Quotes of the Month:
-- "The difference between the impossible and the possible lies in a person's determination." - Tommy Lasorda

-- Bear Bryant Story: A visitor at practice said "Coach Bryant, I notice you spend most of the time practicing your team's strengths instead of working on your weaknesses. Why is that?" Coach Bryant said "You win games with your strengths, not your weaknesses."

Spotlight on Smyrna
I recently called Bob Spivey, the Mayor of Smyrna, to discuss Smyrna's impressive growth. Smyrna is one of the fastest growing cities in Middle Tennessee, and its growth is well planned and beneficial. Smyrna is well known as the location of the Nissan plant, which is one of the largest auto plants in the U.S. But there's much more to Smyrna. In the past 2 years, Sam Ridley Parkway has become one of the Middle Tennessee success stories of this decade, with a new hospital and over 1,000,000 SF of new or planned retail and office. If you study the situation you will clearly see evidence of good city planning. Smyrna is allowing growth, but in a controlled way and is building the roads in advance. Smyrna has become a very attractive place to live and has a lot going for it. Bob Spivey deserves a lot of the credit. Bob is a very smart and fascinating guy and Smyrna is lucky to have him for its Mayor. There's more about Smyrna at the end of this newsletter.

Special Report: Pricing, Cap Rates and Capital Gains
There's still a lot of money looking for good real estate deals in Nashville, but I think there's less than two years ago. One reason is that investors can get 5.3% on C.D.'s versus 2.2% two years ago. I've compiled a table that shows the Fed rate, CD rates and 10 year treasuries over the past 5 years - it's at the end of this newsletter.

I'm doing some buyer rep for select clients and have just looked at about 100 investment properties that are for sale in the $1-$5 million range. 90% percent are greatly overpriced. The amateur sellers seem to have heard "7% cap" and base their pricing on gross income, not NOI, and 100% occupancy and no management fee. A good indicator of demand is the national inventory of NNN properties that are for sale. The Boulder Group tracks these and says the inventory is the highest in 7 years.

Would you be surprised if the capital gains rate increases? I wouldn't. It certainly won't go lower and 15% is greatly less than the 40% you pay on earned income above $400,000.

Recommendation: If you're going to cash out and pay capital gains, do it now while you can get a great price and still pay low capital gains.

Tip Of The Month:
Where the door is located determines parking patterns. If you're planning a building keep in mind that the door placement is critical. Ideally, it should be centered to the parking. If you're buying retail, look at how tenant doors affect the parking, and if you're re-tenanting or leasing, require doors to be in the location that best uses the parking.

Interest Rates:
10 year Treasuries were 4.61% as of 10/31/06, compared to 4.73% on 8/31/06, 5.07% on 4/28/06, 4.56% on 3/30/05, and 4.62% on 6/30/04.

Top Stories and Observations from News Reports:

1. There are indications that the U.S. economy is slowing.
2. Cap Rates are moving higher, although they vary a lot by region and city. There's still a lot of money chasing deals, but investors have better options than 2 years ago. Don't count on finding a dumb buyer to bail you out.
3. The housing market crash appears to be slowing the national economy. Sales of building materials are down as well as hard goods such as appliances. American's had a negative savings rate last year and there is concern that many have used up all of the equity in their homes based on inflated prices, and that an increasing number of homes are worth less than the mortgage. In parts of Florida prices are down 30%.
4. Primus Office Building at Cool Springs Sells for $69.8 Million.
5. New $123 MM Symphony Hall opens Downtown.
6. Metro Nashville's Job Growth is Good. (30th out of 100 cities)
7. Except for the Airport Area Nashville Office Submarkets Have Low Vacancies.
8. 2.5 MM S.F. of Warehouses Sell in 3 Transactions.
9. Between 2000-2005, Almost Half the Population Increase in TN was in 10 Counties Surrounding Davidson. (Rutherford was first with an increase of 36,269 and Williamson second with 26,957)

Headlines For September 2006 (listed by date)

