Appearing on nola.com and Written by Jennifer Larino
New Orleans is known for its historic housing stock, with its century-old shotguns, wrought iron railings and inviting porches. The latest wave of new housing, however, is sleek and modern, attracting buyers to the city’s downtown with a skyline view, rooftop pools and dog runs, and shiny new storefronts.
“There’s absolutely more going on now than there ever has been,” said developer Matt Schwartz, whose company, The Domain Cos., started construction in July on The Odeon, a $106 million, 271-unit apartment building. Its latest completed development, an $80 million, 89-unit luxury condo building called The Standard, opened in April.
Downtown New Orleans has always been an evolving landscape. Lately, change is in overdrive. Roughly 200 new condo units will soon open up to buyers within a 12-block section of the Warehouse District. More condo buildings are in the works.
Experts say a mix of demand and available financing has fed the growth up to this point. Will it last? Probably not, though Schwartz and others plugged into the downtown real estate market say there are still buyers out there looking for the type of design-forward condos rising up on Warehouse District corners.
731 St. Charles, a new condo development in downtown New Orleans, takes shape on St. Charles Avenue, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Prices are likely to soften and future projects will be fewer, smaller and less flashy than those going up today. However, they’ll still aim at what they see as a group that’s only going to grow: Buyers, young and old, drawn to the city’s compact, walkable urban core.
Shaun Talbot, vice president of Talbot Realty Group, has handled hundreds of downtown listings over more than two decades in real estate. He noted before Hurricane Katrina and the levee breaks it was estimated the city’s downtown had enough room for 10,000 new multi-family units. Talbot said downtown has added only about half that over the last decade.
“We have room for more density downtown,” Talbot said. “That’s the bottom line.”
The Standard, a new condo development in downtown New Orleans, stretches into a clear sky, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Indeed, honing in on the Central Business and Warehouse districts, sales of downtown condos are up. As of Nov. 28, a total of 157 condo units in those neighborhoods sold or went under contract so far this year, up from 88 a year ago, according to data tracked by Geoff Lutz, who runs a local appraisal service and analyzes condo sales. That is a 78 percent jump.
Condos in those neighborhoods sold for $469 per square foot on average, well above values elsewhere in the city, but on par with prices fetched in the CBD and Warehouse District over the last few years, according to the data.
Prices appear to be holding for now. There were 122 active listings in the area on Nov. 28, a third of which were newly built units, according to Lutz’s report. The average selling price was $693,333 looking at all units, existing and new. The average price tag for a brand new condo? The report estimates $881,098.
That compares with lagging sales and softening prices in the nearby French Quarter, which has slowed considerably as city leaders move to tighten oversight and regulation of short-term rentals citywide. The New Orleans City Council banned French Quarter short-term rentals in December 2016.
Lutz noted the downtown condo market is a world apart in New Orleans. It’s the only area in the city where large condo buildings are being built. It’s very much a regional market, with “people coming in from Mississippi, Shreveport and Baton Rouge to buy,” he added.
More recently, economic development gains, including the Mid-City hospital complex and new downtown tech hubs for firms like DXC Technology and Accruent, have fueled speculation about a surge in demand for downtown housing.
The Julia, a new apartment development takes shape around a historic building on Julia Street near St. Charles Avenue, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
To be sure, condo developments aren’t the only developments taking shape downtown. The Odeon will be the third apartment complex for Domain Cos. in its South Market District, a $500 million mixed-used development where the CBD and Warehouse District meet. The Julia will bring 195 apartments to the corner of Julia Street and St. Charles Avenue. In addition to condos, The Kalorama, the pink-hued development at Girod and Magazine streets, will include 35 apartments.
Multifamily development isn’t exclusive to downtown, either. Look to the Edwards Communities apartment complexes going up in Mid-City or the Parkway Apartments taking shape near Xavier University.
However, it’s the downtown luxury condos (and their prices) that raise brows. Who’s buying them?
