Will more real estate developers pick condos in New Orleans?
Developers of the mixed-use South Market District have announced their plans for the new downtown New Orleans neighborhood building-by-building over the last two years, including apartments, retail stores, restaurants and a hotel.
In July, The Domain Cos. made its latest announcement, one that signaled a shift in the New Orleans real estate market. South Market District's fourth new building will be 15 stories of luxury condominiums, in the midst of an apartment boom in the Central Business District.
While South Market District is a prominent example, new-construction condo projects are popping up in neighborhoods across the city, as developers jump on rare vacant land and squeeze new buildings into historic streets. Prices continue to grow in the condo-centric Warehouse District and the ever-popular French Quarter.
Meanwhile, a wave of apartment-to-condo conversions in the Central Business District could begin over the next 10 years, as restrictions imposed by historic tax credits are lifted for developers who renovated old office buildings into rentals.
"Within the next five to seven years, you're going to see a lot more condos in the CBD like you see in the Warehouse District," said Michael Bosio of MK RED Development.
His company is developing condos in the Marigny, at the former Dauphine Street site of the Hubig's Pie fried pie factory, which burned down three years ago. Baker's Row condominiums is a $3.2 million project with two, four-unit buildings and a swimming pool.
MK RED is also targeting vacant land on the riverfront in Bywater for another condo project. The $8 million, 55-foot building would house 16 condos, near the Piety Street archway bridge into Crescent Park.
Bosio said there's a growing trend of doubles being converted into single-family houses in popular neighborhoods, signaling a move toward home ownership, and rental demand remains strong.
"Looking at those attributes of the market, it makes us feel comfortable going after condos because we realize there's a strong demand for ownership in these areas," he said.
In New Orleans, the number of condos listed for sale remained about the same last year, but demand is strengthening. A condo was sold after an average of 63 days on the market, compared with 80 days in 2013, according to the University of New Orleans Institute for Economic Development and Real Estate Research. And, similar to surging single-family home prices in the city, the average price of a condo spiked last year by more than 11 percent to $325,106.
The number of deals is still roughly half of the sales activity a decade ago, before Hurricane Katrina: 568 unit sales in 2014; 1,093 unit sales in 2005.
Construction recently began on Oak Street lofts, a four-story condo building at the riverside end of the blossoming Oak Street commercial corridor. Developer George Fowler said the $6 million project was designed with the neighborhood in mind, including setting back the fourth floor to minimize visibility from the street.
Fowler said the location allows the condo building to be a residential anchor that supports Oak Street businesses.
Prices haven't yet been set for the 21 condo units, which are set to be finished in spring or summer of next year, he said.
"We have an older housing stock in New Orleans, and I see a lot of people, they don't want to have to renovate," Fowler said. "They don't want to deal with the issues of an older house. There are a lot of people looking for a turn-key housing solution, and condominiums, especially new builds, provide that."
The high-profile $360 million planned renovation of the former World Trade Center on the riverfront into a Four Seasons hotel includes 76 luxury, hotel-serviced condos on the top floors.
Eric Bouler, a Gardner Realtors agent who has focused on condos since 2004, said second-home buyers, typically ages 50 to 70, are prevalent on the market, and they have expanded their interest beyond the French Quarter and St. Charles Avenue.
"Now, the second-homers are all over the city," Bouler said. "They've been exposed to the Lower Garden District, the Marigny, Uptown, University, Lakefront."
Their willingness to look everywhere has begun to price out some condo buyers looking for a primary residence, he said.
Another growing trend: Wealthy families buying condos, especially larger two-bedroom units, as a place to spend a few months out of the year and invite friends along.
Prices are up. Bouler said. For example, a condo purchased for $175,000 in 2005 just sold last week for $283,000. Most of the demand is focused on a price range of $300,000 to $500,000, he said.
As interest in French Quarter listings has increased, driving prices up, the demand has rippled out into all part of the city, he said.
He has also noticed condo owners are less likely to give them up. A doctor who finished medical school and moved away, for example, is opting to rent his condo rather than sell, Bouler said.
The trend of downtown office buildings being converted to apartments and hotels has been fueled by federal and state historic preservation tax credits, which allow developers to raise equity for the renovation of a historical building. Federal historic tax credits require developers to keep ownership of the property for five years after a renovation is finished. If a developer sells the property before then -- such as selling off condos -- the federal government can force developers to pay back the value of the credits.
Wade Ragas, a real estate consultant, said it's too early to tell how many apartment developers in historic buildings will choose to convert to condos after five years.
There are thousands of apartments in projects that relied on historic tax credits which could potentially become condos, he said. The conversions would start in 2019 through 2025.
Developers will decide based on current market conditions. Condo demand depends on the larger economy and whether the jobs are there to make someone feel confident enough to buy, he said.
"A lot can happen in five years," Ragas said.
On the other hand, developers might opt to use an income-generating apartment building to pull equity for other developments, he said.
"There's an incredible array of capital alternatives that go with the apartment side of the development, rather than jumping in and doing all condo right now," Ragas said.