Condo Mania: Is there room for more?

Thinking of buying or selling a condominium? Here’s the good news: New Orleans is not Miami.

A January report on the Miami-Dade County condominium market declared that the area “is experiencing the worst condominium boom-bust cycle in Florida since 1975.” A preponderance of “speculative inventory” has squelched sales activity, according to the report by the Attorneys’ Title Insurance Fund.

The report predicts that Miami’s condo market will continue declining all the way through 2010. By some estimates, if the present pace of activity continues in Miami, it could take more than four years to clear out the inventory of condos currently up for sale.

Home sweet home
Fortunately for condominium shoppers and owners in the greater New Orleans area, the picture here is better. The supply of quality condos doesn’t drastically outweigh demand and a buyer has a good chance of finding the type of unit he wants at a reasonable price, depending on the his price range.

That said, the market isn’t without challenges. A softening of residential real estate nationally has created uncertainty here as well. The uncertainty aggravates an already slow pace of housing recovery from Hurricane Katrina. In addition, construction costs have risen sharply in recent years and all along the Gulf Coast insurance costs have soared. The combination of rapidly rising costs and worries about the future has smacked a lot of investors who were looking to put their money to work in New Orleans.

“Everybody ran into the same brick wall in the second half of 2006, when people realized that construction and insurance costs were so high and that the city wasn’t recovering as fast as they had hoped. It caused people to pause, buyers and investors alike,” says Shaun Talbot of Talbot Realty Group.

While investor interest began to pick up in 2007, Talbot says the tremors in the national market hampered local action. The situation brought a halt to a proposed downtown New Orleans condo project called Vantage Tower, for which his firm was handling sales. “You looked at the numbers and you realized you’d have to raise your prices to a point that people couldn’t stomach,” he says.

Talbot says the market is gradually improving, with the pace of existing condo sales quickening month by month. “I do think we’ll see some high-rise buildings built in the next five years and we’ll see some other projects announced,” he says.

Wade Ragas, president of Real Property Associates Inc. in Metairie, says as many as 5,000 condo units were on drawing boards in the local area in mid-2005, but most of those projects bit the dust in the tough times that followed. As a result, he doesn’t see current supply and demand as being very far out of balance, particularly given the size of the condominium segment.

“It’s a small targeted market. I think we’re talking hundreds – not thousands – of people who have both the desire and the financial ability to buy the quality units,” he says.

Will future demand support growth in the condominium supply anytime soon? The next few months may provide an answer.

Towering Ideas
One proposal local real estate pros are watching closely is a downtown New Orleans condo tower called Traçage (pronounced Tra-SAHJ). The 24-story glass-and-steel structure, planned for construction at 1100 Annunciation St., would offer units ranging from studio to three-bedroom and penthouse configurations, each with balconies and views of the city or  river. Advertised pre-construction prices for the units range from $255,000 to above $1 million. Features of Traçage (which is a French word for “loft”) would include a pool, fitness center, observation deck and entertainment area, concierge and security services, high-speed elevators and private garage parking.

While the project’s developer, Spectrum Capital of Jackson, Miss., has said it’s taking reservations for units in Traçage, groundbreaking has not been scheduled. Sources at Spectrum didn’t return phone calls requesting comment on the project.

Another high-profile residential project proposed downtown is the massive Trump International Hotel and Tower. Announced in mid-2005, by New York real estate mogul Donald Trump, it was widely assumed that plans for the 70-story condominium-hotel combination would dissolve in the wake of Hurricane Katrina. But Trump continued to express interest in the local market and his son, Donald Trump Jr., said recently that a sales office would open soon next door to the project site at 555 Poydras St., (now a parking lot). As of press time, a sales office had not yet opened.

Meanwhile, two other proposals for condo-hotels are waiting in the wings. One, by local developers Angelo Farrell and Lee Laporte, would turn the old Astor Hotel building on Royal Street in the French Quarter into the Royal Cosmopolitan, a 131-room structure in which – like the Trump tower – individuals could own condominiums but could make them available for use by hotel guests. Farrell says buyers have stepped forward for about a quarter of the units and he hopes the project can break ground by summer.

