Music City Real Estate

Is Nashville surpassing New York City in hotel room pricing?

I just came back from a two-day whirlwind trip to Nashville looking for a new location for City Winery. I looked all over town, on the edge of some sketchy neighborhoods, old office buildings, next to Grand Ole Opry, junk yards, you name it. And maybe we will not even move our location in our current Pie Town neighborhood which is really converting very positively--but I looked at property all over Music City nonetheless. Now, it is legitimate for anyone reading this piece, to ask yourself why should I listen to a music dude write about the real estate market. (And just so you all know, I wake up in the middle of the night all vexed and wondering if I am even a music guy anymore and not simply a real estate wanker!). But, that’s for another Substack.

Here is some context. 18-months ago, we sold our property in the SoBro area (South of Broadway) in Nashville for almost 10x what we bought it 10 years earlier. pretty pretty pretty good. Frankly, given the painful financial challenges coming out Covid and the competition in Nashville, we really had no choice. We did a classic sale/leaseback where we now are a tenant in a building we once owned. All around us is crazy construction with a giant pit for a 30-story apartment building going in 15 feet from our property line and now all our parking is gone. There are plans for a fancy nice 180-room hotel next to that and talk of three or four new amazing restaurants coming from chefs from the East Coast. In a couple of years, the surrounding blocks are going to be very hot, much like many of the cool neighborhoods in Nashville, Brooklyn, or Miami.

Perhaps we might stay, but I believe the buyer of our property had plans to put up their own 30-story tower on our site. It really is like the game of Monopoly--if you have the capital, you put as many houses as possible on the board or the big red hotel on the property and collect rent when people pass go.

Anyway, I needed to come to Nashville to really find a new location, either rent or buy, develop ourselves or negotiate as very strong amenity in someone else’s development. Yet, I had trouble getting a hotel room this past week, as on top of the normal tourist business, Pearl Jam was in town playing a few nights, and there were a few small conventions. In the last decade, just in downtown Nashville, over 12,000 new hotel rooms have been built along with a very robust hospitality sector. This includes the Thompson, Grand Hyatt, JW Marriott, Four Seasons, The Joseph, The W, Conrad, 1 hotel, Noelle, Sonder, Bobby, Soho House, to name a few. The St. Regis is breaking ground now with a 46-story building and the Pendry with 30-stories. I ended up using American Express points at the classic Hermitage Hotel with nothing less than $500 bucks for any room in town. Dolly Parton is building her hotel downtown, Jimmy Buffett’s Margaretville opened up down the street from us. Even the 800 rooms at the giant Omni Hotel near us was averaging $600 dollars last week. Damn man, that is more than New York!

I travel a ton to our City Winery locations; but those markets: Atlanta, Chicago, Pittsburgh, Boston are half the price for decent rooms. So, I had to look this up this fact. Nashville ranks in the top 5 U.S. Cities for luxury hotel prices alongside NY, Boston and San Francisco. Then I looked up that Nashville is only the 35^th largest City in the United States if ranked by population of its great metro market. Totally lopsided--Nashville is hot clearly!

In 2011 when we bought our property in Chicago, there was not a single hotel in the West Loop except for the Crowne Plaza next to the highway. Today there is the Nobu Hotel, The Hoxton, Hyatt House, Soho House, and others. The number of restaurants in the area have doubled as well and property value perhaps also about 10x what we paid 15 years ago.

When I am looking for a place for City Winery, it is not about being a speculative real estate developer, but actually, what can we afford to buy & build, and will people come there via car, uber, public transport, etc. The building itself needs to be cool, a good fixer upper. Or as we like to say now, an “adaptive reuse”, finding a great building with bricks, old wooden beams, and the character one just can’t recreate with new building materials.

But what is interesting, in what the real estate industry likes to call a “destination business”, is that we can draw people to our shows, our private events, our destination from all over a market to a location with some good marketing. In Nashville today, we have over 100,000 email subscribers of music and wine fans in the market who will come to where ever they are to see Joss Stone for example, who we had last Thursday night. It’s not like we are a normal retailer needing street traffic or a restaurant that needs to be in the right hood. It gives us some flexibility and we can speculate a little bit on our location. But even with that being said, I’ve also screwed up that decision making in Washington DC for example, so I am not batting 1000%. But a music venue if done right, can be a great real estate developer’s guinea pig. It can go to the more edgy parts of town in advance of the gentrification and rise of real estate value. I would say, cultural venues are real estate value creators. Sadly, once a neighborhood gets hot, most can’t afford to stay.

The first Knitting Factory I did was in a very sketchy neighborhood on Houston Street, two blocks from CBGB’s on the Bowery that didn’t even have a name--now the area is called NoLiITa. We then moved to TriBeCa in 1994, when only Nobu and Tribeca Grill was in that triangle below canal. Both of those neighborhoods have become so residential and expensive that a music venue would not get the community support for a liquor license, even if they could afford the 150 per square foot rent. That is why the first City Winery location was on top of the Holland Tunnel when we opened in 2008. If course, now it is the Disney Tower (ah, development…..). We then moved to Pier 57, no residential neighbors, just Google offices above and fish below. Not easy being a venue in NYC.

While the old axiom is true, “location, location, location”, a music venue or any entertainment destination can help create the trendy location and be an early adopter location. We are really on the front lines until it becomes too valuable and then one either sells, get kicked out, or have others build towers around you. It’s a catch-22 of commercial culture, once the values catch up around the area and things becomes prosperous for all tenants, the culture presenters can’t afford it and need to move to cheaper area. One could make argument this has killed the music communities in NYC and LA. This really has required us, City Winery, and bigger entertainment companies like Live Nation, MSG, etc to be in the real estate business as much as the content creation business. Different sides of the brain, but required to sustain ourselves. Yet, the big guys can get government subsidies, large tax breaks under the guise of urban development; whereas the smaller venues need to move around surfing the waves of the market.

I’ll be back in Nashville soon, hope I can get a hotel room next time under $500 bucks. Happy Mothers Day.