Some 2,800 new multifamily units were added to the market over the past two years, according to Craig Davenport of Cook, Moore and Associates, and another 2,300 are currently under construction. Among them is Tapestry Bocage, which is nearing completion at 7857 Jefferson Hwy. and will add 124 one-, two- and three-bedroom apartments to the market when it opens later this year. For comparison, only 6,900 apartments were built between 2006 and 2013. Staff photo
Shortly after the historic flood last August, every vacancy in the seven Baton Rouge apartment complexes overseen by A.C. Lewis Management quickly gained a tenant, says CFO Brian May. The company instituted three-month leases specifically for people who needed immediate shelter. May says his firm didn’t jack up rates to take advantage of the situation, although not every building owner and manager had the same philosophy.
Roughly seven months later, his company still is “leasing strong,” he says, with occupancy rates in the high 90% range. But he’s seeing a lot of turnover, as he normally would this time of year, and the market isn’t nearly as tight as it was last fall.
“It almost looks normal to me now,” May says.
Craig Davenport of Cook, Moore and Associates recently spent several months putting together the annual “state of the union” report for the Baton Rouge Apartment Association. As one would expect, he found an increase in rental rates across the board and very few vacancies, but average apartment rents don’t
appear to have skyrocketed.
“If there is any additional demand because of the flood, there’s units already on the way.” —Craig Davenport, commercial real estate appraiser, market analyst and consultant, Cook, Moore and Associates
The current vacancy rate is about 2% to 3%, Davenport says. Before the flood, the rate was at 6% and rising, as an unusually large amount of new supply entered the market.
“A lot of complexes are 100% occupied now,” Davenport says. “When the flood hit, that helped a lot of the properties’ occupancy issues out.”
Last year at this time, Davenport says, about 20% of the apartment complexes were offering concessions such as move-in specials, discounted rent, free cable and so on. All that ended after the flood.
He says the average rental rate is up about 4% to 5% from last year, which is nothing like the double-digit increases seen after Hurricane Katrina. ApartmentList.com reports that average rents were 7.8% higher in Baton Rouge this February compared to the same month last year.
“It wasn’t like Katrina, where you had a mass amount of people flooding the market, moving here, and knew they were going to be out of their houses for six to 12 months,” Davenport says. “I think this was a shorter expected term, although I think it’s dragging out longer than most people realize, mainly because we haven’t seen a whole lot of government funding come in to help out.”
By Davenport’s count, at least 29 apartment complexes experienced some flooding. Of those, eight have not started repairs, and six complexes totaling about 1,300 units are completely out of commerce.
Those numbers come with a big caveat. There are some complexes, especially smaller ones, that Davenport doesn’t track. Particularly in low-income areas, some small complexes that weren’t insured might never reopen, he notes.
So will there be a long-term demand increase? It’s too early to say, because there are too many unanswered questions. Among them: How many people can’t afford to rebuild their flooded houses? And how many will choose to stay in their apartments?
Say you had a $150,000 house that didn’t have flood insurance, and now it needs $50,000 in repairs.
“How many people will say, ‘The bank can have it; I’m just going to stay where I am,’” Davenport wonders.
Some 2,800 new units were added to the market over the past two years, Davenport says, with about 2,300 currently under construction. For comparison, only 6,900 were built from 2006 to 2013.
“If there is any additional demand because of the flood, there’s units already on the way,” he says.
Chad Rigby, senior associate with the Baton Rouge office of Stream Realty Partners, says the local apartment market tends to be pretty steady and isn’t prone to boom or bust cycles. Even in a normal year, average rents usually rise by 3% or more, he says.
Rigby’s firm counted about 2,800 or so units taken out of service by the flood, but he says most are now back. He hasn’t seen—nor does he expect to see—a dramatic shift in the Baton Rouge multifamily market.
“People obviously became full, and there were rental rate increases,” Rigby says. “So we expect a little bit of an above-normal year in terms of rent growth and occupancy.”
The high-end student market, where much of the construction action has been happening, has been one of the biggest beneficiaries of the disaster. The flood drove nonstudents—including victims, contractors and insurance adjusters—into the student-oriented developments, Davenport says.
However, it’s likely that many of those tenants will be moving out soon if they haven’t already. Working professionals and families don’t typically enjoy living next to students, he notes.
From 2010 to 2014, 936 student units with 2,973 beds were added to the market. In 2015 and 2016, construction ramped up considerably, and 1,209 new units with 3,801 beds were added. While only one major project consisting of 280 units and 475 beds is slated to open this year, he says, LSU’s Nicholson Gateway project could add more than 1,500 beds in 2018. Meanwhile, a new LSU dorm with 450 beds is already under construction.
Cuts to the state’s TOPS scholarships and ongoing uncertainty around the program also could have a negative impact on the student market, Davenport notes. Many families won’t have as much discretionary spending that might have gone to housing.
The high-end student complex construction boom has been one of the most significant real estate trends of the past few years. How that market shakes out will be one of the most interesting real estate stories in the years to come.