Brokerage Outlook: Louisiana

• New Orleans Multifamily

New Orleans Multifamily Submitted by Larry G. Schedler, CCIM, president of Larry G. Schedler & Associates. Posted 12-14-05. The 1980s syndicator Craig Hall authored a book titled “The News of My Death Has Been Greatly Exaggerated.” Never was a saying more appropriate than in the case of the metro New Orleans Multifamily Market. Despite what some media outlets would like you to believe, the historic city of New Orleans has a lot of life left in it. New Orleans will survive and thrive; however, the city will undoubtedly be different from the city we knew before August 29th. Although there are many discussions about how to redevelop the city, the one element which everyone agrees with is the need for housing. Hurricane Katrina created the single largest need for housing in the history of our country. The redevelopment of this historical city will be the largest since the reconstruction period. It is estimated that approximately 260,000 residences (both owner-occupied and rentals) were affected by Hurricane Katrina. Some of these homes will not be able to be rebuilt. Those that can be rebuilt will take time. It appears that 15 to 20 percent of our inventory of 50,000 multifamily units was destroyed by Hurricane Katrina. The area that sustained the largest amount of concentrated destruction is East New Orleans, an area that was developed in the early 1970s and had an inventory of approximately 7,000 units. East New Orleans was predominately a moderate-income apartment market where rents averaged 65 cents per square foot. Rental rates at this level will not be sufficient to justify the cost of new construction, even with pre-Katrina construction standards. If East New Orleans is to be rebuilt with a multifamily component, the federal government will have to be generous with incentives in the form of tax credits and grants. Otherwise, new developments will not “pencil out.” Although other areas of the Metro New Orleans apartment market sustained significant damage, the rehabilitation of these communities is well underway. The shortage of land in New Orleans was always a barrier to entry and this dilemma continues as the areas of the city that can be revived quickly offer virtually no available land for large garden apartment developments. Although Jefferson Parish has limited land available for new developments, the area north of Lake Pontchartrain, St. Tammany Parish, enjoys not only the highest income levels in the state but also an abundance of land. The inventory in this submarket has been restrained due primarily to community resistance to high-density development. The boundaries of the city of New Orleans remained largely unchanged from 1880 until around 1950. The “original city” was developed on a natural levee, which is where the French Quarter, CBD, Esplanade Ridge, Warehouse District and the Garden District are situated. We should anticipate developers focusing on this historic area of New Orleans for in-fill locations on which to develop additional housing. The interest by the investment community in our multifamily market post-Katrina has been overwhelming. Value-added investors are diligently searching for damaged assets that can be quickly acquired, rehabbed and re-positioned. Developers have been searching for locations to develop new product both in the city and the surrounding parishes. Several high-end downtown condominium developments that were announced prior to Hurricane Katrina are still moving forward, including a downtown development by the Trump Organization. The over-riding question is will the demand for multifamily units continue and the answer is a resounding YES! With 20 percent of our inventory destroyed and higher units being sold into condo regimes, our multifamily market has shrunk despite a rising demand. Furthermore, the barriers to entry, primarily the lack of land and increased development cost will make many proposed conventional developments infeasible, given the rents they will undoubtedly require. The city of New Orleans is certainly down, but definitely not out. New Orleans is a critical link to the economy of the country through its location on the Mississippi River and its rich oil and gas reserves. The city that will emerge will be smaller, have a higher per capita income and will evolve a more prosperous community better prepared to handle the effects of Mother Nature in the future.