It's been five years since a new Class A—the most expensive grade—office building arrived in downtown Nashville. The office market in the central city has seen lean times since the 1990s, when demand stagnated and vacancies climbed to over 10 percent following the construction boom of the 1980s. Since then, the boom has been in the 'burbs, and the downtown vacancy rate now hovers at 13 percent. So it seems counterintuitive that, since October, two plans for new office space have surfaced. The obvious question is, why build more of what you can't digest?
The first proposal comes from developer John Eakin: a 13- to 16-story structure containing 325,000 square feet next to the Ryman Auditorium in the block between Fourth and Fifth avenues on Commerce Street. The 1.1-acre site, now surface parking, is owned by Gaylord Entertainment. The anchor tenant, who would lease approximately half of the new building, is SunTrust Bank, which currently occupies quarters on the northeast corner of Fourth Avenue and Church Street. In addition to the offices, Eakin's plan is for the 30,000-square-foot ground floor to be devoted to retail—possibly including a restaurant and a deli/coffee shop—and for 485 spaces of below-grade parking available to the public after business hours.
The second proposal, by Tony Giarratana, is for 300,000 square feet of offices as merely one component of a 55-story mixed-use tower on the southeast corner of Fifth Avenue and Church Street. This site is also about 1.1 acres and has been surface parking since the developer demolished the Cain-Sloan building in 1994.
Giarratana's highly ambitious Signature Tower venture would feature, in ascending order: a lobby and restaurant level, 750 spaces of parking on 11 levels, a floor of ballroom/meeting rooms, 12 floors of offices, a spa, 14 floors for a boutique hotel, 11 floors of upscale condos—50 to 100 units—and 3 penthouse levels. Attached to the south side of the tower are 14 more floors of condos—60 units. These south units would make up the 20 percent affordable housing component that the Metro Development and Housing Agency (MDHA) mandates for the project to qualify for tax-increment financing (TIF) support. Giarratana is seeking $20 million in TIF, 10 percent of the project's $200 million value.
The rationale for new office construction is that downtown needs fresh Class A space if it's going to compete with Midtown and suburban developments. The currently fashionable definition of Class A is large floor space per level—25,000 square feet and up—with few columns for a more efficient and economical organization of office functions and the latest in high-tech cabling. These features—especially the generous floor space—are standard in recent construction outside the core but not in the older downtown stock. Whether a 25,000-square-foot floor is really necessary for what Eakin describes as "walk around management," or whether it's merely the mode of the moment to sell old tenants on new space, is another question entirely.
Both projects fall within the boundaries of MDHA's Capitol Mall redevelopment district. Eakin's is the more controversial, at least among rival developers and owners with land to sell and space to rent, perhaps because it seems more likely to happen. Eakin already has an anchor tenant. Giarratana is still trolling. "Tony's angling to get [the law firm of] Bass Barry & Sims, which is the next big prize on the horizon," says one commercial real estate agent.
But for Eakin to put SunTrust into new offices, he needs MDHA to loosen its land use restrictions that have forbidden office space as a principal use on the site in favor of hotel, residential and entertainment-related uses. Metro Council member Mike Jameson has sponsored an amendment to the redevelopment plan to permit office construction, which at press time appeared likely to pass this week.
Jameson says he's proposed the amendment because, "if we don't build new Class A space, we'll hear that giant sucking sound to the south. In 1991 [when the restrictions forbidding office space on the land next to the Ryman were put in place], Cool Springs had two office buildings totaling 150,000 square feet. Now it has 29 with 2.5 million square feet of space."
Mayor Bill Purcell, who is strongly supporting the Eakin proposal, points out that Eakin isn't asking for TIF. "All he's asking for is the removal of archaic restrictions intended to encourage hotel construction that go back more than a decade," Purcell says. "Well, in that time, a hotel hasn't happened on that site. Nothing has happened on that site. All we're doing is just recognizing that the restriction wasn't a good one."