Talbot said out-of-towners looking for a second home have always driven the downtown condo market. They’re more likely to be wealthy people from Mississippi and elsewhere in the South than well-heeled buyers from the East or West Coast, he said. New Orleans Saints fans who live elsewhere in Louisiana, but have money to spend, have scooped up downtown properties for years.
“There are a lot of people who want a place here, but don’t necessarily want to live here full-time,” Talbot said.
The Kalorama, a new condo and apartment development in New Orleans’ Warehouse District, takes shape at Magazine and Girod streets, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Those folks are still buying, but, recently, they’ve been joined by some new groups. Talbot said a growing number of well-off New Orleanians in their 50s and 60s are downsizing, trading in a large house and yard in River Ridge, Uptown or Metairie for a similarly priced condo in the city. Other buyers are established downtown renters who finally feel confident enough to buy. Doctors and other well-paid professionals moving to New Orleans for work are another slice of the market, though one that isn’t growing as fast as some may have predicted, Talbot said.
“It’s been more of a trickle than a waterfall,” he said.
The Kalorama, a new condo and apartment development in New Orleans’ Warehouse District, takes shape at Magazine and Girod streets, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Developer Brian Gibbs noted the developments themselves are also changing. Gibbs developed 930 Poydras, the first high-rise residential tower to open in the city after Hurricane Katrina, as well as the Civic Lofts in the historic warehouse next door. Civic Lofts opened in 2006, and 930 Poydras in 2010.
Back then, downtown living appealed almost exclusively to young professionals without kids who were fine with giving up space and paying extra to live close to nightlife, Gibbs said. Most condos were converted rentals or apartments.
Now developers are building condos with condo living in mind, he said. The new wave of luxury condos touts floor-to-ceiling windows, open floor plans, professional-grade kitchen appliances and as many as three bedrooms for those willing to pay for the space. That broadens the pool of buyers, Gibbs said.
“It’s not what it used to be,” he said.
Window advertisements for The Standard tout downtown living along O’Keefe Street in downtown New Orleans, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Demand alone doesn’t spur the type of activity downtown New Orleans is seeing.Condos are notoriously hard to get financing for, especially in a downturn. Banks are wary of lending to condo buyers, especially if there are questions about the finances of the condo owner’s association or if too few of a building’s units are owner-occupied. In turn, financing can be tight for condo builders.
Talbot noted before and shortly after Hurricane Katrina it was “very difficult” to get financing for new condo projects. Over the same period, hundreds of existing downtown apartments were being converted and sold as condos, causing supply to shoot up. Developers focused on apartments as federal funds poured in following Katrina because that’s what they could get money for.
Even so, Schwartz noted New Orleans didn’t have the frenzied building that crippled other cities once the financial crisis hit in 2008.
“New Orleans never really got overbuilt,” Schwartz said.
A construction worker looks down to street level from The Julia, a new apartment development taking shape at Julia Street and St. Charles Avenue, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
The market shifted again around 2010. Banks started to lend again, the inventory of available condos was in the double digits and the second home market started to bounce back from the recession. People were “screaming for condos,” Talbot said.
Today’s construction sites are in large part the result of the recent wave of successful financing. The Standard, completed in April, will be followed by The Kalorama, The Marquis on Baronne Street and 731 St. Charles Avenue among others. Plans are in the works for a 16-story, 90-unit condo building at 1100 Annunciation Street. Construction has started on what is poised to be the grand dame of local residential towers: the $465 million Four Seasons at the foot of Canal Street, which will include 92 condos.
Lutz’s report excludes sales data from condos that were under construction or not yet open in the third quarter, but a footnote points out that 32 units sold and three under contract at The Standard went for more than $730 per square foot as of early October this year. Condos at 1100 Annunciation have yet to be built, but 15 units went under contract at more than $535 square foot.
“The strong result in the face of so much new inventory is remarkable,” Lutz noted in an October report.
