The Tennessean (Nashville, Tennessee)
October 23, 2011 Sunday
By Bobby Allyn
When local real estate values were soaring near the height of the boom, a well-to-do rancher from Northern California came to town and saw great promise in the Nashville area.
Stephen Marks Sr., a big country music fan, was taken by the city’s deep economic base and relatively affordable real estate. Before long, his son, Alex Marks, moved to Franklin to represent the family’s interest in Middle Tennessee through its development company, Tower Investments.
The deep-pocketed family has since become ensnarled in an eminent domain battle with Metro government over land it purchased in 2007 that the city wanted for a new convention center. The city offered Tower $14.8 million, which is roughly $20,000 more than Tower paid for it three years earlier. But a Circuit Court jury decided the land was worth more than twice that. The Metro Development and Housing Agency has appealed.
What’s extraordinary about the quarrel with city hall is that the Markses chose to challenge the generally pro-development administration of Mayor Karl Dean, staking a claim for a much richer deal instead of making concessions with the city, a practice that usually prevails.
Local developers are closely following just how the litigation will affect the company’s future projects. In particular, the Markses want to develop the East Bank of the Cumberland River, which would require city and public support.
“They can do whatever they want privately here, but it may take some image repairing before they can tackle a significant public-private project,” said longtime real estate investor Mark Bloom, who sold the convention center land and other properties to Tower.
Stephen Marks, with his five sons and daughter, runs Woodland, Calif.-based development company Tower Investments.
Several deals have stayed under radar
Many of the family’s Middle Tennessee deals to date have been paid scant attention, in spite of their hefty sums. The Marks family says those other investments top $100 million – ranging from industrial and warehouse properties in Columbia and Jackson, Tenn., to a posh residential enclave in Leiper’s Fork and a handful of properties on Lower Broadway.
“We don’t just plop down and bring people in from out of state,” Alex Marks said from his third-floor office in the downtown Paradise Park building, a honky-tonk the company owns. “We hire local people, and we’ll continue to very aggressively invest in Middle Tennessee.”
Indeed, if more of their development dreams take shape, Tower could be vaulted into the city’s limelight beyond the courtroom drama with Dean’s administration for which it is best known.
But navigating Nashville’s insular real estate circles, and dealing with political fallout from the scrap with Metro, could prove tricky.
Skeptics say the Marks family flies under the radar because they haven’t achieved much here – at least not so far.
Alex Marks, in defense, argues that he and the company are cementing community ties. He says the legal clash with Metro should be kept separate from Tower’s central focus: becoming an important player in the future landscape of Nashville, no matter how long it takes.
“I’m looking at three to five projects a week,” Marks said. “We all look for opportunities and, depending what the deal is, we divide and conquer.”
Middle Tennessee in cross hairs
Tower’s real estate profile in Middle Tennessee defies easy classification.
The company’s local portfolio, to name a few properties, consists of 1,200 acres of residential lots in Leiper’s Fork, more than a million square feet of industrial space and three properties on Lower Broadway, including the Merchants building and the Big River Brewery.
Over the course of seven years, the Marks family bought several pieces of land from longtime local real estate investor and former bond trader Bloom. That includes, most noticeably, the land now being developed for the new Omni hotel and the convention center land tied up in the courts.
Tower maintains projects in 15 states and satellite offices here and in Minnesota. The company’s total assets in Middle Tennessee are second only to their holdings in California, underlining what Tower sees as a development vacuum here that has yet to be filled.
In their home state, the Marks family are recognized as affluent rural ranchers who rarely meddle in others’ affairs from their home base in the exurbs of Sacramento, Calif. In business, the family has a reputation of being micromanagers and when it comes to public announcements, rather cagey.
Jim Gray, a Sacramento-based commercial real estate broker with Cassidy Turley, describes Tower Investments as an outfit known for identifying distressed properties and turning them into long-term investments.
“They’re not in the flipping business. They’re going to fix it up and turn around the management problems and wait until the economy is in recovery mode,” Gray said. “These guys are big thinkers, no-nonsense types. And they’re very patient.”
Gray said Tower set its sights on more affordable markets like Middle Tennessee as the California real estate prices overheated.
The area’s diverse employment base and a business-friendly tax structure also factored into the decision to move here, Alex Marks elaborated.
“When we’re looking at new markets, we consider the economic development side of things,” Marks said. “We often know when companies are looking at a certain area throughout the United States.”
“In some areas of California,” Tower Senior Vice President John Pierce added, “there’s an attitude against business and against growth, and we didn’t really see that in the people of Nashville.”