1. Investor Interest In Shopping Centers Declines, Retail Traffic, 9/1/06
2. Dover Centre at Cool Springs Sells, Tennessean, 9/1/06 (224,000 S.F. office complex)
3. Kroger and Wal-Mart Going To Thompson Station, Tennessean, 9/1/06
4. Housing Market Beginning To Wobble, Business Journal, 9/1/06 (following the national trend; large inventory is expected to slow price increases and may cause prices to fall in some areas)
5. Another Publix Announced For Murfreesboro, Business Journal, 9/1/06 (St. Andrews and Hwy. 99)
6. Investors Pay $16.3 MM For Cummins Filtration HQ, Business Journal, 9/1/06 (NNN long-tem lease)
7. Primus Office Building Sold, Tennessean, 9/2/06 (490,000 SF, $142 psf, $69.8 MM)
8. New $123 Million Symphony Hall Opens Downtown, Tennessean, 9/6/06
9. Super Target / Kohl's Center Announced For Spring Hill, Tennessean, 9/7/06 (465,000 SF, congratulations to GBT)
10. Hecht's Now Macy's, Tennessean, 9/9/06
11. Area Residential Home Sales Skid 3.5%, Tennessean, 9/12/06
12. U.S. Has Lowest Personal Savings Rate Of Any Industrial Nation, Forbes.com, 9/12/06 (In 2005, U.S. was negative 0.5%, France was 11.6%, Germany 10.6%)
13. Adrenaline Nation TV Channel Moves To Nashville, Business Journal, 9/15/06
14. 200,000 SF / $35 MM Retail Center Planned South Of Murfreesboro, Business Journal, 9/15/06 (Congratulations to Baker, Storey, McDonald)
15. Loan Quality Raises Red Flags, Commercial Property News, 9/16/06 (Aggressive lenders allowing debt service coverage of 115%, proforma rents, interest only for up to 10 years)
16. Yield Curve Indicates Possible Recession, Business Journal, 9/22/06 (Yield curve indicates investors expect slowdown. Last time was summer of 2000, just before the recession.)
17. Publix To Anchor $30 MM Center Near St. Thomas, Tennessean, 9/23/06
18. Wal-Mart May Not Build In Bellevue, Tennessean, 9/26/06 (That and Nashville West retail center raises questions about future of Bellevue Mall)
19. Rivergate Square Sells For $6.8 Million, Business Journal, 9/25/06 (83,400 S.F., Office Depot anchored, Home Depot adjacent)
20. U.S. Existing Home Sales Fall for 5th Month; U.S. Average Prices Now Lower Than 2005, AP, 9/25/06
21. Of 342 U.S. Markets, Nashville's Median Price For A 2,200 S.F. Home Is In The Middle, Yahoo, 9/29/06 (U.S. Median was $225,000; Nashville was $226,000)
22. Shoppes At Hickory Hollow Sells For $15.5 MM, Business Journal, 9/29/06 (145,000 S.F., Kroger Anchored)
23. Nashville Area No. 30 For Job Growth Among 100 Largest Cities, Business Journal, 9/29/06
24. Consumer Spending Takes Largest Drop In A Year, AP, 9/29/06 (August numbers)

Headlines For October 2006 (listed by date)

