DEEP HOLE, DEEPER POCKETS
This Alabama duo aims to break the Palmer curse.
Nashville Business Journal
By Adam Sichko – Senior Reporter
May 2, 2019
Bill Propst Jr. has hit bottom. He couldn’t be more thrilled.
Ambitious newcomer developers like him are crawling all over the region these days. But down in an excavated city block in Midtown, 71 1/2 feet below street level, it’s clear the Propst family has extra nerves and more wealth to tap.
You can’t see the downtown skyline from that depth. And no one saw the Propst family coming one year ago when they swooped in from Alabama and paid $37 million cash for Midtown’s ill-fated West End Summit development site. The pit had its own Wikipedia page and held water for so long that Google Maps showed it as a lake, dormant for five years while a tidal wave of construction coursed throughout downtown.
Then the Propsts did something even more daring: They kept digging, to the depth of a seven- or eight-story building. Bringing to life a site so massive could create an urban alternative to downtown for local or relocating office tenants and trigger a boomlet of its own north of the project, an area where hardly any construction has happened in Nashville’s “It City” rise.
A red tower crane sprouted in March on the site, now named Broadwest. It’s one of four planned for a two-tower development, fueled by the pharmaceutical fortune Propst’s father reaped when he sold his drug companies for roughly $900 million in 2007, after a battle with the federal government.
Bill Propst Sr. died in February. In an exclusive interview, his namesake son says the family is as committed as ever and expects to build even more in Nashville beyond the half-a-billion-dollar debut project for Propst Development.
“Is it a risky investment?” Propst Jr. asked without prompting. “No. Given the growth Nashville has experienced, we don’t really view it as a risky investment.
“We’ve said from the get-go: Given the history of the site, once we start, we’re going to go until we finish,” Propst continued. “Because if you get this far and then you stop, then people will start questioning the real viability of this site. There should be no concern in the marketplace if this is going to be built or not. There’s no hitting the brakes here … and we’re not going to miss a beat just because Bill Sr.’s not here.”
'Rebounding from site’s infamous past'
Tom Frye, who has worked in Nashville’s commercial real estate industry for 30 years, remembers the moment in 2004 when developer Alex Palmer bought the final piece of the 3.9-acre city block at 1600 West End Ave.
“At the moment, he had assembled probably the key piece in town,” said Frye, who was a banker with SunTrust and then ran the Nashville office of big brokerage firm CBRE Inc. for 14 years.
Palmer neared a breakthrough on multiple occasions, particularly in fall 2012, when he announced a signed lease for subsidiaries of HCA Healthcare Inc. to occupy 500,000 square feet of office space. Palmer resumed excavation but ultimately could not secure all the financing he needed. He halted blasting in mid-2013 and the site remained quiet until the Propsts arrived.
Even with downtown’s boom — and maybe because of it, as a result of the congestion there today — Frye believes the site’s stature hasn’t diminished even though it sat idle for so long. Still, he was surprised to hear Propst has so quickly erected a crane.
“Next to the car dealerships, I think he’s got the next-best site in town,” Frye said, referring to the coveted and massive properties Lee Beaman and other auto dealers own on Broadway, a quarter-mile closer to downtown.
“It was never a bad site,” Frye said. “But when you do it, you have to do the whole thing. It’s a big gulp. It’s not like you can do it in stages — that’s the risk.”
He added: “Just the size of the site is daunting, in my mind. You’re talking about two or three years of construction, and everything has to go well. You start it, and you just hope you don’t have a recession.”
The Propst family has repeatedly said they could supply all the equity to land construction loans. As designed, Propst’s development will create Nashville’s largest multi-tenant office building in a dozen years, since downtown’s Pinnacle at Symphony Place. A taller tower will include 245 rooms of a luxury Hilton brand and 220 high-end condos, and another low-rise building with more office and retail space.
The 34-story and 21-story towers will sit atop a parking garage with about 2,500 spaces. For perspective, that is 700 more spaces than the garage at Music City Center convention hall, and 300 more than the newly opened garage at Nashville International Airport.
For such a massive project, you can still fit the decision-makers in an office within a construction trailer. “You’re looking at the crew,” said company principal Chris Brown in an interview with himself, Propst Jr. and Ben Hughey, a Propst leasing agent.
For six months, Propst Jr. and Brown weighed whether to recruit an equity partner to the project. They concluded that they didn’t want to, or need to. Propst Sr. attended meetings in New York City to finalize the deal with Hilton, and he was able to review the final scope of the project before he died.
“‘The only thing I’m disappointed in is that the office building is only 21 stories,’” Brown recalled, quoting Propst Sr.
The quip is telling of the elder Propst’s perspective.
