The Cleo, 291 Units, East Nashville, TN
How We Got It The Cleo was developed by LIV and was acquired in early 2018 before it was fully stabilized. It was funded using Fannie Mae’s pre-stabilization financing program and was a 1031 reverse exchange for a single investor. At the time, downtown Nashville was awash in lease-ups which pushed upfront rental concessions between 2 and 3 months of free rent on a 14-month lease. That caused most buyers to run for the sidelines since high upfront concessions undercut investor cash returns. In contrast, as a long-term holder, we pursue markets that are temporarily out of balance, knowing our low entry basis will position us well for the long-haul.
Investment Rationale Our equity partner was exiting NYC to defend against pending rent regulations and to diversify their holdings. Once they set up a large line of credit ahead of the sale of their NYC asset, we scoured the southeast for months before finding The Cleo. It became a reverse TFE for the equity partner who had a limited window to get $100mm of capital deployed outside of NYC. Cleo is arguably the best physical asset in the submarket and benefits from the submarket’s best location. It sits closest to Five Points and is in walking distance of some of the area’s trendiest dining destinations like Mas Tacos, Pharmacy Burger, and the city’s #1 gourmet coffee bar (Barista Parlor) across the street. Unlike every other core Nashville submarket, East Nashville had no large-scale multifamily communities under development. East Nashville consists of high-density residential homes, mostly stately craftsman homes that regularly trade for more than $700,000. We believe Cleo is situated in a supply constrained submarket that has unique appeal to young professionals who are renters by choice and who prefer the distinct charms of Nashville’s hippest submarket
What We Did Since we closed, we revamped the roof deck to make it a garden oasis. With dog owners making upwards of 50% of the tenant base, we added a dog run under a 200 SF covered area of the parking deck, losing just a handful of parking spots in the process. The dog run and ground floor dog spa to supplement the outdoor dog spa, positioned Cleo as the submarket’s most dog-friendly community. The gym was the best in the submarket when we closed but and we still added Peloton bikes and 2 more aerobic machines deemed most needed following a survey of the tenants, allowing tenants to achieve their health objectives without a wait, and benefit from free fitness classes we arranged three times a week. We were most excited about the improvements to the pool area, the most important community amenity. We greened up what was once a concrete jungle and added sorely needed seating including comfortable oversized soft lounging chairs. The new outdoor gym and corn hole gaming area adjacent to the pool deck were very well received, as was the 30-foot wall mural designed by one of the nation’s leading mural artists. That mural captures the convergence of art, social media and marketing allowing us to beautify the neighborhood while driving traffic to the site.
Results Our peer asset (Stack on Main) sold for $294,000+ a unit in an inferior location which makes us feel great about our $230,000 per unit entry basis. In the summer of 2021, Oracle announced that it will hire 8,500 direct employees over the next 10-years who will be housed on a new billion-dollar campus less than 1mile from The Cleo. This growth, along with the growth of Amazon’s nearby innovation center, provide the foundation for outsized rent growth. We exited Cleo in January 2022 before valuations fell for $365,000/unit and generated a 27.7% net IRR and a 2.33x multiple on invested capital (after exit costs and after the sponsor promote).