Tomorrow's New Orleans: The Current State of New Orleans' Commercial and Multifamily Property Markets Is the Focus of a Recent Survey by the Real Estate Research Corporation (RERC). the Findings Reflect a Sense of Qualified Optimism about the Potential for a More Vibrant Rebuilt City and Regional Real Estate Market

By Riggs, Kenneth P., Jr. | Mortgage Banking, October 2006 | Go to article overview

Tomorrow's New Orleans: The Current State of New Orleans' Commercial and Multifamily Property Markets Is the Focus of a Recent Survey by the Real Estate Research Corporation (RERC). the Findings Reflect a Sense of Qualified Optimism about the Potential for a More Vibrant Rebuilt City and Regional Real Estate Market


Riggs, Kenneth P., Jr., Mortgage Banking


As we pass the one-year anniversary of the hurricanes that devastated the Gulf Coast, the totality of the human and financial toll is just beginning to be put into perspective. One year later, there are some neighborhoods that have been cleaned up, restored and show little residual impact of the storms. But fully one year later, there also are entire neighborhoods and blocks of commercial areas that still look like they did right after the storms--and whose ultimate fate remains in question. [??] As rebuilding continues in earnest, it is important to recognize that the growth phase is yet to come. The core rebuilding will occur as insurance money and an influx of private and public debt and equity funds start to become available and start to pour into the region. [??] There are no quick fixes on the horizon, and there is a long road ahead that, in many cases, still needs to be forged and developed. [??] According to leading sources, one year into the recovery phase the New Orleans metro population is at 70 percent of its pre-Katrina levels. Additionally, 85 percent of the hotels are once again open for business, 50 percent of the hospitals, 33 percent of the restaurants and 29 percent of the schools. While the city's shipping industry is returning to its prior level of business, small-business activity and basic services are running behind.

The New Orleans convention business began to return in late spring 2006, and the city will host the Chicago-based National Association of Realtors[R]' (NAR's) National Conference & Expo in November. Convention business is absolutely critical to the success of New Orleans, and it will return--but it will take more time to return to its pre-Hurricane Katrina level.

The federal disaster spending for Hurricanes Katrina and Rita will top $122 billion, which surpasses the federal spending for the Sept. 11, 2001, terrorist attacks by $100 billion.

It will take at least five years to see a broad-based, meaningful change to this landscape. Growth in the commercial markets could easily go on for a decade or more. It will take courage, patience and conviction to see this region through its rebuilding phase, and there will be winners and losers in the commercial real estate arena.

Of particular irony is the fact that the commercial real estate investment market on a national perspective is viewed as being fully priced and with few investment opportunities. This is especially true for the larger, institutional investors that have too much capital and not enough deal flow to fill their needs. The national commercial real estate market has reached and earned a respectable level of maturity, which brings with it fewer higher-return investment opportunities.

As noted in many commercial real estate publications, investors are in search of higher returns but want a lower level of relative risk. The financial world refers to this as the "search for alpha." Most would argue that in an efficient investment market, higher returns with lower relative risk cannot exist, as investors will simply bid away the higher return opportunity with higher prices until the relative return matches the relative risk.

This is the investment backdrop for the New Orleans commercial real estate market. Real Estate Research Corporation's (RERC's) view is that in the coming years, New Orleans will be viewed as an attractive place for debt and equity investors to search for and find alpha; but for now, the New Orleans market is dominated by regional, smaller equity investors. However, for some larger debt players willing to take the time to understand this smaller investment universe, taking on more uncertainty may ultimately pay handsome rewards--but it will take the courage of one's convictions to see it through.

Mixed messages from investors, but bullish undertones

Researchers and analysts do not follow the New Orleans commercial real estate investment market like they do some of the other major markets such as Houston, Dallas and Miami. …

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Tomorrow's New Orleans: The Current State of New Orleans' Commercial and Multifamily Property Markets Is the Focus of a Recent Survey by the Real Estate Research Corporation (RERC). the Findings Reflect a Sense of Qualified Optimism about the Potential for a More Vibrant Rebuilt City and Regional Real Estate Market
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