1. Tennessee Ranked No. 1 In U.S. For Economic Development By Business Facilities Magazine, Grubb and Ellis Research, 10/1/06
2. Williamson County Was 15th Wealthiest County In U.S. In 2005, Grubb and Ellis Research, 10/1/06
3. Nashville Office Submarkets Have Less Than 6% Vacancy, Grubb and Ellis Research, 10/1/06 (Metro Center, Brentwood, Cool Springs, Green Hills, West End. Downtown 10%. Airport 20%)
4. 1.3 Million S.F. Of New Office Under Construction, Grubb and Ellis Research, 10/1/06 (Most in Cool Springs)
5. Nashville Added 17,700 New Jobs June To June, Tennessean, 10/5/06 (More than Charlotte)
6. Home Starts Flat For First Time In 4 Years, Business Journal, 10/6/06
7. 529,300 S.F. LaVergne Warehouse Sells for $17.4 MM, Business Journal, 10/6/06
8. Mid-State Unsold Home Inventory Highest In 4 Years, Tennessean, 10/6/06
9. Tower Records Out Of Business; 2 Nashville Stores Close, Tennessean, 10/10/06
10. Theater Battle Brews In Smyrna, Business Journal, 10/31/06
11. 456,000 S.F. Lebanon Warehouse Sells For $17.8 MM, Business Journal, 10/13/06
12. Fifth Third Downtown Building For Sale, Business Journal, 10/13/06 (490,000 S.F.)
13. Report Predicts Home Price Declines In 100 Cities, But Not Nashville, Wall Street Journal Online, 10/14/06
14. Census Study Says 35% of U.S. Homeowners Spend Over 30% of Income On Housing, Wall Street Journal Online, 10/14/06
15. Marks Family Buys 8 Acres South of Broad For Over $20 Million, Tennessean, 10/15/06 (About $57 psf)
16. Kohl's and JC Penny Fighting It Out-Opened 85 New Stores In October, Retail Traffic, 10/18/06
17. 1.5 MM S.F. of LaVergne Industrial Sells for $67.1 MM, Business Journal, 10/26/06
18. Developers Diversified Buying Inland REIT, Wall Street Journal, 10/24/06 (43.6 MM S.F. of retail)
19. Wal-Mart Slows Down New Store Openings, AP, 10/24/06 (still expected to open 305 to 330 New U.S. Store in 2008)
20. Health Premiums Far Outpace Salaries, Tennessean, 10/25/06 (In past 6 years health insurance premiums rose 99% vs. 12% for wages)
21. Bush Signs Bill To Build 700 Mile Fence Along Border With Mexico, AP, 10/26/06 (But no money allocated)
22. 94,000 S.F. Rivergate Shopping Center Sells For $14.4 MM, Business Journal 10/27/06 (Tenants are PetSmart, Michaels, Babies R' Us)
23. British Will Try To Convince The U.S. To Help Reduce Global Warming; Report Says Global Warming Could Devastate World Economy, AP, 10/30/06
24. China's Reserves Now $1 Trillion, U.S. Economists Worried, CNN, 10/31/06 (Could potentially collapse U.S. dollar. By comparison, Federal Reserve is only $66 billion. One trillion is 1,000 billion. Most of China's reserves are in U.S. dollars)
25. Williamson County Has Among Highest % of College Graduates In The U.S., Williamson County Herald, 10/31/06 (47%)
26. Americans For First Time Have More Debt Than Disposable Income, AP, 10/31/06 (Savings rate for second quarter was lowest since Depression)
27. Latest CPI Increase Was 2.1%, TN. Dept. Of Labor, 10/31/06 (August to August)
28. Tennessee Unemployment Claims Down 10% From 2005, TN Dept. Of Labor, 10/31/06 (August to August)
29. 46% of TN 2000-2005 Population Increase In Davidson And 10 Surrounding Counties, TN Dept. Of Labor, 10/31/06 (Rutherford had 36,269; Williamson 26,957; Sumner 14,560; Montgomery 12,434; Wilson 11, 699)
30. Davidson County Losing Population To Surrounding Counties, But Gaining Foreign Population, TN Dept. Of Labor, 10/31/06 (Between 2000-2005 it lost 28,751 more U.S. citizens than it gained, mostly to surrounding counties. It gained 14,777 people from foreign countries)

Smyrna Has Become An Impressive City (continued from page 1)
Smyrna is now the 17th largest city in Tennessee and if you add in LaVergne, there are 62,000 people. Smyrna’s new YMCA is the largest in Rutherford County and the first phase of Motlow College is open with 1,000 students. The new hospital opened 2 years ago on Sam Ridley Parkway and started an explosion of growth. Lowe’s, Kroger, Publix, Starbucks, Chilis and Logans are open, Home Depot is under construction and a 500,000 SF shopping center anchored by a Super Target and a 14-screen movie theater is planned.

My Comments: In the 4 years Bob Spivey has been Mayor tax revenues have doubled. This will mean better services and lower residential tax rates. The frontage road the City required on the east side of Sam Ridley was brilliant planning and is what has allowed that land to develop. If you haven’t driven Sam Ridley in a while you should make the trip – you will be amazed. What has occurred is a great example of the benefits of good leadership and planning.

CD Rates Contribute To Increasing Cap Rates: See Table Below:

David Huddleston
(615) 310-2547