Nashville-based developer David McGowan knew a change of course was necessary to ensure continued success at Lenox Village, a mixed-use, new urbanist development in southeast Nashville. It was 2007 and the market for for-sale housing was slowing down while rental housing was still strong, so McGowan shifted the 273 proposed condominium units to apartments and refinanced his signature town center project.

The master-planned Lenox Village community consists of 1,400 housing units, primarily for-sale single-family homes and townhouses, but also commercial uses and parks in a walkable setting on 208 acres (84 ha) of gently rolling land bisected by a restored creek. Planning began in 1999, led by the Nashville office of Looney Ricks Kiss, and first sales were in 2002. By 2007, single-family homes and townhouses were mostly sold out, and the largest remaining portion of Lenox Village left to develop was the proposed town center project, which called for 273 for-sale condominiums above 37,000 square feet (3,400 sq m) of ground-floor commercial space. The lifestyle center—a four-story structure located alongside Nolensville Pike, the major roadway serving Lenox Village—was to be one of the final, most visible components and in many ways the capstone of the project. It was critical that this piece succeed.

McGowan and the Regent Homes team began marketing the condominium units in 2007, but sales were slower than anticipated, as they were for similar projects in markets across the country. McGowan notes that a lot of condominium projects are in trouble today because units are 10 to 15 percent sold and cannot easily be converted to apartments. He recognized that fact at the time and decided to build the units as apartments instead.

The overall design of the building required few significant changes, with the condominiums simply becoming Class A apartments. The challenge was to refinance the project. McGowan changed lenders—the condominiums had been financed by Wachovia—and the new apartment/commercial concept was financed by Bancorp South.

The timing of the change proved fortuitous. The new iteration of the Lenox Village Town Center project with apartments instead of condominiums was financed and under construction by the time the market crashed in late 2008. Apartment move-ins started in early 2009, and the units are now 95 percent leased. The commercial space has been slower to lease, but McGowan believes it will be 60 percent occupied by the end of the year.

The market for apartment investments is also good. “We got an unsolicited offer for the apartments, and we plan to market them for sale,” says McGowan. Will Balthrope, senior director of the Balthrope Group of Marcus & Millichap in Dallas and chair of the ULI Multifamily Product Council, agrees. “There is a flight to quality,” he says. “Investors are looking to Class A product, where previously they were interested in Class B or C. They are now paying for quality—both location and construction.”

Several factors, including foresight, timing, and a willingness to change course midstream, contributed to the continued success of Lenox Village. McGowan recognized early on that market forces were hurting the potential to sell nearly 300 condominium units. Meanwhile, the apartment market offered an opportunity. Moreover, McGowan managed to switch lenders and secure financing for the apartment/commercial building before October 2008, when the commercial lending market collapsed. Waiting to make the decision to change to apartments likely would have had one of two outcomes: Regent Homes would either be stuck with a building with less than a quarter of its condominium units sold, or the site would still be vacant, with Regent unable to secure financing in the lending climate that has existed since late 2008.

The Lenox Village Town Center is an example of the opportunities that exist in today’s challenging real estate market, and the combination of skill and luck required to take advantage of them.