Developers see apartment potential in CBD office space

With office space occupancy continuing to trend down in the Central Business District, real estate analysts say the city should expect to see additional apartment development downtown as demand for urban living continues to stay strong.

The belief is that New Orleans is following a growing national trend in which more residents are returning to urban centers to live closer to where they work.

The Loyola Avenue streetcar passes the building 111 Tulane Ave., which was sold in May for $4 million. (photo by Tracie Morris Schaffer)

“These are renters by choice,” apartment broker Larry Schedler said. “They can afford to buy a home in a suburban area, but would rather rent in an area that is the center of activity.”

Schedler said the CBD is more accommodating to the idea of “urban housing” because it is has a large number of older buildings that are set up nicely for residential conversions.

“It is an open canvas in the CBD,” Schedler said. “There is a tremendous opportunity right now for investors and developers to come in and clean up an area occupied by parking lots and vacant older buildings, creating a larger tax base for the city.”

A cluster of vacant office buildings occupy the area bounded by Poydras, Canal and Carondelet streets and Elk Place. Renovation plans are already in motion at two buildings, 144 Elk Place and 225 Baronne St., while others, such as 234 Loyola Ave. and multiple buildings in the 1100 block of Tulane Avenue, show no signs of life.

At 144 Elk Place, developer Mike Wampold intends to convert the 17-story tower into 100 apartments with parking and retail on lower levels. Work on the building began in July and an opening is set for next spring.

At 225 Baronne St., HRI Properties hopes to start construction in October on a 192-unit apartment development that will also feature a small hotel.

Mark Madderra, principal partner in the mortgage banking firm Madderra & Cazalot, said New Orleans presents less of a gamble for such residential developments than cities such as Atlanta, Houston or Chicago.

“You have to look at the nature of the city,” Madderra said. “Historically, New Orleans is one of those cities with a vibrant downtown area. If any city is going to do well, it is us.”

Schedler added that New Orleans renters are getting bargain prices for residential offerings similar to those in larger cities. He said average rent per square foot ranges from $1.70 to $2 per square foot in the CBD, well below the $3 range seen in other city centers.

“Rents are respectable, but they are much more elsewhere,” Schedler said. “And when you consider the close proximity of most buildings to the Superdome, the French Quarter, the arts district and the streetcar lines, it is a considerable bargain.”

But rents in the CBD likely have not reached a peak. David Abbenante, HRI Properties president of residential property management, said rates at multi-family properties that have been around for years, such as the Woodward-Wright and Cotton Mill developments in the Warehouse District, have started to increase.

“The market caters to the person who really knows where they want to live,” Abbenante said. “Demand has been tremendous for a high quality product with high quality amenities.”

Abbenante said existing developments, as well as those currently in the works, are helping to redefine the downtown footprint.

“The Warehouse District, the museum district and the proposed South Market District are all becoming one distinct neighborhood,” he said.

Madderra said developers will continue to be bullish about the downtown residential market as long as demand and occupancy continue to increase. While the average occupancy rate for downtown office space is roughly 86 percent, apartment occupancy is consistently above 95 percent.

“Demand has been outpacing supply for the past five to seven years,” Madderra said. “Every year the city has added new units to the fold, and every year occupancy goes up. It’s not likely to change as the city will continue to gain young professionals coming to work in the medical corridor.”

Activity in the downtown residential market over the past two years supports his claim. In 2011, the CBD added 255 apartments when the 100-unit Maritime at 800 Common St., and the 155-unit Saratoga at 212 Loyola Ave. opened. Developer Marcel Wisznia, who owns both buildings, said they were close to capacity before opening day.

A year later the Hibernia Building, an HRI Property at 313 Carondelet St., added another 175 units to the market. Abbenante said that building was close to being full when it opened in October.

Schedler said there is an inherent gamble in the urban residential market, but it is a very calculated one. Investors and developers have a solid understanding of the dynamics and the expectations of the market.

“It’s like buying a stock,” Schedler said. “Developers have no reason to believe that their product won’t do well because the expectations are high. They also have an extra level of confidence thanks to a low interest rate environment.”

There are also not many other places in the New Orleans region to build apartments. Schedler said vacant land is scarce across the city, leaving the most suitable locations for new development in the CBD.

“The only place where we are seeing completely new building in the multi-family market is the North Shore, where land is available,” he said. “Any new development within the city is going to be vertical.”