In our state of the market overview article in Southeast Real Estate Business October 2023, we defined three challenges in the metro New Orleans multifamily market. These are interest rates, inflation and insurance — or as we dubbed them “the three I’s.”
Not to be redundant; however, a year later these elements are still very much factors in the current market and continue to define how multifamily assets are acquired, sold, financed and developed.
There is, however, reason for optimism as each of these defining elements has diminished, albeit not completely, from where they were 12 months ago.
Interest rates — On Sept. 18, the Federal Reserve reduced short-term rates by 50 basis points — the first reduction in four years. More importantly was the decline in the rate of the 10-year Treasury yield, which is what most multifamily loans are priced from. As of this writing, the 10-year Treasury yield was at 3.76 percent, the lowest it has been in the past 16 months.
A further reason for optimism is the fact that the Fed has indicated the potential for four rate cuts next year. There is also the anticipation of further clarity in the capital markets once the November election is behind us.
Inflation — The consumer price index (CPI) has declined to 2.53 percent in August, its lowest level in three-and-a-half years. This should hopefully take some pressure off consumers and be further justification for rate cuts.
Insurance — The cost of insurance is still punitive; however, with the absence of any major storm damage in the past two-plus years, including Hurricane Helene, we have seen somewhat of a stabilization of premiums with some owners seeing modest reductions. Insurance is a fluid element in every budget and is susceptible to change with weather events.
Metro New Orleans has an inventory of approximately 55,000 market-rate units in properties consisting of at least 100 units. This inventory is spread out over eight submarkets.
The highest reported rents are in the Central Business District (CBD)/Warehouse District that consists of predominately mid- and high-rise developments. Rents average $1,900 to $2,000 per month with reported occupancy in the 93 to 95 percent range.
The Mid-City market is reporting average monthly rents of $1,500 to $1,600 and average occupancy rates of 92 to 94 percent.
The suburban market of Jefferson Parish (East and West Banks) has approximately 50 percent of the metro’s multifamily inventory. This area is basically fully developed and has reported average monthly rents of $1,150 to $1,250 and average occupancy in the 94 to 95 percent range.
The highest suburban rents being realized are in West and East St. Tammany Parish, which is north of Lake Pontchartrain and the City of New Orleans. St. Tammany Parish has an inventory of approximately 8,000 units and represents the majority of the new suburban developments in the metro. Monthly rents average $1,300 to $1,500 and reported occupancy in the 94 to 95 percent range.
Given the availability of developable land in St. Tammany Parish, along with the highest, average income levels in the state, this submarket is the future of the New Orleans metro suburban multifamily market.
The most affordable submarkets are in Orleans Parish (East New Orleans and Algiers), each having an inventory of approximately 4,000 units, with the average vintage being mid- to late-1970’s construction. New Orleans East rents average $900 to $1,000 per month, with average occupancy in the 92 to 94 percent range.
It should be noted that there is a segment of the Eastern New Orleans inventory that is still out of commerce because of Hurricane Ida in 2021. This submarket holds a significant amount of value-add potential for meeting the metro’s demand for workforce housing.
The need for affordable housing is also being met in the submarket of Algiers. This area is located across the Mississippi River from the New Orleans CBD and is reporting average occupancy of 92 percent, with rents averaging $1,000 per month.
New construction
Increased insurance and interest rates have slowed construction activity considerably. Since October 2023 there are only two new developments.
The Jackson Oaks — is in the Lower Garden district of Uptown New Orleans. This is an estimated $62 million gut renovation of the Sara Mayo Hospital. The mixed-use property which will consist of 211 units is being developed by The Kailas Co. of New Orleans.
Alluvia — is a 260-unit luxury mid-rise community that is being developed on the East Bank of Jefferson Parish in the city of Kenner. The developer is Metairie, La.-based First Lake Properties of, which has a portfolio exceeding 9,500 units in Jefferson and St. Tammany parishes.
Sales activity
The broader challenges in the overall multifamily market reduced investment sales activity over the past 12 months, as many investors opted to sit on the sidelines. However, the decline in treasury rates, along with our geographic barriers to entry, has seen a heightened interest by investors to redeploy capital back into the market.
A sale worth mentioning is the $65 million ($180,555 per unit) sale of Waters at Manhattan (360 units), which was developed by the STOA Group of Hammond, La. Four Corners Development Group of Airmont, N.Y., purchased the property.
Other sales worth include Riverside Apartments (291 units) in Metairie. Global Ministries Foundation sold the property to Hamdan Sons Investments of New Orleans for $17 million ($58,500 per unit). Additionally, Providence Investments of Birmingham, Ala., sold Haltere at New Orleans (132 units) located in Eastern New Orleans to California-based Haltere Group for $9.3 million ($70,600 per unit).
The past 12 months certainly posed some challenges in the local multi-family market. However, New Orleans is a vibrant, resilient city that has significant barriers to entry. The inability to significantly increase the supply has always kept supply and demand in sync. We anticipate rent growth across the market in 2025, along with increased sales activity. We do not anticipate the announcement of any new major developments until the third quarter of 2025.
— By Larry Schedler, CCIM, and Christian Schedler, principals at Larry G. Schedler & Associates/Cushman & Wakefield Sunbelt Multifamily Advisory. This article was originally published in the October 2024 issue of Southeast Real Estate Business.