“It would have been easy to say, ‘Let’s only do a 350,000-square-foot office tower.’ That’s more conservative, less risky,” Brown said. “He very much wasn’t afraid of the size of a deal or the investment you would have to make before you really knew if you could get it off the ground. His thought was, don’t sell yourself short if you think it’s what the project and the city need. That allows you the ability to make decisions that aren’t always to the third digit of the [return-on-investment] calculation. You’re focused more on, if we know it’s the right thing, then the returns will be there.”
Huntsville Heavyweight
Bill Propst Sr.’s story is rooted in Alabama. It’s where he was born, graduated from college with a pharmacy degree and opened drug stores — one of which is still open and bears his name. He left the state twice, to attend Columbia Military Academy in Maury County, and to start Kmart’s in-house pharmacy business. Propst Sr. returned to Huntsville around the mid-1980s to begin making and distributing generic drugs, and then build the real estate business that followed.
Word of Broadwest has made its way down Interstate 65 to Huntsville, two hours south of Nashville, where Propst Development is based.
“Of course they have the financial wherewithal to do it, and it’ll be a legacy project for their family for many years,” said David Johnston, a veteran of Huntsville’s business community who is an accountant by trade and also invests in real estate.
Propst dived into real estate after selling his two drug companies, Vintage Pharmaceuticals and Qualitest Pharmaceuticals, to British private-equity firm Apax Partners in fall 2007. Dow Jones reported that Apax paid $850 million to $900 million; Propst Jr. described the price as “close to a billion.”
Propst Sr.’s legacy is all over Huntsville, including bookstores in its downtown, where you can buy a newly published 340-page book about his life and career. Propst Sr. donated $5 million toward renovations of the downtown’s 10,000-seat arena, now named Propst Arena. There is the Eloise McDonald Propst Guest Center at the Huntsville Botanical Garden, which he named after his wife, and the Paul Propst Center at the HudsonAlpha Institute for Biotechnology — named for his adopted father.
“He became one of our top three or four billionaires … and one of our biggest benefactors,” Johnston said of Propst Sr. after selling his drug companies. “He was genuinely humble, in spite of that. He didn’t seek a lot of publicity.”
And Bill Propst Jr. “is as conscientious as you can get,” Johnston added.
The sale came more than a year after Propst Sr. and Propst Jr. resigned from their executive positions at one of their two drug companies. They did so as part of a plea deal to end two years of legal proceedings, beginning when a grand jury indicted them and their business.
Federal prosecutors alleged the Propsts and their businesses conspired to defraud and mislead consumers and the government by producing and distributing 19 batches of a thyroid medication labeled with improper expiration dates. In the indictment, the government accused the Propsts of distributing some 50 million tablets, though they allegedly “knew from Vintage’s own internal scientific data and testing that the validity of the expiration dates it placed on millions of doses of its drugs were questionable.”
In plea deals, the Propsts each pleaded guilty to misdemeanors. For three to five years, they were banned from “providing services in any capacity to any person or entity” in drug manufacturing. The two resigned from Vintage but retained their roles at Qualitest, which handled distribution. Vintage, under then-CEO Thomas Young, pleaded guilty to 19 felony counts, paid $4.8 million in fines and forfeited another $1.2 million.
“When you’ve built a business, and your entire family is invested in it, sometimes you do things to ease the pain,” Propst Jr. said of the decision to accept plea deals, adding that the charges were “totally unjust.”
Propst Jr. said the plea deals “did not at all frame our decision to sell.” He cited factors such as tougher government oversight, as well as consolidation in the industry that gave a select few customers immense power.
After selling their drug companies, the Propsts turned their attention to real estate. They began tapping Birmingham for talent, starting with retail specialist John Hughey, whom they had met a year before. Brown was previously part-owner and president of Birmingham developer Daniel Corp., and he was leading an expansion into Middle Tennessee for Signature Homes when the Propsts formed a joint venture with that company. The two have built close to 1,000 homes since 2011 and have about as many lots to develop, Brown said.
Propst Sr. brought the same ambition to real estate that he did to pharmaceuticals.
“While he was conservative and would say, ‘Let’s be prudent,’ his approach was that it didn’t matter if it was a $2 million deal or a $200 million deal. If you believe in it and it makes good business sense, let’s go do it,” Brown said.
Propst Sr. spent a month at Vanderbilt University Medical Center before his February death. As he tended to his father, Propst Jr. got a taste of the rampant speculation about the Broadwest property.
“I’d take a lot of Ubers and drive by the site and I’d say, ‘What’s happening with this site? Who’s this Propst Development?’” Propst Jr. said. “I got every answer: ‘I heard it was a Ritz-Carlton.’ … ‘The original developer went bankrupt.’ … ‘They hit a natural spring, so it’s going to be a big lake now.’”
None of those things are true. With a wry smile, Propst Jr. said he didn’t let on that he knew all the answers.
“We’ve had to be calculated in our approach and realize the stigma with the site,” he said. “But you have to trust your instincts at some point.”