David McGowan, Owner & President, Regent Homes

David McGowan, owner and president of Regent Homes, spoke with Invest: about adapting strategies to welcome an influx of new residents. “We build homes around targeted consumer groups. Millennials are coming for new jobs, and seniors are coming here to be closer to family and take advantage of favorable tax rates,” McGowan said.

What changes over the past year have most impacted the organization, and in what ways?

National builders have descended into Nashville, one of the hottest housing markets in the nation. This past year, Lennar was looking to acquire land that was entitled. We completed a $38 million sale of land we had titled in the Greater Nashville market to them and they created a $4 billion REIT to hold that property. 

What makes Nashville a strong homebuilding market and such a great place for Regent Homes to operate in?

Millennials see Nashville as a great place to move to and start a career. We are within a two-hour drive to other major employment centers. We have attractive educational institutions like Vanderbilt and Belmont universities. We have many entertainment venues that attract visitors to the city. People come here, fall in love with the city, and want to come back to live here. Additionally, large companies like Oracle and Amazon are investing and establishing HQs here, and Meta has recently built a large data center in Middle Tennessee. One of the things that attracts business here are the transportation network and the natural resources that are available in this region. For example, the cost of electricity here is very favorable, giving companies like Tennessee Valley Authority (TVA) a competitive advantage.

Where are the strongest advantages for the region?

One of the things that makes Tennessee popular is our natural resources. We have ample water supply from the river and major lakes. These things attract companies. We live in a geographically stable area, and companies don’t have to worry about earthquakes and other natural disasters. The stability of the entire area is very important. From an accessibility standpoint, Middle Tennessee is within 2 hours of a major portion of the United States.

How are shifts in lifestyle preferences shaping your product and amenity offerings, from condos, to townhomes and single-family homes?

We build homes around Targeted Consumer Groups (TCGs). Most communities we build are designed around the TCGs, and we’re unique in that we offer multiple TCGs within the same community. Hurricane and taxation issues in Florida are driving many retirees back to the Middle Tennessee area. The senior market is very strong in Nashville, and it is a market that is being targeted by major builders. Millennials are coming for new jobs, and seniors are coming here to be closer to family and take advantage of favorable tax rates. 

What factors have influenced development in Nashville? 

The favorable zoning in the cities is the biggest component and created overlays that allow development of properties in industrial, residential, and office space. The progressive zoning Nashville has done in years past has made a big difference in the growth of Nashville. Other cities such as Franklin and Thompson’s Station have also updated their zoning plans to allow higher density multifamily in certain corridors, as well as other office developments. 

What has shaped Regent Homes’ decisions on where and how to build in the Nashville market? 

I came here in the 1980s working for a company called Radnor, which was owned by Sun Oil Company. When Exxon-Valdez had a major spill disaster, Radnor decided to get out of the real estate business, so I purchased the company and sold it to Pulte Homes after five years. I then started Regent Homes in 1993. When we were going through that process, we were worried about competing against national companies that came to town. Our speciality is to build mixed-use communities of apartments, commercial, retail, townhouses, condos, and single-family homes. The majority of the cities in Middle Tennessee have endorsed traditional neighborhood development. This zoning allows for a mixture of housing types as well as neighborhood commercial. This type of growth promotes attainable housing choices.

Are you seeing any slowdown or shift in demand across your developments, and how is that influencing your pipeline?

The federal government is trying to take inflation out of housing. The current interest rate for a 30-year mortgage is about 7.25%. The Federal Reserve’s effort to reduce inflation has drastically affected sales in the New For Sale home market. In Williamson County, home prices are down 10%. In Davidson County, home prices are down around 18%. Across the Middle Tennessee area, federal policies have affected housing demand, but the market is starting to shift. Build-for-rent communities have become very strong. We have morphed into a build-for-rent model where we are building these communities. One community we are building is about 50% finished, and demand has been very strong. We may sell that community to a REIT company that is interested in purchasing it. 

Besides the current macroeconomic scenario, what are the most pressing challenges for Regent Homes right now?

The biggest challenge is utilities. There are certain areas with a moratorium on sewer because the varying topography makes getting sewage treatment from place to place difficult. The Residential Infrastructure Development Act was approved by the state so we can create our own infrastructure developments. We treat water and sewer similar to methods developed in Texas and Florida. 

How is the labor market in construction and homeselling impacting your ability to scale or operate efficiently?

The federal government has created total chaos in the labor market. Construction industries will face major labor shortages for the next couple of years due to the crackdown on immigration. 

What are your main priorities for the next two to three years and what is the outlook for the larger real estate industry?

The demand for housing will continue to be strong in Middle Tennessee. The state and the cities must adjust their priorities to address that demand. Affordable, attainable housing is very important for the community. We have a variety of geology and topography, so finding areas to build housing is difficult. I am on the Habitat for Humanity Board of Middle Tennessee, and we work together to find locations for development. Residential housing will remain one of the biggest issues facing Middle Tennessee over the coming years, whether it’s for millennials, family buyers or seniors. Recently, 30 large developers and builders throughout Tennessee formed a new non-profit called Build Tennessee. The purpose is to pass favorable legislation to support residential and commercial development.