The story of the New Orleans apartment market is inextricably tied to Katrina — the hurricane that wiped out 20% of the city's rental housing stock and decimated the population by more than half. Ironically, the storm that did so much damage is also the economic engine that has provided the Crescent City a buffer against the deep recession that plagues most of the nation.

Over the past year, the Federal Emergency Management Agency (FEMA) has paid more than $800 million for infrastructure repairs in the five parishes that make up the New Orleans metropolitan area, according to the August 2009 New Orleans Index, developed by the Greater New Orleans Community Data Center. Another $2.8 billion in FEMA money is forthcoming this year as part of a $5.8 billion commitment to rebuild levees and infrastructure. That work won't be completed until 2012, according to Allison Plyer, deputy director of the non-profit.

The city of New Orleans is contained within the boundaries of Orleans Parish, but the metro area encompasses four other parishes that surround the central city, including St. Tammany across Lake Pontchartrain to the north, Plaquemines to the south and Jefferson to the south and west. St. Bernard Parish makes up the eastern boundary. The Mississippi River bisects the city through Jefferson Parish.

About 12,000 market-rate rental apartment units out of more than 62,500 units existing pre-Katrina were lost, reports New York-based research firm Reis. The majority of apartment units wiped out by the hurricane were located in east New Orleans. Of the 7,000 apartments lost in the eastern neighborhoods, 4,000 have been replaced, says Larry Schedler, principal of New Orleans multifamily brokerage Larry Schedler Associates.

In east New Orleans, most developers have gutted existing properties and rehabbed them, whereas in the central city, Schedler explains, there has been more new construction of multifamily projects in infill locations. All told, astute multifamily developers like the Domain Cos., HRI Properties and Provident Realty Advisors have been able to build or rehabilitate thousands of units over the past four years with the aid of state and federal tax credits and incentives.

Build and hold

New York-based Domain Cos., for example, has completed about 500 units in three New Orleans multifamily projects — the Crescent Club, the Preserve, and the Meridian. Both the Preserve and Meridian are fully leased, and the Crescent Club, which opened for leasing in March, is already roughly 65% leased.

The three projects are in a downtown New Orleans area known as the Tulane Avenue Corridor, and were financed via the federal Gulf Opportunity Zone (GO Zone) recovery program. “Without these types of programs,” says Michael Schwartz, co-founder of Domain Cos. and a graduate of Tulane University, “these developments wouldn't have worked.”

The 183-unit, $45 million Preserve, a mixed-income project, and the 72-unit, $20 million Meridian, an affordable-housing community, utilized $17.2 million in federal disaster recovery funds. Another $3 million in GO Zone housing tax credits were tapped, as well as Community Development Block Grants and conventional financing.

The tax credit program carries a minimum hold period of 15 years, says Schwartz. For that reason Domain, like many New Orleans multifamily developers and owners, did not approach their projects with the intention to snap up cheap land upon which to build and flip.

New Orleans multifamily developer Anthony “TJ” Iarocci concurs. “In New Orleans, historically, you tend to have a lot of ‘build and hold’ because you sort of have to,” he explains. “A lot of the buildings down here are historic buildings, which means the owners typically use federal and state historic tax credits.” In addition, explains Iarocci, most owners have put too much money into a rehab to make a flip financially feasible, even if it was allowed.

Building for affordability

The Domain Cos.' projects exemplify the changing face of the city. Where once the affordable housing in New Orleans stood out among the nation's worst, today the metro boasts some of the industry's most impressive creations. Its state-of-the-art complexes now feature courtyards, resort-style swimming pools, fitness and business centers.

Pre-Katrina, says Plyer, there was “naturally occurring affordable housing.” Landlords would rent out a whole shotgun house for $300. Shotgun houses were built from the end of the Civil War through the 1920s and are usually no wider than 12 feet with three to five rooms in a row and no hallway. The vast majority of this older, now historic housing stock was flooded during Katrina.

“For the landlords to rehab it and start renting again, they had to charge more money because they had to put a bunch of money into it,” says Plyer, who notes that monthly rents went from $500 on average to almost $800, an increase of roughly 40%, while wages only rose 26%.

The majority of new multifamily projects have been mixed-income or affordable to meet existing needs, yet some neighborhoods have stoutly resisted apartment developments. “St. Bernard Parish has really dug in,” says David Abbenante, president of property management for New Orleans-based HRI Properties.

In mid-August, in fact, suburban St. Bernard Parish was held in contempt for defying a court order to lift a moratorium on the construction of new multifamily units. “I think you've got a combination of misinformation, fear, racism and fear of economic impacts,” says Abbenante.

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