Located next to Lake Pontchartrain on a former air base, the University of New Orleans (UNO) has grown from a small commuter college to one of the area's outstanding institutions of higher learning. A closer look, however, will unveil the fact that there is more going on with this institution than just education.

Currently, with more than $30 million dollars of projects either completed or underway, UNO is New Orleans' best kept development secret. Since Gregory O'Brien became chancellor more than 10 years ago, UNO has become the region's largest economic development force. With the recent opening of the 90,000-square-foot Advanced Technology Center at the UNO Research & Technology Park (ATC), New Orleans has witnessed the first speculative multi-tenant office building in over 15 years. Development cost for the ATC building totaled over $8 million. It is 100 percent leased with technology-related firms paying rents in the $18 to $19 range.

Primarily a city dependent on oil and gas production, New Orleans has seen many of its oil companies, as well as the service companies affiliated with them, move their operations to Houston. Most of the relocations have been directly or indirectly the result of a merger or acquisition. The effect on the office market has been to create an abundance of inexpensive sublease space that some experts say is close to 350,000 square feet; this space is renting from $11 to $13 per square foot. Office rents downtown for non-sublease space are running between $13 and $15 per square foot, full service. Operating expenses for most buildings run between $6 and $6.50 per square foot. One additional cost factor that skews these low rates, however, is parking expenses. The cost to park downtown runs between $3 and $5 per square foot for most tenants. These inexpensive downtown rates have, at least temporarily, impacted the strong suburban market, dropping occupancy rates from a high of 98 percent last year to a current occupancy average of 94 percent. With the suburban market starting to show slight signs of weakening rates, the competition for users is becoming more aggressive.

Multifamily

On the multifamily front, the signs are more favorable. New development of high-end apartment units consisting of kitchen upgrades, fireplaces, garages and other amenities are continuing to be developed. More than 3,000 new units have come on line in the last 2 years alone. This factor is indicative of young professionals' desire and willingness to pay more for quality product. Rents for these types of units are running more than $1 per square foot with occupancies in the 95 percent range. All other classifications of multifamily units are also showing high occupancy rates in the 95 to 96 percent range and have demonstrated an ability to raise rents 10 to 15 percent in the last 2 years.

Investment

The commercial investment sales market has also shown a large degree of interest with several properties changing hands in the last year. Recent sales include the Riverside office buildings, which consist of two suburban office buildings totaling 90,000 square feet. The sales price for these properties amounted to approximately $74 per square foot. Causeway Plaza, a 334,000-square-foot office building complex, also recently sold for $28 million or $84 per square foot. Six other major suburban office buildings changed hands in the last year as well, with sales prices between $70 and $85 per square foot, demonstrating that there is still a strong demand for commercial investment properties, particularly mid-size office buildings, in the suburban area.

Hospitality

In the downtown market the demand for older properties has been strong and is fueled by the desire to convert office and warehouse buildings to hotels. This trend has been ongoing for the past 5 to 6 years and shows little sign of slowing down. With the downtown office market hurt by the relocation of several major oil and gas firms to Houston, New Orleans is turning to what it knows best: hospitality, convention and tourism. This new demand has created exciting new developments with the expansion of the Convention Center, Harrah's Casino, hundreds of new apartment and condominium units as well as many new hotel announcements.

With the exception of the Ritz-Carlton, which recently opened with more than 250 rooms, most hotel conversions have been small with an average room number just over 100. Acquisition costs for these older properties can run between $30 and $50 per square foot with construction costs approaching $100,000 per room in some cases. New Orleans average room rates have risen steadily for the past 4 years to a high of approximately $165 per night. Major flag operators/investors include the Westin, Wyndam, Mariott, Doubletree, W and Radison. With few exceptions most of the projects mentioned are being developed by local developers.

With the hospitality industry in the area growing at a hectic pace local developers are realizing these opportunities, not only in the French Quarter and CBD, but also in outlying areas. One hotel under development in the suburbs of New Orleans is the Wyndham Garden Hotel in Metairie. Located in Jefferson Parish County, which is just outside New Orleans proper, the hotel will be the only four-star hotel in the county. The Wyndam Garden Hotel sits directly on Interstate 10 and the Causeway Approach to the Northshore. With seven stories and 182 rooms, the Wyndham Garden Hotel will also have an on-site parking garage, a ballroom, meeting rooms, a swimming pool and a full service restaurant and bar. Carl E. Woodward Construction is currently working on the design/build project under the direction of David Yarnick, Project Executive and Kurt Werling, Project Manager. The project is owned and developed by F & W Development, with a contract amount of $12 million.

Paul F. Dastugue III, CPM, is president of Property One, Inc. in New Orleans, Louisiana.


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