In Wake of Oil Spill, Vacant Units in New Orleans Gobbled Up by Corporate Housing
- Jul 06, 2010
New Orleans—More than two months after the BP Gulf of Mexico oil spill first made headlines, the saga still continues. The latest is that high seas and winds have disrupted spill responders’ efforts to contain the oil gushing from the well in the two days after Hurricane Alex made landfall hundreds of miles away from the spill site.
As devastating as the oil spill is, it seems to have created a mini job-boom in the state of Louisiana. BP has hired more than 20,000 people as part of the response to the April 20 accident and its aftermath. Some are contractors and subcontractors, others are laborers.
In Pensacola, Fla., 4,000 people in Escambia and Santa Rosa counties showed up at recruiting events to apply for 500 potential clean-up jobs.
Many have taken up residence at staging areas along the coast in Florida, Alabama, Mississippi and Louisiana, so New Orleans isn’t exactly seeing a surge in rental demand. MHN spoke to a couple people who work in the multifamily industry in the New Orleans area to get the thoughts on the situation.
Matthew Schwartz, principal of Domain Companies. Domain has projects in the city of New Orleans.
Schwartz: In the near term, we haven’t experienced any negative effects. We have about 500 units of new, Class A, mixed-income, mixed-use units in the market and the project is 100 percent occupied. Well-located, good quality product has generally been performing exceptionally well in the city. On the affordable side, demand well outpaces supply and on the Class A market-rate side, particularly in downtown, we found the same condition. Generally speaking New Orleans has been a very strong market for us. We’ve done very well here.
In the very short-term, the few market-rate deals that we know of that did have vacancies (even some of them that were in lease up) have had their units gobbled up by corporate housing companies that are looking to come into town to place the influx of people coming into the city working on this situation (oil spill). If anything, it has tightened the market in the near-term and increased overall occupancies market wide.
The long-term impact is hard to predict. It depends on the extent of the clean-up. How long those companies are going to be there? We don’t have a substantial pipeline of new market-rate developments coming online to absorb the increased near-term demand–however long it’s going last. So we anticipate some substantial tightness in the market at least in the near-term.
Another thing is that there is substantial job growth predicted—significantly higher than what it has been before. So there is actually a disconnect between the pipeline underway now, and the projected job growth, which by the way, is from industries other than energy sector. So longer-term, going forward, we see that as a positive. We don’t think the oil spill will impact the market negatively enough to offset the positive growth.
Barring the impact of the oil spill, we see strong fundamentals in the future for his area. But of course we are keeping our eyes open and watching this situation closely. There is concern among everyone here.
Larry Schedler, principal of Larry G. Schedler & Associates. The company does brokerage and advisory for large multifamily owners as well as purchasers looking to make acquisitions, primarily along the Gulf in secondary and tertiary markets.
Schedler: We are about a 100 miles from the mouth of the river, and the staging area for all this is by the mouth of the river. So people who have summer homes, houseboat barges and stuff down there, are renting those units to people who are doing this work right now. I have not seen as big a resurgence for apartments due to this. If this goes to trial, it will obviously mean there will be tremendous need for rental units, but it’s all too early to tell, right now.
In general, our market has been propped up with dollars from Katrina, lot of public projects going on–levy systems and floodwalls are being built and there are still some rebuilding projects from the storm. So this blow has kind of been softened. A lot of new construction has been driven by LIHTC, tax exempt bonds etc.
We are all keeping a watchful eye on the moratorium on offshore drilling, whch impacts everybody down here. It is causing everybody to pause a little bit. Does it affect New Orleans directly? No. But it does impact surrounding businesses and relatively small apartments markets around New Orleans.
I think the next six months will be interesting. There are genuine concerns that if they don’t lift the moratorium soon, the infrastructure will move to other places. However devastating this oil spill is, it’s a once two punch if that happens.
Overall the New Orleans market is 88 percent occupied. We have about eight projects under construction right now in the entire market, of them 75 percent are market-rate and 25 percent are affordable and mixed-income. All in all, the market is not slipping further and rents are stabilizing a little bit. But, it all comes down to job growth.