Investment firm marks more than $120 million in losses over Nashville office sales
According to Katie Burke at CoStar News, "A private investment firm is cutting its losses and heading for the exit ramp after selling off two of its downtown Nashville, Tennessee, properties for just a fraction of their earlier acquisition price tags.
Within a less than weeklong span, Connecticut-based Wheelock Street Capital finalized deals to offload its Philips Plaza and a two-building office portfolio across a pair of transactions that represented a combined loss of about $120 million, according to property records. While office landlords are eager for valuations to bounce back from pandemic-era lows, the Nashville dispositions underscore the deeply rooted challenges many will face in landing prices that come close to resembling their own initial investments.
The duo of Wheelock deals, closed in the final days of 2024, could hint at what's to come in the year ahead as buyers look to take advantage of deeply discounted listings and property owners are eager to get them off their books.
The firm sold the 20-story tower at 414 Union St. to Nashville's Evelyn Capital Group for $17 million, just a fraction of the $111 million, or $255 per square foot, Wheelock paid for the roughly 444,800-square-foot building in 2019. The Philips Plaza tower at the time was about 95% leased, according to CoStar data, a figure that has since fallen to the property's current occupancy rate of about 55%.
Wheelock also sold the two buildings at 300 and 404 James Robertson Parkway to an undisclosed buyer as part of a $15 million portfolio deal just shy of 230,000 square feet.
The firm paid $33.52 million in late 2019 to acquire the NorthCap Center building through a joint venture with Commonwealth Commercial Partners, according to CoStar data. Several years later it scooped up the neighboring Court Square building — which remains fully leased — for $8.25 million with plans to overhaul the two buildings into upgraded office and residential space.
However, against a backdrop of rising interest rates and a worsening office market landscape, those plans were never realized.
Neither Wheelock nor Commonwealth immediately responded to CoStar News' requests for comment.
Nashville turmoil
The combination of depressed demand, stagnant leasing and the ongoing impacts of flexible work has helped push the national office vacancy rate to a record high of nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 210 million square feet of move-outs since the start of 2020.
Those pandemic-induced factors have been exacerbated for many landlords across the country, and some — especially if they're facing maturing loan deadlines or mounting financial distress — have been eager to offload their troubled properties, even if it means closing a deal at a deep discount to their initial investments.
Downtown Nashville, in particular, has taken a hard hit in recent years as its office vacancy rate has more than doubled since 2020, according to CoStar data.
An active construction pipeline, coupled with tempered demand and a spike in sublet listings, has pushed the area's availability rate to nearly 24%, according to the data, and high-profile moveouts among companies such as AT&T are expected to further complicate downtown's recovery.
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That turmoil has translated into a challenged pricing environment for Nashville landlords looking to sell off their properties. Only $200 million worth of deals have closed over the past year, according to the data, about 26% less than downtown's annual average throughout the past decade."
The recent sell-off of downtown Nashville office buildings at steep discounts highlights a growing disconnect between property values and market realities, which could significantly affect property tax dynamics in the area. Despite the upcoming Davidson County revaluation in 2025, which is expected to lead to skyrocketing property assessments, the actual market conditions for commercial properties—particularly office buildings—tell a different story.
Impact on Property Taxes
Disparity Between Assessed and Market Values: The steep losses incurred by Wheelock Street Capital, including selling Philips Plaza for just $17 million after paying $111 million in 2019, showcase how far real-world market values have fallen below their pre-pandemic peaks. If the 2025 revaluation uses inflated pre-pandemic metrics or general upward trends, the assessed values of properties may significantly outpace what they can actually fetch on the market.
Challenges for Property Owners: Landlords who are already grappling with high vacancy rates, as seen in downtown Nashville’s office market (nearly 24% availability rate), may find themselves facing rising property tax bills that don't align with their diminished rental incomes or property values. This could lead to financial distress for property owners, particularly those holding underperforming office assets.
Potential Increase in Appeals: If property taxes increase disproportionately due to the revaluation, property owners are likely to challenge their assessments. Appeals could become widespread, especially among commercial property owners who can provide data to demonstrate the declining value of their properties, such as the Wheelock sales.
Revenue Implications for Davidson County: While higher assessments generally lead to increased property tax revenue, a flood of successful appeals could undermine these gains. Additionally, if downtown properties continue to struggle, the county may face challenges in maintaining consistent revenue from its commercial sector, which is crucial for funding local services and infrastructure.
Broader Economic Implications
The ongoing valuation challenges in Nashville’s office market could also have ripple effects:
Shift in Tax Burden: As commercial property owners appeal their assessments, the tax burden may increasingly fall on residential property owners, who might face higher taxes to make up for revenue shortfalls.
Delayed Development: The financial distress among property owners could slow investments in redevelopment or adaptive reuse projects, further impacting the revitalization of downtown Nashville.
Balancing the Revaluation
Davidson County assessors will need to navigate these complexities carefully. Incorporating market data, such as the deeply discounted sales like those from Wheelock, into the revaluation process will be essential to ensure assessments reflect current market conditions rather than outdated assumptions. Striking this balance will help maintain fairness and public trust while stabilizing the county's tax revenue.