Tight Multifamily Occupancy in New Orleans Leads to 2,285 Units in the Pipeline
New Orleans (also known as Crescent City, The Big Easy and NOLA) is unique in many ways.
The cuisine, architecture and music all set the city apart, but for the real estate industry, the geography is most important. In fact, it’s uniqueness among the great Southern cities is that the Mississippi River, Lake Pontchartrain and the wetlands to the east and west have created a barrier to entry unlike any other multifamily market in the country.
These factors have limited development to a select few urban sites and redevelopment of historic structures. Garden-style product has been primarily confined to St. Tammany Parish located north of Lake Pontchartrain. The parish has an abundance of land as well as the demographic profile to support new market-rate construction.
The multifamily market in metro New Orleans is further strengthened by the positive economic growth the city has experienced. The local and regional economies continue to see growth in the following sectors: energy, advanced manufacturing, international trade, healthcare, education, bio-science, tourism and technology. One example is DXC Technology’s new Digital Transformation Center located in downtown New Orleans. This new employer will create 2,000 well-paying jobs and provide further stability to the downtown multifamily market.
The stability of the market is reflected in the current occupancy. The New Orleans metro market has an inventory of approximately 56,000 units situated in nine distinct submarkets. Rental and occupancy rates vary by submarket due to location and vintage of properties. Average rents throughout the metro are approximately $1 per square foot with newer suburban developments leasing in the $1.15 to $1.25 per square foot range. The highest average rental rates reported are in the CBD/Mid-City submarket where they average $1.70 to $1.80 per square foot with some communities commanding rents as high as $2.85 per square foot. Highest reported garden market rents can be found in both East and West St. Tammany Parish with rates ranging from $1.15 to $1.35 per square foot.
Virtually all of the submarkets in the metro are reporting occupancy levels in the 95 to 97 percent range.
Currently, there are 2,285 units under construction in the urban core and St. Tammany Parish. Approximately 75 percent of these units (1,697) are located in the CBD submarket.
Additionally, there are 138 units being added to the CBD within adaptive redevelopment projects. St. Tammany Parish currently has two properties under construction totaling 450 units.
The Collins currently under construction will consist of 272 apartment residences and feature Dallas-based Humphreys & Partners Architects “Big House” design. The Dobbins Group, an active developer in the Southeast, is now leasing units. The property is estimated to cost $43 million and is being conventionally financed with bank debt and private equity.
The positive attributes of the metro New Orleans apartment market have not gone unnoticed by investors. Buyers are attracted to the strong market fundamentals of New Orleans, as well as the barriers to entry. Once they get a foothold in the market, they feel as if they have a “franchise” of sorts.
All asset classes are received well by the market with a particular preference for value-add opportunities. This is highlighted by recent sales activity in the market, which includes a four-property portfolio previously owned by Morguard REIT, as well as the 336-unit Chateaux DiJon situated in Metairie.
The new owners plan to implement a comprehensive interior and exterior renovation. It is worth noting the Metairie submarket has virtually no land to develop new inventory, hence value-add opportunities are in high demand.
Another Metairie sale worth noting is the Castille Severn Apartments, now rebranded as The Local Apartments. Atlanta-based Audubon Communities recently acquired the 161-unit, value-add asset and then implemented a major exterior renovation.
There is a great deal to be optimistic about in NOLA’s conventional and affordable multifamily market. We have a constrained supply in a market that is experiencing an expanding employment base. Many of the newly created jobs offer salaries that can support new market-rate development.
New Orleans, like cities all over the country, also has a tremendous need for affordable housing. This segment of the market typically needs to be subsidized by a combination of local, state and federal initiatives.
Just as the geography of the city affected the past, it will inevitably shape the future. Innovative designs and adaptive reuse will be the norm for the residents who call the New Orleans area home, regardless of which favorite nickname you use.
— By Larry Schedler, CCIM, Principal; Cheryl Short, Principal; and Christian Schedler, CCIM, Principal at Larry G. Schedler & Associates Inc. This article originally appeared in the October 2019 issue of Southeast Real Estate Business.