there is just one restaurant.”

“There is a new urbanism in retail development,” adds Michael Baggett, who works retail leasing and sales for Warren Commercial Real Estate in Nashville. “While you won’t see a Target in the Gulch, it could be a good location for a Crate & Barrel or a Pottery Barn.”

The problem at the moment is lack of critical mass, Baggett says.

NUV expects to fill 400,000 square feet of retail space and has already started on a redevelopment project with an eye towards retail—the rehabilitation of the Javanco Building on 12th Avenue. “We are preserving an existing warehouse and creating retail, restaurant and entertainment there with exciting loft apartments above,” says William Barkley, president of Armistead Barkley. “That project is under way. In addition, we have other redevelopment plans along 12th Avenue, and we are working hard to obtain some restaurant and retail concepts that are already in Nashville.”

While it is easy to focus on the retail and office components of NUV’s efforts in the Gulch, the residential component is equally vital. Joseph Barker, a managing director of MarketStreet Equities, says that urban development during the past 50 years has failed to encourage the return of the family to such areas. “We envision other developers working with us to create 1,800 to 2,000 residential units of which 20% will be committed to quality, affordable housing.”

In fact, the MDHA has requested that the NUV commit 20 percent to affordable housing, a small price to pay for the benefits of being named by the organization as official developers “of the area known as the Gulch, within the Arts Center Redevelopment District.” Not only will the city then provide infrastructure and tax increment financing, but, as Nicely notes, “as a last resort we can take over a property through eminent domain.”

It’s not that Steve Turner, founder and senior partner of MarketStreet Equities, had to be convinced about the viability of urban living. He now lives on historic Second Avenue. “I moved downtown in 1995. When I got here, the population was about 3,500, of which 500-800 were homeless. For a city to be vibrant and lively, it has to be a 24-hour place. You got to have downtown residents.”

The big question: At what price points will be people be lured into living in urban Nashville?

“Beyond a shadow of a doubt, there is the potential for condominiums in the Gulch,” says Tommy Patterson, a broker with French Clayton Johnson & Associates, “but as with most development, it is going to be a pricing issue. The existing downtown condo market with units running in the $100,000 to $150,000 range is in great shape. But at this point, there’s just no real market for upper end stuff.”

The plans for the Gulch include streetscape development and traffic pattern changes. For example, the current schematics call for wide sidewalks, tree-lined streets, open space such as plazas and new street connections and alignments, which will enhance traffic flow and connections to existing neighborhoods.

Patterson likes what he’s seen of the Gulch’s redevelopment plans and is excited about the potential for residential development. Even so, he adds, it is going to take a lot of time. “This just won’t happen over night. It will just have to evolve into a successful residential market.”

NUV has nothing but time. Its development plan goes out 10 years. “The hardest part,” observes Barkley, “will be coordinating everything, keeping the developers in line and making sure they adhere to the plan. Although most people are excited about the redevelopment of the Gulch, I do know it is going to be difficult.”