The highest price in New Orleans commercial real estate history was paid last week for vacant land on Tulane Avenue, evidencing growth that has surprised everyone. This article chronicles why property values have increased so dramatically and how to spur growth in a city known for checkerboard development.
The 35,000 square foot site at Tulane and Galvez, near the Dixie Brewery, was the second largest tract of land on Tulane Avenue for sale and was on the market 639 days but sold last week for $43 per square foot at the list price of $1,500,000. It only has 66 feet fronting Tulane but is a corner lot and will be a credit union office.
Selling for list price makes this property unique because rarely do buyers pay list price for commercial real estate, unless the buyer really wants the property and the seller is in no hurry to sell. But there is a larger story unfolding. The price for this property is actually a result of an overall resurgence in commercial real estate in selected areas of New Orleans, because the growth is not a general trend encompassing the entire city, but a checkerboard of growth in areas where the is a concentration of population and disposable income, facilitated by city council member cooperation and tax incentives from the state and federal government.
The growth really started with the devastation of Hurricane Katrina in 2005. Without property being destroyed, owners would never have considered selling since much of New Orleans property is inherited in a city that is almost 300 years old. The change is a classic example of real estate being put to the “highest and best use”. For decades before Katrina, Tulane Avenue was a seedy little area with cheap hotels, bail bondsmen and greasy diners. Properties took on three to six feet of flooding during Katrina, and some buildings were leveled because they were no longer useful. Developers were able to acquire large blocks of land at prices that made projects feasible.
The first large sale on Tulane Avenue was the old Crystal Preserves hot sauce plant at 4235 Tulane Avenue, a 136,000 square foot industrial property that sold for $1,850,000, or $13 per square foot in September 2006. The satellite photograph below shows the plant was in bad shape and the interior was destroyed by three feet of flood water. In the upper right hand corner you can see the new development, called the Preserve, a 183 unit apartment built with $1.5 million in Low Income Tax Credits and $15,950,000 in Community Block Grant Funds. The demolition bid was $450,000, and the property had to be rezoned but had the support of city council member Stacey Head. District Council B has seen more growth than any other district due to city council support, which is why development in New Orleans looks like a checkerboard. City council members in District E in New Orleans East have outwardly rejected apartment development and what they call “medium box stores” for the last 5 years, and developers notice this and take their business elsewhere. Without new apartments to increase the population, retailers will not see an area as feasible. It’s all about “rooftops”.
The second large sale on Tulane Avenue was a 3 acre Saab dealership at 3120 Tulane owned by Volkswagen and sold on May 2007 for $1,500,000:. The original buyer was unable to get financing so Volkswagen gave the current owners 24 hours to come up with $100,000 deposit and pay the same price. They did and the sale was the last cheap price for property on Tulane at $11 per square foot. Low Income Tax Credits for $1.9 million were awarded to the project by a state agency, and financing was provided by the Industrial Development Revenue Board and $19.6 million in Community Block Grant Funds. The 228 unit apartment complex, called the Crescent Club and shown before and after in the photograph below, is now 100% rented, with 2 bedroom units bringing $1,200 per month, and the only stipulation that 40% be rented to individuals below the average income in the area and the other 60% can be rented at a “market rate”.
The third development in the area was the last 6 acre site in the city, an abandoned industrial site purchased in July 2007 for $5 million or $20 per square foot.
The site needed rezoning and was developed into the Marquis Apartments, a 435 unit apartment complex at South Broad near the Tulane Courthouse, financed with $2 million in Low Income Tax Credits and $27 million in Community Block Grant Funds.
The fourth largest development was a retail development to provide services to Tulane’s new apartment residents, and six residential lots were assembled in September 2008 in the 3100 block of Tulane at a cost of $1.3 million for 34,000 square feet of land, or $39 per square foot. The retail center required rezoning from residential to commercial and is now fully leased with rents over $20 per square foot including well known tenants such as Capital One Bank and Subway.
Sources: New Orleans Assessor’s Office, Louisiana Commercial Realty. Robert Hand represented several buyers of the above properties and provided proprietary photographs and data.
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