News Roundup

Homebuilder To Scale Back Development At River Garden

City Business
January 10, 2007
by Ariella Cohen

NEW ORLEANS — National homebuilder KB Home has scrapped 35 planned market-rate homes in River Garden, the mixed-income development that replaced the St. Thomas housing project in New Orleans.

The decision raises questions about the future of a planned community HRI Properties owner Pres Kabacoff touted as a redevelopment model for city housing projects.

KB Homes is contracted to complete the project and has not notified HRI it won’t do so, said Kabacoff. “I hope that they go ahead and complete the project, but if not, we will consider other possibilities.”

He said HRI would consider buying back the lots and building homes there, but stopped short of promising the lots wouldn’t remain vacant for a time.

KB Home was the first national homebuilder to invest in Louisiana following Hurricane Katrina.

“It is not wise to flood the market with a number of homes that are not selling and we will not make a decision on what to do with the (remainder of the lots) until our homes sell,” said Clint Szubinski, president of the Gulf Coast Division for KB Home, a Los Angeles-based builder.

KB has sold 11 homes in River Garden since the 2006 unveiling of a first model two-story shotgun home and plans to sell the 12 now under construction before stopping work on the candy-colored subdivision, where 58 market-rate homes were to have been built.

In November, the national tract home giant decided to curtail investment in the state until market conditions changed. Slow sales and sinking prices at River Garden, which was developed by HRI and remains under its management, factored into the KB decision to leave the state, Szubinski said.

“Our lack of success contributed to our decision to not make any future investments here,” he said.

New Orleans may not be ready for mixed-income development, said Szubinski, who has worked with a mixed-income project in Dallas.

“There seems to be a stigma here placed on mixed-income development that leads people to believe that somehow the presence of affordable homes nearby will drive down the value of market-rate homes,” he said.

Whether the site will be sold to another homebuilder is being decided, Szubinski said.

KB bought the Chippewa Street site in March 2006 and agreed to build 58 market-rate homes and 15 homes for low-income buyers. The properties were to be marketed by HRI and the Housing Authority of New Orleans.

KB is under contract to complete the subsidized affordable homes, expected to cost between $130,000 and $140,000, even if it does not finish the market-rate construction, said Szubinski.

River Garden, which is slated to be complete in 2009, was touted for its mixed-income development. In addition to the KB Home subdivision, the project includes 344 subsidized low-income apartments and 282 market-rate apartments split between freshly painted, pastel-colored construction and a few rehabbed St. Thomas buildings.

Commercial properties evolved into parks, football fields, smaller retail shops and a Wal-Mart Supercenter along its southwest edge.

Combined with 150 off-site units and 15 homeownership units, the total of units available to former St. Thomas residents is 503, or 33 percent of what was available in St. Thomas at the time of its demolition. Not all of those homes were occupied in the old project.

Market-rate sales began to lag soon after KB sold the development’s first market-rate home at 2010 Chippewa Street for $329,000 in February 2007. Prices plunged by as much as 30 percent on the remaining homes by November, said real estate agent Polly Eagan of Keller Williams Realty.

“(KB) was motivated to sell, they offered a huge drop in prices and now the houses are selling,” said Eagan, pointing to five recent closings.

But some River Garden residents worry what will happen in undeveloped vacant lots.

“People are concerned about the way things are going,” said Chris Daigle, 46, who bought a new double-shotgun on South Chippewa Street last year. He paid $300,000 for the pumpkin-colored home before KB Home sheared prices.

A nearby yellow New Orleans-style home with a wraparound porch at 1901 S. Chippewa St. is listed down 34 percent to $279,000 from $425,000.

Daigle, an unmarried professional, does not begrudge his new neighbors for getting a deal he missed. He said the development will lack the density and economic diversity promised to him when he bought in.

“Especially with the prices as low as they have gotten, the houses are still a good value for new construction, but we are concerned about maintaining the mix that we were told we would have,” he said.

Others see the current stasis as a necessary growing pain for a diverse community.

“I think the development will continue to grow,” said Amy Bordelon, a physical therapist who bought, with her husband, Brett Rothaermel, a spacious pastel-colored home on South Chippewa Street in December. “We’re not social activists or anything but we like the fact that there are people of different ages and everything else here. We know different doesn’t mean easy but it seems like a good thing from everything we’ve seen so far.”

District B City Councilwoman Stacy Head said a balanced mix of housing must be assured.

“I have received calls from both affordable housing advocates and homeowners who see a need to insure that the (promised) number of subsidized units are built as well as the market-rate units. (Residents and potential buyers) are concerned that the balance has tipped and will continue to tip in a way that won’t be healthy,” said Head. “The success of (River Garden) is critical for the success of mixed-income developments that we hope to see in the very near future. We need people to want to live in these developments and want to build them also.”