NEW ORLEANS — The biggest barrier to growth in New Orleans after the city was nearly destroyed by hurricanes Katrina and Rita in 2005 is commercial insurance, according to local real estate brokers. Rates are so high that many companies will have a tough time rebuilding and opening once again.
“Residential rates are a factor for sure, but if commercial rates aren’t reasonable, there aren’t jobs for all those people, and if you don’t have jobs you don’t have a neighborhood,” said Arthur Sterbcow, president of Latter & Blum Realtors in Louisiana.
Sterbcow’s company had 28 offices before Katrina hit in August 2005 and the next day it had four, he said. But things are looking up for the real estate market, he said. Sales in nearby Baton Rouge and in surrounding parishes are booming. “They are growing at levels they weren’t expected to reach until 10-20 years from now.”
Though many former New Orleans residents will not return — mostly the elderly and poor — Sterbcow says that many have already come back and some new people are moving in. Many of the newcomers are under age 35, he said and some people are buying not just one house, but the also the house next door.
The “new” New Orleans is already starting to take a much different shape than the “old” New Orleans. The city’s apartment market has always been tight with high demand and little supply due to a limited amount of land to build on, said Larry Schedler, president of Larry G. Schedler & Associates, based in Metairie, La.
Affordability has become a major issue for the city’s workforce because of a new set of dynamics in the market right now. Rents are about 20-40 percent higher than they were before the storms, and insurance rates have jumped up 400-600 percent on apartments, said Schedler, whose company specializes in multifamily brokerage.
“The insurance situation is strangling our industry right now,” he said.
The brokerage executive says that new construction will be mostly vertical development rather than garden-style apartments and that the projects underway now are mostly self-funded.
“I’ll be the first to say that when I came back for the first time I thought it was over. But we had the best year in sales we’ve ever had. Many people are speculators from the east coming in and rehabbing — they’re not waiting for the mayor, they are just doing it,” he said.
Schedler and others refer with bitterness to the “red tape” of getting new construction underway in New Orleans. There have been a lot of hurdles with building codes that have slowed or halted a lot of rebuilding.
Confidence in the market is what will really spark re-growth, brokers say. Lenders need to have confidence in jobs and the local economy to support new projects, and consumers need to be confident in affordability, jobs and also security of the city’s levy systems.
“The critical point here is insurance and jobs. We need the jobs to support these construction projects,” Schedler said.
Though there are signs of hope in New Orleans today with new construction and rehabilitation underway in some parts of the city, Tom Murphy, a senior resident fellow with the Urban Land Institute, says that the city is in danger of losing residents to its suburbs.
“If at the end of the day, the government does not engage in a very aggressive way it will not be a competitive city with the suburban neighborhoods,” said Murphy, a former mayor of Pittsburgh, Pa. New Orleans is coping not just with rebuilding after a major disaster, he said, but the city also is competing with its suburbs and cities all over the country for residents.
Murphy said there are successful development stories around the country where public and private partnerships have formed, but that New Orleans is “singularly unprepared to do this” because there are still no organized redevelopment agencies.
Murphy says that main issues of concern for returning residents are whether the new levies will provide enough protection from future disasters, whether the government will help finance house rebuilding projects and what the future holds for the city’s neighborhoods.
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