In response to critics who say there's plenty of land in the central core—much of which the critics own—where office construction is already permitted, the mayor says, "There are actually a limited number of sites, and this one appears to be the most desirable from a market perspective." Skeptics say that Purcell likes the project because it requires no financial support from Metro and he wants a pro-business addition to his portfolio. Still others point to the mayor's long ties to Gaylord, whose district he represented when he was in the state legislature.
To understand why MDHA ever banned an office building on the parcel in the first place requires a bit of history. In 1989, MDHA commissioned a plan from the Ryman Group—consisting of the Mathews Co., the Edward DeBartolo Corp., Opryland USA and Central Parking—for something called the Ryman Center. The site was 10 acres, dominated by surface parking bounded by Fifth Avenue, Commerce Street, the alley between Second and Third avenues and the backs of the buildings on Broadway. The main thrust of the plan was to support the new convention center and encourage the renovation of the historic Ryman Auditorium, which at this time was padlocked shut except for the occasional tour group. The plan the group produced featured a massive amount of development: 2 million square feet, with 1.6 million square feet of office space, 168,000 square feet of retail and a 300-room hotel, in buildings up to 47 stories tall. MDHA pledged $18 million in TIF—the new taxes the redevelopment could be expected to generate—to support the project.
The outcry from owners of existing office space and land available for new office construction outside the plan's footprint was loud and immediate. Protesters such as Ted Welch and John Grayken—who at that time headed up City Center—claimed that all the new office space would suck tenants out of existing buildings and undercut the redevelopment potential of vacant or underutilized land not within the Ryman Center boundaries.
Nothing much in the way of actual redevelopment happened until 1991, when MDHA committed $13 million in TIF to bring what was then South Central Bell downtown. Rival developers ultimately agreed not to lobby against the deal after MDHA convinced them that Bell was an entity new to downtown—not an existing tenant being poached—and that the building was a headquarters that would not compete on the open market with other office space. In exchange, these developers extracted a promise from MDHA to limit subsequent office construction south of Commerce Street—hence the provision to forbid office as principal use on the parcel next to the Ryman.
New objections arose when MDHA gave $6.5 million in TIF to the Mathews Co. for a new office building at Third Avenue and Commerce. MDHA again placated the protesters by saying that this would also serve as a headquarters for a new downtown entity—MagnaTek. But MagnaTek backed out of the deal. So when the development (the Commerce Center) opened in 1999, the tenants were émigrés from other downtown office buildings. The owners of the vacated space seethed.
Today, Bell South is looking for a tenant for 157,000 square feet—about seven or eight floors of the 26-story tower. The move has prompted renewed criticism of the TIF the corporation got in the first place. "Bell South can lease the space for less because of the TIF they got, just like Commerce Center," says one unhappy agent.
Thus all the hard feelings about the Eakin project, which will also relocate an existing downtown tenant. But, proponents point out, John Eakin is not asking for any TIF. Agents and owners struggling to fill their buildings, however, claim that permitting office construction on a site where it was previously forbidden merely increases the inventory and will make it harder for them to succeed.
Giarratana's 55-story proposal, on the other hand, is eliciting surprisingly little criticism from the real estate crowd, despite the fact that the office component is of similar size to Eakin's building. "Tony is seeking TIF, but not for the office part of his building," one commercial agent explains. "And his site, which is one of the best in the city, has always permitted office as a use, and he paid the price for it accordingly. When Gaylord bought the parcel next to the Ryman, office was not a permitted use." What was then Opryland USA purchased the property from MDHA in 1993 for $4.65 million or $47 per square foot, according to MDHA executive director Phil Ryan. MDHA had previously acquired the parcel for $8.4 million as part of the assemblage of land to enable the Ryman Center plan, and used TIF to make up the $3.75 million balance.
The ultimate question is what Eakin's and Giarratana's new buildings, if constructed, would do for downtown? Both would replace surface parking lots with structures. Giarratana's building would add another 24/7 land use to Church Street. But the jury is still out on whether new Class A office space will entice new tenants into downtown, or just add more furniture to the game of musical chairs played by current downtown denizens.
