MULTIFAMILY INVESTORS, DEVELOPERS FIND HIDDEN OPPORTUNITIES IN NEW ORLEANS
Sometimes there is a “herding” mentality in real estate investment activity, but markets that do not make the headlines of news stories or appear on the top market lists are the ones investors should focus on.
New Orleans is one such market, and while it might not be on everyone’s radar, it has the fundamentals and dynamics that are attracting investors’ attention. With a total inventory of approximately 55,000 units, demand for multifamily acquisitions in New Orleans and the Gulf South region overall remains strong.
Over the past 24 months, the market has experienced heightened demand from national, regional and foreign investors. The investment community is attracted to the stability of the market, as well as its significant barriers to entry.
What is attracting investors to metro New Orleans are higher cash on cash returns and cap rates than what they are finding in larger metropolitan areas. Investors feel confident in their ability to realize rent growth, given the high cost of single-family housing and the significant geographic barriers to entry. Developable land is scarce and has given multifamily owners a franchise of sort since the ability to increase the supply is limited.
As New Orleans prepares to celebrate its 300-year Tricentennial, historians reflect on how resilient the crescent-shaped city built on the bend of the Mississippi River truly is. Lessons learned from natural and man-made disasters are shaping its future with numerous infrastructure projects underway that will inevitably improve quality of life for future generations.
Job growth and balanced supply and demand have been the norm in New Orleans for a sustained period of time. This steady as she goes approach has given investors comfort and cause to look at and invest in multifamily housing across the state of Louisiana.
Portfolio sales are common in other major markets across the country, however, were scarce in our markets until now. Recently, a foreign partnership acquired a portfolio of nine Louisiana properties from AVR Realty for $250 million. The portfolio consisted of three properties in Shreveport, four in Lafayette and two in metro New Orleans.
Investors making an entrance into the New Orleans market commonly seek economies of scale and a portfolio large enough to sustain an efficient regional operation. The attractiveness of the multifamily sector and the capital markets desire to place larger blocks of equity should prompt additional portfolio sales over the next six to 12 months.
While the majority of metro New Orleans has a lack of developable land, the market is not void of new development. New construction has been restricted mainly to two sub-markets. Suburban multifamily development is focused in St. Tammany Parish, which is situated on the north shore of Lake Pontchartrain. This submarket has a total inventory of approximately 7,000 units, and unlike the south shore, has an abundance of land and the income levels to support new market rate development. The St. Tammany market will add 1,066 suburban market rate units this year.
The other area of activity has been our urban core, the Uptown/Warehouse/CBD submarket. This district has been on an upward trajectory since 1984 and has the highest rents in the metro. In the past the majority of development was centered on the conversion of older office buildings and warehouses utilizing historic tax credits. What was once a small eclectic group of properties, has been transformed into a thriving residential and commercial neighborhood. Currently, this area has approximately 1,425 units in various stages of development.
Due to rising demand and rent levels we are now seeing increased activity of ground-up developments. One of these notable projects is Canal 1535, a 330-unit high-rise property being developed by Dallas-based Provident Realty Advisors, Matt Harris and Dave Holland. The property will feature 10-foot ceilings and parking on each floor. Canal 1535 is walking distance to the Biodistrict and the new innovative downtown medical corridor. Construction is scheduled to be completed in September 2018.
Another neighborhood to watch is the historic Bywater. New construction and redevelopment approvals have been granted to add condominiums, mixed-use and affordable properties, the largest being Via Latrobe, a 260-unit mixed-use community with 23,000 square feet of commercial space.
All sectors of the metro New Orleans market are reporting more than 95 percent occupancy. This stability exists in both the conventional and affordable markets. Given the barriers to entry, the successful investors and developers will be those that take time to learn the intricacies and uniqueness of the city and have the ability to identify emerging submarkets. There are many hidden gems in the New Orleans metro for those that refuse to follow the herd.