Institutions not seeing
opportunity from New Orleans
By Raquel Pichardo
Posted: November 12, 2007, 6:01 AM EST
NEW ORLEANS — Two years after Hurricane Katrina devastated New Orleans,
some pension executives think the city is not yet ready for a flood of
After the hurricane, some investors had high hopes that their pension money
could be used to help rebuild New Orleans while bringing in returns through
real estate or infrastructure investments.
“I saw dollar signs,” said Herman Santos, a board member at the $40.1
billion Los Angeles County Employees Retirement Association, Pasadena,
Calif., on the sidelines of a World Pension Forum conference held in New
Orleans in late October. But the deals haven’t materialized, he said.
“Having gone there and realizing there’s no infrastructure and no industry
aside from tourism, I see now why there is really not an opportunity there,”
“I was surprised as to how much there is to do,” said Solange Fernandez
Brooks, investment officer for California investments in the investments
executive unit at the $176 billion California State Teachers’ Retirement
She said New Orleans still needs to address basic infrastructure issues before
an institutional investor would feel comfortable pouring money in the region.
The city’s levees, whose collapses led to massive flooding, are still not up to
par, she said.
Donald Powell, the Department of Homeland Security’s federal coordinator
for Gulf Coast rebuilding, told attendees the levees will be fully fortified by
the 2011 hurricane season.
Part of the problem is that federal and local government officials disagree
about whether New Orleans should be turned into a so-called “toy town” for
tourists or be maintained as a cultural hub and urban center.
“These are historic neighborhoods as important to African American history
as Harlem is,” said Douglas Brinkley, professor of history at Rice University
and author of “The Great Deluge,” a book chronicling the inundation of New
Orleans and the Mississippi Gulf Coast after the hurricane. “There is still a
battle over the future of this city,” he said. Mr. Brinkley opposes the idea of
building a downtown that solely caters to tourists.
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Some $100 billion worth of basic infrastructure and real estate investment
will be needed to get New Orleans in top shape over the next 20 years, said
Edward Blakely, executive director of New Orleans’ Office of Development
and Recovery Administration.
A quick drive through New Orleans’ ninth ward, much of which remained
underwater for weeks following the August 2005 hurricane, shows overgrown
fields where homes used to be. Conditions are not yet present in New
Orleans to warrant an investment in value-added or opportunistic type of
vehicles, said Jim Evans, venture partner at SCP Real Estate Partners,
Wayne, Pa., in an interview. Opportunities exist when there is a strong
demand for housing or businesses and a constraint on supply. “It’s very easy
to build a new building here,” he said.
Despite the concerns some investors have, some pension funds and real
estate managers have already made sizable commitments to the Big Easy.
Henry Cisneros, chairman of CityView Cos. and former secretary of the U.S.
Department of Housing and Urban Development, told conference attendees
that after two years of repairing the city’s infrastructure — sewer lines,
water, electricity — New Orleans is ready to be developed again.
“Only now is it possible to begin the process of vertical construction,” he
said, referring to real estate development. CityView, based in Santa Monica,
Calif., develops “workforce homes” for low- to moderate-income families. His
firm targets projects in New Orleans that give investors returns in the high
teens, though some projects have returned about 30%.
CityView is working with the $256.5 billion California Public Employees’
Retirement System, Sacramento, on a 320-unit renovation and condo
conversion in the city of Harvey, 10 minutes from downtown New Orleans.
The pension fund also owns $22.3 million of industrial property in the New
Orleans area through real estate partner CalEast Global Logistics LLC,
Columbus, Ohio, according to data provided by CalPERS.
Helen Kanovsky, chief operating officer at the AFL-CIO, Washington, told
attendees that her organization — through its $8 billion Housing Investment
Trust and its $5.9 billion Building Investment Trust — has about $1 billion
worth of projects planned in the Gulf Coast. That figure includes $250 million
in multifamily housing, $250 million in single-family housing, $100 million in
hospital and health-care financing and another $100 million in economic