This word problem title easily portrays the current state of the New Orleans metropolitan multifamily market. The past decade can be recorded as positive in asset appreciation, sales, rent and occupancy growth.
Unlike the majority of multifamily markets in other cities, metro New Orleans has numerous barriers to entry. The market has a trifecta of sorts in that we have an ever-rising demand with a restrained supply due to the city’s geography, socio-economic factors and neighborhood resistance. All of these factors are contributing to the stability and positive outlook for the multifamily market going forward.
The proof is in the numbers; overall occupancy for the seven submarkets in the New Orleans Metro is a firm 94 percent, with the majority of these markets reporting 95 to 97 percent occupancy levels. In the past 12 months, the market has experienced 2 to 4 percent rent growth even in submarkets that have seen the introduction of new inventory. The barriers to entry in the market provide owners with a “franchise” of sorts in that the introduction of significant new inventory is highly unlikely.
Average rents in metro New Orleans are $1.05 per square foot. Newer suburban developments are averaging rents in the $1.10 to $1.20 per square foot range. Infill urban locations are commanding rents in the $2.00 to $2.50 per square foot range. The most affordable market rate rents in the metro are in Eastern New Orleans and Algiers, which offer rents in the low to mid $0.80 per square foot range.
The primary forces contributing to the strength in the market include an expanding population which currently stands at 1.25 million, an unemployment rate of only 5.1 percent (which is 130 basis points below the national average) and the anticipated opening of the new Bio District Medical Center, a 1,500-acre new construction master development that spans downtown/mid-city and will include Charity Hospital, VA Medical Center, LSU/Tulane Medical Centers as well as a Bio Innovation Center. It is estimated that over the next 15 to 20 years the center will generate approximately 34,000 direct and indirect jobs.
Additionally, the Port of New Orleans, tourism and convention business continue to thrive. Forbes named New Orleans the “Fastest Growing City since the Recession” and CNN Money named Louisiana the No. 9 “Most Entrepreneurial State”.
These accolades have not gone unnoticed as developers, investors and lenders have been aggressively seeking development and acquisition opportunities throughout the metro.
Like other cities, there has been a major focus on urban infill developments, as well as historic adaptive re-use developments. The historic center of the city has more than 1,000 apartment units scheduled to come on line within the next 12 to 18 months (see map). This additional inventory is primarily market rate and is a combination of new construction and redevelopment of older office buildings. Two projects worth noting are The Paramount at South Market, which is being developed by The Domain Cos., a 209-unit mixed-use development that will include first-floor retail space along with a parking garage. The second project is The Strand being developed in the CBD by HRI Properties and is a conversion of a 1960s office building to a mixed-use multifamily/hotel/parking garage development. The demand for new inventory has sparked a renaissance in the CBD as additional “roof tops” have served as a catalyst to attracting grocery stores, restaurants and retailers.
The focus on suburban multifamily development centers on East and West St. Tammany Parish located north of Lake Pontchartrain. This submarket has one of the highest per capita income levels in the state and unlike the majority of metro New Orleans has available land for large developments. The area has also seen a host of employers establishing a corporate presence. As a result, St. Tammany Parish is ripe for new market rate suburban development. The most recent new developments were absorbed in to the market place rapidly. These include Brewster Commons at River Chase, a 240-unit garden-style apartment community developed by Favrot & Shane Cos., and Phase II of Brookstone Park, developed by PPQ Development.
There is an abundance of strong investor interest in the metro New Orleans market. Two Mid City sales worth noting include The Esplanade at City Park Apartments, a 441-unit mid-rise development acquired by Pride Rock Capital, and The American Can Apartments, a 268-unit historic renovation that was acquired by Audubon Communities. A suburban sale worth noting is The Cove Apartments, a 300-unit garden-style community located in Eastern New Orleans. The property was purchased by Strategic Realty Capital.
As strong as the past decade has been, the outlook should remain bright as well. We have a perfect convergence of an increasing demand with a restrained supply. These factors should provide investors stability and healthy yields in the foreseeable future.
— Larry Schedler, Principal, and Cheryl Short, Principal, Larry G. Schedler & Associates Inc. This article originally appeared in the October 2014 issue of Southeast Real Estate Business.