SNAPSHOT, APRIL 2004

New Orleans Multifamily Market

Larry Schedler, CCIM President Larry G. Schedler & Associates Inc.

The metro New Orleans multifamily market remains strong and stable, according to Larry Schedler, president of Larry G. Schedler & Associates Inc. He notes that the scarcity of land has kept the supply and demand in sync, and the lack of a high-tech sector in the city means New Orleans suffered fewer jobs losses than other markets in the last few years.

Currently, there are seven multifamily properties in various phases of construction in metro New Orleans. These properties represent approximately 1,400 units. The majority of these developments are located in St. Tammany Parish, on the north side of Lake Pontchartrain. The remaining properties are being developed in Gretna and in east Jefferson Parish.

Suburban garden developments are a trend in St. Tammany Parish. These developments are in areas that typically have had smaller “mom and pop”-run properties. The demographics show a market for new higher-end developments and the prospective tenants have the income levels to support these amenity-rich developments.

The activity in St. Tammany Parish is being driven primarily by the fact that the area boasts some of the highest personal income levels in the state of Louisiana — the area has the income to support the rental rates necessary for new construction. In addition, the area has available land and the market has historically included smaller, older properties that lacked professional management.

All of the developments that are currently under construction are positioned for a higher-income tenant than what metro New Orleans has typically seen. In order to justify the costs of new construction, a developer must be able to obtain rents of 92 cents per square foot and up. Developers are targeting “lifestyle” renters and individuals who would not typically have been apartment dwellers due to the age of the majority of inventory. The moderate-income market is being satisfied by the rehabilitation of the existing inventory of late 1970s and early 1980s properties.

“Villa du Lac and Harbor Side apartments are being developed on the shores of Lake Pontchartrain in Lakeshore Estates,” says Schedler. These developments will offer views of Lake Pontchartrain as well as boat slips.

The Calypso Bay Apartments and Palmetto Creek will be built on the south shore of Lake Pontchartrain. The Calypso Bay Apartments, consisting of 289 units, will be the first apartment development in its submarket in 20 years and will offer residents a modern luxury community unlike any they have had in the past. Calypso Bay will be located at the entrance of the Stonebridge Country Club — a single-family golf course community located 15 minutes from downtown New Orleans. Palmetto Creek will consist of 216 units and will be an infill location in the fully developed and highly desirable Jefferson Parish.

The success of Greystar’s 703-unit development, The Saulet, in the downtown/uptown section of the city, and the success of the Warehouse district should keep developers “on their toes” searching for infill locations in downtown New Orleans.

“In the past 12 to 18 months, there has been a great deal of success in selling multifamily properties in the downtown/uptown market into condominium regimes. The majority of properties in the Warehouse district (Historic Center) have a future as condominiums,” says Schedler. “As long as interest rates stay low, I would expect this trend to continue. These locations appeal to a broad base of purchasers and offer a unique location in the ‘heart’ of New Orleans.”

Local developers are working on the majority of developments. However, Gros Investments Inc. of Houston is building the Villa du Lac Apartments. Gros has been active in Baton Rouge and Lake Charles, Louisiana; Villa du Lac is the company’s first foray into metro New Orleans. New Orleans-based REIT Sizeler Property Investors is developing the 144-unit Greenbriar Apartments. This is Sizeler’s first new development in metro New Orleans.

Schedler says he expects new construction activity to slow: “We have only a finite number of areas where new construction can be justified. As a result, I would expect the development and lending community to ‘take a breath’ until the new units are absorbed and reach stabilization.”

The geographic make-up of New Orleans has kept its inventory in check with demand because the lack of developable sites keeps competition from coming into the market and prevents the boundaries of the city from expanding. Controlled growth and adaptive re-use of existing properties will be the bulk of activity in metro New Orleans. These dynamics should keep occupancy stable and attractive to investors over the next few years.

In the meantime, overall rental rates in New Orleans range from $529 to $1,005. Historic Center rates average $1,005, Jefferson Parish rates average $626, St. Tammany Parish rates average $688 and Orleans Parish rates average $657. Occupancy rates in New Orleans average 94.4 percent. In Historic Center, the occupancy rate is 93 percent; Jefferson Parish, 95.6 percent; St. Tammany Parish, 94.2 percent; Orleans Parish, 93.1 percent.

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