The Equity Factor

New Residents Drawn to Downtown New Orleans’ Tax Credit Cinderella Story

State and federal tax credits have helped breathe life into the downtown district, but is the approach sustainable?

New Orleans Central Business District on Carondelet Street looking down to the Hibernia building (Photo by Infrogmation)

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Pre-Katrina, downtown New Orleans was similar to many other American central business districts struggling with vacancy, disinvestment and crime. The hurricane heaped a collective trauma on the city that it will never fully be able to recover from. Even so, the downtown district has since experienced an economic revival that has been wholly unexpected and offers some lessons that other downtown districts should heed.

Six billion dollars has been pumped into the district’s economy since 2005. This investment has helped New Orleans’ downtown become an exemplary model of a walkable, mixed-income community that isn’t a carbon copy straight from the “Main Street USA” handbook.

Kurt Weigle, president of New Orleans’ Downtown Development District (DDD), sees two factors leading to the area’s current success that pre-date the hurricane: the conversion of the Warehouse District from industrial space to lofts, which was sparked in the 1980s, and changes to Louisiana’s historic preservation tax credit program, which were advocated for by the DDD.

“We went in and we changed several elements of it,” says Weigle, “one of which was to create a 25 percent tax credit that could be taken against the majority of the expenses that could be incurred in developing a historic building. Prior to that there was a cap that could only be taken against one million dollars of the development costs.” According to Weigle, almost $1 billion dollars of residential development has taken advantage of the historic preservation tax credit program.

“Obviously post-Katrina, [the downtown district] got a big boost,” says Ivan Miestchovich, director of the University of New Orleans Institute for Economic Development and Real Estate Research. Miestchovich also attributes some of the revival to historic tax credits, but notes an interplay of forces: “I honestly don’t know whether it’s the chicken or the egg — but we had a ton of money plowed into the city in the form of tax credits, historic, low-income, bond money … . There was massive investment that attracted a lot of young people to the city. It was kind of a happy marriage.”

Both Weigle and Miestchovich point to residential and commercial real estate as economic drivers — and the fact that keeping a balance between the two is a key factor. Tourism is one of city’s leading economic industries, attracting businesses like hotels, bars and restaurants. Developers who take advantage of the preservation tax credit reap the benefits of enhancing the area’s distinctive character. Low-income tax credits lead to affordable housing development that allows workers to live closer to the job and spend less on transportation costs.

“We’ve heard loud and clear from general managers of hotels downtown, that it’s attractive to them to have their workforce work as close to work as possible,” says Weigle. “It’s really good for their business to have affordable housing close to the downtown hospitality venues. I think it’s the right thing to do socially, and I think it’s the right thing to do business-wise and it’s playing out just as we expected.”

New Orleans’ Hibernia Towers project is a good example of how tax credit financing can beneficially minimize risk. Once a bank headquarters, the renovated residential building with 175 units split between market-rate, moderate-income and workforce-level apartments was completed in 2013. It was financed with a mix of historic tax credits, New Markets Tax Credits and Community Development Block Grant funds. The Hibernia building became immediately fully occupied after 1,200 people applied for apartments.

Given the strong demand, 1,400 apartment units are currently under construction downtown, and while that signals confidence in continued growth, Miestchovich is reflective about so many units coming on the market at once. “At this stage, it looks like we have the potential, over the next 18 to 24 months, to have as many as 2,000 units come through that pipeline. That’s way more than has ever entered that pipeline before. We’re about to figure out how deep and how wide that market is. No one really knows, but we’re about to find out.”

As for the future usefulness of historic preservation tax credits, he also wonders whether “we’ve renovated just about all the old buildings that were worth bringing back into commerce,” and whether the state will continue to renew and support some of the other tax credit financing that has spurred much of downtown’s development.

Weigle admits that the state is forgoing revenue with its tax credit programs, but that it should analyze which programs are bringing “fundamental change to the economy and the placemaking of the state.” He adds, “There are certain tax credits that we’ve seen downtown to have tremendous success. The state historic tax credit is number one on that list. … The other for us is the digital media tax credit. We’ve seen growth, in the past three years alone, of 900 jobs.”

If this support system is pulled, time will tell whether the market can achieve long-term sustainability. Both Weigle and Miestchovich mention the excitement around two medical facilities in Mid-City opening in 2015, bringing an estimated 2,500 to 3,000 jobs to the area. Weigle, perhaps naturally, is more optimistic than Miestchovich is about the upcoming surge in apartments on the market, saying, “I don’t have any concerns about bringing that number of units over that period of time. I think folks are responding to the environment where the amenity is the place, and it becomes more and more attractive every month.”

The Equity Factor is made possible with the support of the Surdna Foundation.

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Alexis Stephens was Next City’s 2014-2015 equitable cities fellow. She’s written about housing, pop culture, global music subcultures, and more for publications like Shelterforce, Rolling Stone, SPIN, and MTV Iggy. She has a B.A. in urban studies from Barnard College and an M.S. in historic preservation from the University of Pennsylvania.

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Tags: affordable housingnew orleanstaxeshistoric preservationdowntown revitalization

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