SPECIAL FOCUS: AFT’s Top 50
Apartment Markets
APARTMENT FINANCE TODAY • OCTOBER 2007
NO. 5 • NEW ORLEANS: Doing the Second-Line Boogie
Phenomenal rent growth and low vacancies
make New Orleans a market worthy of a
parasol-twirling parade.
By Liz Enochs
New Orleans’
famous brass
band-led jazz
funerals were often followed
by what was known
as a “second line” of revelers
who joined the procession
to boogie to the music.
Second-liners became a
welcomed and celebrated
part of the city’s music-centered
culture.
Some might call the apartment developers
who swooped into the Big Easy
after Hurricane Katrina a kind of second-
line, as they looked for investment
opportunities in the rebuilding that was
needed in the aftermath of a national
tragedy. The companies, though, were
not welcomed with open arms.
In December 2006, the western New
Orleans suburb of Westwego passed a
citywide moratorium on all multifamily
development. In neighboring Jefferson
Parish, one local lawmaker who opposes
new apartment development has
said he wants to tear down rather than
renovate at least 1,500 of the multifamily
units that were damaged in the hurricane.
“The conventional wisdom after the
storm was that everybody would welcome
new development, big apartment
developments,” said Larry Schedler, a
New Orleans apartment broker.
“Nothing could be further from the
truth. Even in moderate-income areas of
town, people do not want multifamily.”
That’s one reason rents in New
Orleans have soared at the fastest pace
of any U.S. city, jumping close to 30 percent
over the past year, and helping the
city snag the No. 5 slot in our ranking of
the top U.S. apartment markets.
Average rents in the metro area have
soared from about $664 in August
2005, or 78 cents a square foot, to $844,
or 99 cents per square foot, according
to Schedler, who tracks apartment
complexes with more than 100 units.
He counted 48,000 units in the metropolitan
area before Katrina hit. Now
that number is more like 38,000,
Schedler said. “When the dust settles, it
will probably be around 42,000.”
While supply has shrunk, demand is
still strong, pushing the vacancy rate
down to 3.7 percent. The greater New
Orleans area had a population of about
1.4 million before Katrina hit, and has
regained the lion’s share of those residents
to reach a population of about 1.2
million. The city proper had regained
about 68 percent of its pre-Katrina population
as of August, according a report
from the Greater New Orleans
Community Data Center.
On top of that, insurance costs and
operating expenses have soared, meaning
landlords can no longer afford to rent
for much less than $1 per square foot.
The rising costs, on top of a shortage of
buildable land and local opposition to
multifamily development, are a few of
the things that make New Orleans a
market with high barriers to entry.
Meanwhile, a labor shortage has
pushed up salaries even at the lower
end of the spectrum, and there’s plenty
of job growth occurring as the city
recovers. For investors and developers
who can find a way into the market,
that’s just the right formula to prompt a
celebratory, second line-style parade.
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