The Four Seasons is expected to bring the city’s most expensive condos, at roughly $1,200 per square foot. Talbot and others say it could also put New Orleans on the map for a set of buyers that may have previously overlooked it: international high rollers.
An office building at 1100 Poydras St. looms in the background over The Beacon (left) and The Paramount at South Market, two apartment developments from The Domain Cos. that front Girod and O’Keefe streets. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
What’s next? Experts agree another major high-rise project is unlikely. Schwartz noted the supply of historic buildings in the CBD and Warehouse District is dwindling, a big hurdle for future projects.
Prices downtown, and possibly citywide, are likely to soften as hundreds of new units enter the market next year. Talbot expects apartment buildings could start cutting rents and offering more incentives to lease as competition increases there.
Schwartz predicted a “stabilization” in prices as New Orleans absorbs the new units, which is “substantially more supply than we have ever had.”
No one sees values diving. That is unless developers start converting old apartments into condos again at a healthy clip. Talbot noted a good portion of New Orleans developments use historic tax credits, which provide tax breaks to promote the rehabilitation of old buildings. Those tax credits eventually expire and when they do, one option for apartment developers is to convert those properties and sell them off as condos.
“Then we would really see a glut in condos,” Talbot said.
930 Poydras, one of the first major apartment developments downtown, sits at the corner of O’Keefe and Poydras streets, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
The short-term rental debate is another wild card. The City Planning Commission in September released recommendations that would put strict limits on short-term rentals in owner-occupied residential zones across the city. That includes multifamily buildings.
Talbot noted downtown condos fit awkwardly in the short-term rental debate. Condo buildings are overseen by condo associations, the bulk of which in downtown New Orleans impose 3-month to 6-month minimum stays for any short-term rentals, if not outright rental bans. However, the ability to rent out a unit for part of the year has helped encourage more people to invest in downtown, especially among second home buyers, he said.
“They’ve got to be very careful that they don’t alienate a whole group of people who are paying taxes and are living here,” Talbot said.
Gibbs noted the market is already starting to impose its own limits on short-term rentals. Efforts to do mixed-used, short-term rental and condo developments have met limited success in other cities. Condo owners generally don’t want strangers coming and going in the building, or using the pool and other amenities. Gibbs pointed to one Nashville development that tried such a mix and wound up with added costs like having to build a separate lobby for short-term rental guests.
Additionally, major national lenders, namely Fannie Mae and Freddie Mac, do not finance whole-building, short-term rental developments.
731 St. Charles, a new condo development in downtown New Orleans, takes shape on St. Charles Avenue, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
That said, short-term rentals have made banks more comfortable lending to downtown projects, Gibbs said. Banks want to be sure the building will be full before they agree to a loan, but condo sales are hard to guarantee. Short-term rentals open up options.
Gibbs said strict rental rules could limit the number of future projects that take shape downtown. He is among those calling on the City Council to allow short-term rentals in the Warehouse District and Central Business District, where many properties sit next to or steps away from a hotel. The CBD and Warehouse District have plenty of vacant lots and aging buildings that “are too small (or poorly located) to attract a conventional hotel use, yet too expensive to develop feasibly as apartments,” Gibbs wrote in an October letter to New Orleans City Council members.
Short-term rentals can “fill the gap,” he added.
A streetcar passes The Julia, a new apartment development taking shape at Julia Street and St. Charles Avenue, Tuesday, Dec. 4, 2018. (Photo by Jennifer Larino, NOLA.com | The Times-Picayune)
Regardless, experts agree downtown New Orleans is teed up for more residential growth. Land in New Orleans is limited and getting more expensive, and flooding is a big concern for many younger buyers, Talbot said.
New Orleanians are generally more mindful of preserving historic properties, which make surface parking lots and empty sites downtown ideal spots for “vertical living” in multifamily towers, he added.
“You almost have to go up,” Talbot said.