Convention Center Deal: Now It's Time To Show Us The Money
March 27, 2015
Convention Center Deal: Now It's Time To Show Us The Money
Nashville Business Journal

After 15 months of work, business and city leaders on Friday heralded the arrival of a signed development agreement dictating how developers would revitalize downtown's most prominent piece of real estate.

Highlights include a 27-story apartment tower with 350 units, and a 24-story office building with at least 300,000 square feet of space. There will be 205,000 square feet of upscale and new-to-Nashville retail, restaurant and entertainment space, as well as a home for the National Museum of African American Musi c and up to 1,180 public parking spaces. It's all anchored at a premier address: one corner of Fifth Avenue and Broadway, near Ryman Auditorium, Bridgestone Arena and the city's bustling tourist district.

Now, the clock begins ticking for developers to round up the money they need to build it all.

Co-developers OliverMcMillan, of San Diego, and Spectrum|Emery Inc., which is run by longtime Nashville developer Pat Emery, have until the end of this year to piece together the $400 million necessary to pull off the project.

Expect banking giant JP Morgan to be involved in raising equity — they're the ones who suggested to Emery last year that he should add OliverMcMillan as a second developer on the project.

The developers can extend that deadline several times over the course of 2016, but they'll owe Metro $250,000 each time they ask to do that. If they can't make the financing work by the end of 2016, the deal is off, according to terms of a development agreement filed March 26 with Metro.

The developers won't even be able to buy the land until the administration of whomever is mayor becomes comfortable with financing and reviews letters of commitment from those prospective lenders. Metro agreed to sell the 6.2 acres to the developers for $11.25 million, slightly less than half of which is due at closing.

"We will ensure that the development that we approve and permit is the one that gets built," said Rich Riebeling, Metro's director of finance.

Dene Oliver, CEO of OliverMcMillan, told me that he and Emery will aim to raise $200 million in equity, and rely on a group of banks to collectively supply the other $200 million. OliverMcMillan has high-profile, mixed-use developments underway right now in Atlanta, Houston and Hawaii. All are funded in a similar fashion, Oliver said.

"We thoroughly expect our patriarch, JP Morgan, will be deeply involved in this," Oliver said. "And a lot of the same people as in Atlanta, Houston and Hawaii will be involved on this one, too."

"The institutional capital, they're not gunslingers. At this level, those kinds of capital are extremely prudent," Oliver said. "We have to create a business plan where there is a high probability of relative success, a very low probability of losing money, and that we can meet their minimum thresholds for their return on investment."

That's one reason the redevelopment deal became so complicated, and took so long to materialize. (The biggest stumbling block, negotiations with Renaissance Hotel, was outlined in our recent cover story.) On their own, retail, residential and office projects have distinct benchmarks for return on investment, Oliver said. This project involves all three — ratcheting up the risk.

"This is not some office building in the suburbs. We're not building a shopping center with a sea of parking," Oliver said.

"It will not be highly leveraged," Oliver added. "Too little equity and too much debt is not a recipe for success during cycles."

Here's the full verbatim timeline laid out Friday by Metro and the developers:

April-May 2015: Government approvals, including Metro Council, MDHA, Convention Center Authority

May-October 2015:

Develop next phases of design for project

Retail and office pre-leasing

Milestone contractor pricing

Financing structure finalized

November-December 2015:

Finalize construction documents

Finalize construction pricing

Continued retail leasing

Finalize equity and debt documentation

Close financing and property acquisition

First quarter 2016: Demolition/excavation is planned

2016: Start parking construction

Later 2016: Start construction of museum, retail, residential and office components concurrently

Mid to Late 2017: Completion of parking and retail building shell; tenant space improvements to start in a staggered sequence as spaces are being delivered

Late 2017: Marketing of residential units

Mid-2018: Anticipated substantial leasing for office and retail

Link to original article here.

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