Downtown's Dilemma - David Jacobs

3,700

THE HILTON Baton Rouge Capitol Center, formerly the Hiedelberg Hotel, was built in 1927 and was a favorite haunt of Louisiana politicians, including Huey Long. The hotel closed in 1985 and sat empty for two decades before getting a $70 million makeover that was one of the defining moments of downtown Baton Rouge’s resurgence.

Across Lafayette Street from the Hilton sits a two-story, 14,268-square-foot shell of a building that looks like it’s been firebombed. Local officials hoped to see condos built at the prominent site—addressing a market gap in downtown’s central business district—but the potential buyer couldn’t make the numbers work.

Downtown’s dilemma

Demand is there for downtown residential units, yet high land costs are limiting development and deals that are getting done are marketed to higher-end renters to make the numbers work.

BY DAVID JACOBS

Larry Walsh, a Florida developer with Baton Rouge roots, had the building under contract for just over $1 million but backed out of the deal. He says it’s worth no more than $800,000 in its current condition including land, and it’s not the only property downtown that is, in his view, overpriced.

“The properties that are available for sale, they just want an enormous amount of money for it,” Walsh says. “If people would be willing to part with their properties at reasonable price points to allow things to happen, I think you’d see a different look for downtown Baton Rouge.”

Of course, “overpriced” is debatable; that’s why buyers and sellers negotiate. But there seems to be a disconnect between what downtown property owners want and what developers think they can manage, which might be slowing residential development, pricing out people who want to live there, and making it harder for downtown to reach its full potential as a vibrant place to live, work and play.

Which is not to say residential development isn’t happening, or that people aren’t moving downtown. While only about 3,700

people live in the Downtown Development District’s footprint, the population grew by more than 25% between the 2010 and 2020 censuses, exceeding the overall growth rate for East Baton Rouge Parish (4%) and even fast-growing Ascension Parish (18%).

There aren’t many vacant apartments in downtown’s central business district despite the highest average prices per square foot in town, which indicates strong demand. DDD Executive Director

Whitney Hoffman Sayal would like to see more supply built to meet that demand, preferably including more units that a bartender or the average state worker could more easily afford.

“We need to strategically plan for housing to accommodate different price points,” she says. “It’s certainly being developed, but we need more faster.”

The high cost of downtown land compels expensive rents by regional standards, though Baton Rouge’s downtown remains fairly affordable compared to many larger and even peer cities. Construction also has been expensive recently, though the cost of materials is starting to come down a bit. And maintaining a parking lot remains a low-risk option for downtown owners to make passive income from their properties.

Without a larger population base, it’s hard to attract many types of businesses and services, which in turn makes it harder to attract residents. Resolving that chicken/egg problem sometimes takes a leap of faith from someone who sees a need in their city and decides to fill it, like in 2015 when Matherne’s Market opened downtown’s first full-service supermarket in half a century.

“We certainly didn’t have the residential at the time,” Sayal says. “We got lucky with Matherne’s. They took a bit of a risk.”

In Greenville, South Carolina, the destination for the Baton Rouge Area Chamber’s most recent canvass trip, public dollars were leveraged to encourage private investment and create a mixed-use pedestrian-oriented corridor. When bringing in a major clothing store chain to serve as an anchor tenant, developers didn’t insist on getting

DOWNTOWN LIVING: The 440 on Third apartment building , which includes a Matherne’s grocery on the ground floor, is a m id- century m odern structure orginally buil t for Fidelity National Bank in the late 1950s.

COURTESY DNA WORKSHOP

possible return, taking a “tiny haircut” to benefit downtown, BRAC’s Andrew Fitzgerald says. He says more downtown housing, including a more diverse mix of housing, could help to attract and retain talented people looking for a walkable, urban lifestyle. That includes out-of-town professionals and the thousands of local college students BRAC hopes can be persuaded to stick around.

If you’ve seen appraiser and market analyst Wesley Moore make a presentation at the annual Baton Rouge TRENDS real estate seminar, you may know he’s not usually encouraging developers to build more apartments. But he says the

“The great thing about downtown residential development is that the more of it there is, the more demand increases. The market’s a little bit slow to understand that.”

DYKE NELSON, founder and managing partner, DNA Workshop

downtown CBD is clearly not saturated or oversupplied; if anything, there’s an undersupply.

But since the underlying land is double the price of almost any other submarket in the region, there’s not much “affordable” housing that’s below the prevailing market rate and no viable way to build it without significant subsidies, Moore says. However, developers have used the federal government’s 221(d)(4) loan program to build market-rate housing with favorable terms.

“The great thing about downtown residential development is that the more of it there is, the more demand increases,” says architect Dyke Nelson. “The market’s a little bit slow to understand that.”

Nelson co-developed the transformation of the former Capital One building downtown into the mixed-use 440 on Third, which includes office space, apartments and Matherne’s. He says the price disconnect between developers and landowners is a common theme citywide, though those prices are often paid.

Nelson says downtown residential development is happening at a healthy pace. He says there has been a recent “steady drumbeat” of new residential projects every year or two and expects to see more follow on the heels of Mike Wampold’s Residences at Rivermark, which started leasing in September.

Nelson says 440 on Third was basically 100% leased when it opened and has been pretty much full ever since.

“I would do that project 100 more times,” he says.

FILE PHOTO