A long-vacant 7-acre site that used to be home to the historic Kern’s Bakery will be transformed into a new mixed-use, multifamily community in South Knoxville, Tenn. Atlanta-based developer Mallory & Evans Partners is redeveloping the project. Ozone Capital Management, which is based in the San Francisco Bay Area and specializes in opportunity zone investments, is the equity partner for the multifamily component.
The residential component will be comprised of a 160-unit, 310-bed multifamily community targeted at young professionals, graduate students, medical students, and upper-class students from the nearby University of Tennessee. Two-bedroom units will include a private bath for each bedroom with a roommate matching service to facilitate leasing.
Amenities will include co-working spaces, a pool, a fitness center, a clubhouse, skyline views, and green space. The project also encompasses several added value components, including the preservation and reuse of the 1929 vintage, 75,000-square-foot building that used to house the Kern’s Bakery. Bakery founder Peter Kern served as the mayor of Knoxville from 1890-1892. The firm was bought by Sarah Lee in 1989 and then discontinued in 2008.
Plans for the existing building include a mix of retail, restaurant, office, and entertainment space. The developers are envisioning an eclectic, locally sourced, and highly curated mix of restaurants, smaller food vendors, and specialty purveyors. A name-brand hotel could also enter the mix in a later phase.
Courtesy Ozone Capital Management
Kern's Bakery Music Venue in Knoxville, Tenn.
The project was helped into existence by falling inside an Opportunity Zone (OZ), a designated census tract that is economically distressed and part of a nationwide community investment incentive established in the Tax Cuts and Jobs Act of 2017.
“There are seven qualified zones in Knox County,” says Matt Morris, managing partner of Ozone Capital Management. “The poverty rate averages 30% in Tennessee’s qualified OZs versus the statewide average of 19%. Median income in the OZs is $38,788; statewide, it’s $57,240.”
The opportunity became even more attractive after taking a look at the inbound migration numbers. “Knoxville is the third-largest city in the state of Tennessee, which is growing well above national averages in population,” says Morris. “University of Tennessee has grown freshman year enrollment by over 40% since 2009, acting as a natural demand driver for Knoxville and the project itself.”
The site sits behind two Knoxville Area Transit bus stops, and there are proposals on the books for extending a downtown trolley service across the river to South Knoxville. The site is also near the Urban Wilderness trail complex, which includes an underutilized Gulf & Ohio railway line that could be converted into a Rails To Trails project.
Ozone considers the project as a defensive growth investment that will provide a desirable combination of current income and long-term capital appreciation. Tom Calahan, managing director of real estate for Ozone Capital Management, says, “This project exemplifies our firm’s strategy of targeting defensive projects, executed by best-in-class operators in markets that are underpinned by favorable economic and demographic factors.”
The boutique community intends to offer residents a walkable lifestyle just steps from restaurants, entertainment, and workplaces—with easy access to public transit. Construction is expected to start in early summer, with the retail and restaurant portion beginning in July. Both are slated to be complete by August 2020. The construction timeline for the hotel will be announced at a later date.