New Orleans: Location, Location, Location

There are a large number of elements that a real estate investor must analyze when deciding upon an investment, and certainly one of the most important of these is location. Falcon has long used a set of guidelines governing the cities or metropolitan areas in which we would be willing to make investment recommendations. Criteria for selection of a geographic location have been set out in previous newsletters going back to the time that Falcon was formed in 1991. We believe that cities should possess the following:

1. 1. strong underlying population growth trends;
2. 2. favorable economic fundamentals; and
3. 3. a good existing public infrastructure.

New Orleans, unfortunately, has never met any of the above criteria. It was a declining city for most of the 20th century, and as the New Yorker magazine recently stated, “It perennially ranks near the bottom on virtually every basic measure of civic health.” While everyone has tremendous sympathy for the catastrophe that overtook New Orleans and the entire Gulf Coast when Hurricanes Katrina and Rita struck, it can be instructive to review the basic location criteria to see how they are applied and why New Orleans has never been considered by Falcon Real Estate as a city in which to recommend an investment.

top

Population Growth Trends:

During most of the 19th century, New Orleans was considered to be one of the most important cities in the southern United States. Its position on the Gulf of Mexico and at the mouth of the Mississippi River was crucial, and major battles were fought for New Orleans both in the War of 1812 and in the U.S. Civil War. But particularly after the Civil War, New Orleans began to decline relative to other cities in the South, and during the 20th century it was quickly bypassed by virtually every other city in the region. From 1900 to 2000, for example, the populations of cities such as Atlanta, Miami, Houston and Dallas grew at rates of up to eight times faster than that of New Orleans. As a result, by 2000 the city was no longer even included in the list of the 50 largest cities in the country. In fact, in recent years the population of the city of New Orleans itself has actually been declining, although there has been growth in the metropolitan area surrounding the city.

Population growth is important since it is directly correlated with economic growth and therefore with the underlying demand for real estate. The quality of the population is also important in determining economic activity, and U.S. Census Bureau figures show that the population of New Orleans is older, less well educated and has lower disposable income than the U.S. population as a whole. Falcon concentrates on recommending properties in cities with above-average, sustainable population growth rates, and particularly on those areas that attract a well-educated and entrepreneurial population.

top

Favorable Economic Fundamentals:

The city and state governments in the U.S. have a considerable amount of latitude in establishing the economic environment within their communities. The level of local taxation and the degree and complexity of state or city regulations on business have an important effect on the economic climate within the local community. Unfortunately, Louisiana has not been known for progressive, pro-business economic policies. While other states in the south, most notably Florida, Georgia and Texas, have aggressively sought to put in place policies that would attract business to their states, the governments of Louisiana and New Orleans are more known for having had an inordinate number of corruption scandals rather than for taking actions that might improve their economy. Because of its location on the oil-rich Gulf of Mexico, New Orleans could have been the energy center of the region, but that title was claimed by Houston. Aside from the Port of New Orleans, the principal economic activity of the city of New Orleans today is tourism. With the historic attraction of the French Quarter, New Orleans has an economy that is based on its past, and it is not an economy for which any significant growth can be forecast in the future. And one of the principal products produced in the state of Louisiana is sugar. Since sugar production in the U.S. is much more expensive than in many Latin American and African countries, the Louisiana sugar industry relies upon U.S. government import tariffs for protection. While there are other industries that help to support the economy of the state, such as the oil industry, the overall economic climate in Louisiana has not been one that has appeared attractive for long-term real estate investments.

top