Real estate analysts say the downtown New Orleans residential market could be heading for its biggest test yet, with several large-scale developments expected to go on the market within the next 12 to 18 months.
Pre-leasing has started for The Paramount, one of the apartment buildings under construction in South Market District. The Domain Cos., which is developing the area in downtown New Orleans, reports that interest in new units has been high. (Greg LaRose)
More than 1,400 apartments or condo units are either under construction or development for major projects between Howard Avenue and Canal Street. This figure doesn’t factor in the assortment of smaller projects downtown that include a residential component.
Some say it’s the highest level of development intensity in recent CBD history.
“When you look historically at the downtown market, the formula that has made for its success has been that the residential units have come in a small steady stream,” said Ivan Miestchovich, director of the University of New Orleans Institute for Economic Development and Real Estate Research. “There were no big bulges in the supply line and the units were easily absorbed into the market. The next two years will show the depth of the market.”
With tax credit financing attached to many of these projects, Miestchovich said developers have been able to reap the benefits of low-risk development that allows them to build with a financing cushion to carry expenses while anticipating the possibility of high reward in occupancy and rental rates.
“The Hibernia Building is a prime example,” he said, referencing the HRI Properties project at 812 Gravier St. “People got really excited to see that building fill up right as construction was completed. We don’t know if the same can be said for these developments happening in the next few years, but developers still have some flexibility to plan for what the market dictates.”
One development already starting to fill up prior to completion is the 209-unit Paramount at South Market District, which recently began pre-leasing its one-and two-bedroom apartments prior to its fall opening.
Megan McNeill, spokeswoman for South Market District developer The Domain Cos., said interest in the property has grown tremendously since the start of the year as the walls of the building began to rise. She declined to comment on the number of units pre-leased but said demand has been strong.
“Domain developed the property with longevity and sustainability in mind,” McNeill said. “We believe we have a superior product that will stand the test of time, but we are always mindful of new amenities or technological advances that will keep us current.”
Larry Schedler, a real estate broker dealing in multi-family properties, agrees that the apartment inventory under construction will test the market, but he sees each development as unique and targeting a different segment of renters.
“Most are luxury units targeting the young professionals coming into the city, but there are also some mixed income units that will be part of this influx of inventory,” Schedler said. “Each one has its own innovative design, and there is a lot of creative use of space.”
He points to the new medical facilities in Mid-City as the driver for demand in the downtown housing market. They are scheduled to come online in the next two years and bring thousands of jobs with them.
“When I bring investors into the city for the first time and we pass those construction sites along Canal Street, I don’t even have to say anything,” Schedler said. “You don’t have to sell them because they see the massive size of what is going up there.”
Even with recent multi-family openings downtown, Schedler said the market has maintained an occupancy rate around 96 percent. Virtually all of the projects underway or in development were not underwritten expecting that high of an occupancy rate, he added.
“It’s not the end of the world if occupancy drops three or four points to 94 or 93 percent,” he said. “There is still some elasticity in the market.”
Although the addition of 1,400 units will help address demand, it might not do much to temper rising rents in the downtown market.
Miestchovich has tracked rents in the CBD and noted they have been on the rise over the past 12 months. He said it is difficult to predict what the influx of units will do for rents five or 10 years down the line.
“Most of the rents for these properties are right at market rate or coming in just below,” Miestchovich said. “If demand stays high and construction starts to slow, it’s hard to argue not coming in above market rate.”
Biannual rent and occupancy reports Schedler has helped compile reinforce Miestchovich’s point. His data shows the average rent in the city’s “Historic Center” — which includes the French Quarter, Warehouse District, the St. Charles Avenue corridor, Mid-City and downtown — has risen more than $25 every six months going back to 2011, starting at a low of $1,208 and reaching $1,379 this year.
The market is willing to pay those rates, Schedler said, noting that people looking to live downtown are willing to pay a little more for the setting.
“You could pay the same rent for a unit in the suburbs with more space and more amenities,” he said. “When you live downtown, the neighborhood is the amenity.” •