In addition, local developers Darryl Berger and Roger Ogden last year received preliminary approvals for tax benefits that would enable them to build a $210 million 242-room luxury hotel and condominium tower next to the Canal Place office and retail complex at the foot of Canal Street.

While the city awaits further word on these proposals, another  project that was announced long before Hurricane Katrina is actually taking shape downtown.
Developer Elie Khoury is well into the transformation of the former Krauss Department Store at 1201 Canal St., into the Canal Condominiums. The two buildings involved in the project will contain about 230 units, half of which will go on sale as condominiums, with the other half opening as rental apartments that eventually will be turned into condos. A spokeswoman for the developer says the company hopes to complete the project by the end of 2008.

Demand Areas
Meanwhile, New Orleans’ Warehouse District remains the highest-demand area for condominium living, according to Prudential Gardner Real Estate agent Eric Bouler. The concentration of condos in the area has been welcomed by many people who work in the downtown area and wish to live close by. Students and employees of nearby medical centers particularly like the area, says Bouler, as do people who want to own a second home that’s close to local attractions and amenities.

Warehouse District condos typically run in the price range of $180,000 to $450,000, though penthouse homes and larger units generally are higher. Bouler says the growth of the Warehouse District created competition for the more limited number of condos available in the French Quarter, though the French Quarter residences retain the cachet associated with living in the city’s most historic district.

Most of the hundreds of units that exist in the Warehouse District were originally built as rental apartments, using Historic Rehabilitation Tax Credits that made the redevelopment of the old warehouses economically viable. At the end of the five-year ownership period required for the tax credits, the owners then converted the apartments into condos for sale to individual owners.

That process is how many of the best-known residences in the area came into being, including Federal Fibre Mills, 700 South Peters Condominiums, the Cotton Mill Condominiums and the more recently converted Rotunda Condominium complex.
A still newer addition in the area is the Mills Row condo development at the corner of Tchoupitoulas and John Churchill Chase. The 30-unit complex, which opened last year, is a rarity in the Warehouse District: It is all-new condominium construction, rather than a conversion from rental apartments.

Condos Spread
The successful transformation of the Warehouse District into a residential neighborhood coincided with the rise of a number of successful condominium developments in other parts of the local area. The success of 1750 St. Charles Condominiums and other Uptown residences helped spur the development of condo clusters throughout that area. Well-established suburban complexes such as DeLimon Place in Old Metairie helped spark interest in quality condominiums around Jefferson Parish. And new condo proposals have sprouted around the West Bank as well, particularly in the last few years.

Condominium living clearly remains attractive in the local area, which is good news for those who are looking to sell Arthur Sterbcow, president of Latter & Blum Inc. in New Orleans, says that just over 2,012 condos were listed for sale by area Realtors in Orleans, Jefferson, St. Charles and St. Tammany parishes as of mid-February. That constitutes a little more than a two-year inventory at the current pace of sales, he says.

While condos are moving, Sterbcow says the growth of rental apartments  in the local area may be forming a new stumbling block for condo sales down the line.
“A lot of apartments went off the market because of Katrina, which put pressure on people in need of homes to buy condos,” he says. “But now a lot of rentals are coming back on the market and new ones are opening, and some people are thinking that they can rent more cheaply than buying.”

Sterbcow said more than 2,000 rental units were vacant in the metropolitan area in mid-February, suggesting that downward pressure on rents is likely to continue.

Meanwhile, the inventory of apartments is growing quickly, thanks to financial boosts from tax credits made available for post-Katrina development under the Gulf Opportunity Zone Act. Developers Matt Schwartz and Chris Papamichael have tapped the credits to create hundreds of units in three new mixed-income apartment complexes along the Tulane Avenue corridor. Another developer has undertaken an extensive conversion of the old Falstaff Brewery into more than 150 apartments in the same area.

Veteran condo developer HRI Properties, which masterminded many of the conversions in the Warehouse District, now is developing rental apartments in the Warehouse District and in Bywater.

Can condominium living take off locally in a bigger way given the variety of pressures and forces at work? Shaun Talbot thinks the eventual answer is “yes.”

“The city is a natural for condominium living,” he says. “Geographically, because we’re surrounded by water, we can’t keep growing outward. So if you want to live in the core of the city, you have to redevelop what we currently have or you have to go vertical. That means condominiums.”