Millions disputed at center’s site
Mark Bloom knew when he sold the two properties to Tower south of Broadway that they would eventually be under the city’s development gaze.
“I told them it was going to be a part of the plan,” said Bloom, who sold Tower property in SoBro, including the convention center and nearby Omni Hotel sites, for $60 per square foot in 2007.
Last November, Tower sold 3.1 acres behind the Country Music Hall of Fame and Museum to Omni for $180 per square foot, or $18.3 million.
Metro Development and Housing Agency offered Tower $14.8 million, or $60 per square foot, for an additional 5.6 acres on which the convention center is being developed.
In July, a 12-person jury said Tower’s property was worth $30.4 million.
MDHA opposes the latest decision and has begun filing preliminary motions in Circuit Judge Joe Binkley’s court to question it. Tower’s property – before Metro targeted it for eminent domain – was being used as a parking lot.
Though he declined to comment on the still-unfolding lawsuit with Metro, Alex Marks said the contentious relationship caught him by surprise. It’s the first time the company has been locked in an eminent domain battle.
Some observers think convention center planners slighted Tower.
The company submitted an unsolicited proposal to Metro to fund the entire convention center and hotel project itself with backing from Skanska USA and JP Morgan Chase & Co., according to Alex Marks. MDHA turned down the proposal because its application did not follow the rules, said Julie Oaks, MDHA spokeswoman. Tower claimed its proposal would cost 10 percent less than the city’s plan. Oaks said the company never proved it.
MDHA did pick Tower to develop a hotel next to the new convention center, which was then to be a Marriott hotel. But the hotel company’s plans fell apart because of the economic downtown.
Instead, the Omni Hotel group will build the hotel adjacent to the Music City Center, for which Omni will receive $128 million in incentives.
Barriers to entry
Some local real estate observers say there are certain cultural aspects of Nashville’s development community that pose particular challenges to out-of-towners; they say it functions like a good ol’ boys club.
Not so fast, says Tom Frye, managing director at CB Richard Ellis, a commercial real estate firm.
“Now, no matter who you are, if you come to Middle Tennessee with a good concept there are no forces, in my mind, that would work against you,” Frye said. “If they come here with a plan that can prove adequate demand and financing, I don’t think there’s any bias.”
Fights aren’t rare
Property squabbles and hard feelings, Cassidy Turley’s Rob Lowe says, are not reserved for newcomers.
“If you want to be active in development in Nashville, you have to be cognizant that it’s a small town,” said Lowe, who worked with the Marks family on a proposal to develop on the fairgrounds.
“Most in government and the private sector know where the tension lies in different deals, and they’ve been involved in contentious deals. The Marks family is just the visible example right now.
“We see people daily who think they’re going to find vulture opportunity (meaning buy very low and sell high) in Middle Tennessee, and they simply don’t exist,” Lowe said, adding that Tower Investments tends to operate a little differently.
“I have been very impressed with the scale of their investment. Most people who come to town with that kind of investment do it on the front page. The Marks family has gone about their real estate investment in a fairly quiet matter.”
Tower Investments’ Alex Marks and John Pierce envision the city’s downtown extending across the Cumberland River in years to come, and the California boys hope to play a central role.
Having painstakingly studied the environmental and engineering issues of the East Bank riverfront, including around the PSC Metals scrapyard site, Tower at one point had a large amount of property in the area under contract. PSC Metals would need to be relocated before much could occur there, however. At Tower’s office on Lower Broadway, Marks pulled out a concept sketchboard and revealed a drawing teeming with vertical towers, schools, public parks, condo buildings and a sports stadium.
“We’re going to figure out, or someone is going to figure out, how to make it work,” said Pierce, Tower Investments’ senior vice president.
Pierce said East Nashville development on a grand scale would require a city and state buy-in to complete the concept. Already, MDHA has roughly 20 recreational and public projects under way in a redevelopment district, which is mostly around LP Field.
“We believe in private investment and private development; however, there are public portions of the total area (and) public participation and input is necessary,” Pierce said.
Bonna Johnson, spokeswoman for Dean, said private investment does not depend on the mayor’s office and that if Tower continues to invest in the city, the mayor’s office is “glad to see it.”
Most agree that there is ample opportunity to develop around the East Bank, although skeptics say that there are other areas in the core of Nashville that needs in-fill development.
“Things are in motion on this,” Marks counters. “It’s a slow process that takes many years to happen, but we want people to see the opportunity that’s here.”