Why a Condo?
The popularity of condominium living has grown over the past several decades in response to many factors. The relative simplicity of owning a home that shares common exterior areas and facilities — and the maintenance of those areas — with other owners is one appealing characteristic. The idea of owning a home and not having to deal with landscaping, lawn care, exterior maintenance and repairs tends to be attractive, particularly to first-time home buyers and, on the other side of the spectrum, empty nesters (older people whose children have grown up and moved out of the family home).

Many young buyers also find that a condominium may be financially feasible in areas where single-family homes are priced out of their reach. The older buyer, meanwhile, is often “trading down” in size from a large family home to a more simplified condo life. In these cases, buyers may have the wherewithal to purchase a luxury condominium that offers a wealth of amenities.

Granite countertops, up-to-date appliances in the kitchen and hardwood or high-end tile floors are among the features most condo buyers seek. Depending on their price range, they’ll also look for a spacious floor plan with ample closet space, perhaps a fireplace or two and ceilings higher than eight or nine feet.

Increasingly, condo shoppers want access to a swimming pool and maybe a fitness center. In addition, buyers of all ages put a high priority on safety and security, and will pay up for secure, covered parking and protected entryways. 

In return for shared services and amenities, condo owners pay monthly fees, often to an association designated to manage or “govern” the overall property. Usually these fees also cover the cost of insurance for exterior property and structures. (Each condo owner is responsible for insuring the interior and contents of his unit.)

Coming Soon?
Selected projects proposed and under way

Canal Condominiums (under construction)
1201 Canal St.
Redevelopment of former Krauss Department Store into 230 units, half to be condos, half to be rental apartments for five years before conversion into condos.
Developer: KFK Development (Elie Khoury)

ICInola (proposed)
4000 Burgundy St.
Mixed-use development featuring 105 loft-style units and retail to include a grocery store, spa, gym and restaurants.
Developers: Shea Embry, Cam Mangham

Traçage (proposed)
On Annunciation Street near Crescent City Connection.
24-story glass-and-steel condominium tower with 136 loft-style units, parking garage and ground-floor retail.
Developer: Spectrum Capital

Condo-Hotel Combinations
Canal Place hotel/condo tower (proposed)
Canal Street at the river.
242-room hotel and condo tower proposed on a site next to the existing Canal Place hotel/retail/office complex.
Developer: 3CP Associates (Darryl Berger, Roger Ogden)

Royal Cosmopolitan Condo Hotel (proposed)
121-125 Royal St.
Conversion of the former Astor Hotel building into 107 condo suites and 24 guest rooms.
Developers: Angelo Farrell, Lee Laporte

Trump International Hotel and Tower (proposed)
555 Poydras St.
The $400 million, 70-story project would contain 435 condo-hotel units and 290 regular condos, with retail amenities at ground level.
Developer: Donald Trump

New Rental Apartments
Bywater Art Lofts (under construction)
3725 Dauphine St.
Development of 37 apartments at the site of a former garment factory.
Developer: HRI Properties

Crescent Club (under construction)
3000 Tulane Ave.
Construction of a four-story, 228-apartment complex at the former site of Crescent City Motors.
Developer: The Domain Cos.

Falstaff Brewery Apartments  (under construction)
2600 Gravier St.
Redevelopment of the former brewery buildings into 156 residences for mixed income levels.
Developer: Renaissance Property Group LLC (David Miller)

The Meridian (under construction)
750 S. Jefferson Davis Parkway
72 apartments for low-income residents.
Developer: The Domain Cos.

Nine27 Apartments (under construction)
927 Poeyfarre St.
New construction of four-story, 76-unit building for residents of mixed income levels.
Developer: HRI Properties

The Preserve (under construction)
4301 Tulane Ave.
Redevelopment of the former Crystal Hot Sauce bottling plant into 183-unit complex for residents of mixed income levels.
Developer: The Domain Cos. (Matt Schwartz, Chris Papamichael)

River Gardens (under construction)
Second phase of redevelopment of the former St. Thomas housing project into 310 townhomes and other units.
Developer: HRI Properties