Silicon Valley in the bayou? New Orleans hopes so

Wed, Dec 21 2011

By MARK GUARINO | Reuters

NEW ORLEANS (Reuters) – Developers and business owners are flocking to New Orleans, thanks to factors that can be traced back to Hurricane Katrina, an event that shook the old ways of doing business in the city and created opportunities for experimentation.

“It’s a fascinating time to be in this city,” said Ralph Maurer, who teaches at Tulane University’s Freeman School of Business.

“If you talked to people in Silicon Valley in the 1970s and 80s, they would have said the same thing: There’s something afoot.”

Tracy Nelson hopes so. She isn’t able to buy a loaf of bread or a quart of milk without driving across the parish line to a bordering suburb. The area where she lives — the Lower Ninth Ward, ravaged by the floodwaters of Katrina six years ago — hasn’t seen a grocery store in more than two decades.

That may be changing. Next year, a multi-purpose complex featuring rental units, retail shops and a full-service supermarket is expected to break ground on the shuttered campus of a former Catholic boys high school.

To Nelson, and the nearly 5,500 people who returned in her neighborhood and rebuilt their homes, the prospect of finally shopping local is a long time coming.

“The whole community is ready for it, excited about it and wants it to happen today,” said Nelson, a community organizer.

Although the recession certainly took hold in New Orleans, it did not cripple the economic forces there as national philanthropies and federal and state dollars delivered direct assistance to revitalize neighborhoods, improve schools, rebuild libraries and streets and create new models for charter school education and neighborhood health care clinics.

NO-NONSENSE APPROACH

At the same time, the new city administration adopted a no-nonsense approach to encouraging companies to relocate to the city, which in the past was often appreciated as a place to catch Mardi Gras beads and watch street parades but considered a chaotic backwater for doing business.

It was known for its insular culture of backroom deal-making and jumbled permitting processes and ordinances.

Mayor Mitch Landrieu, who came into office in 2010, streamlined permitting and unveiled a slate of new tax credits and financial incentives for growing industries like digital media and biosciences.

He also created the New Orleans Business Alliance, an inaugural public-private nonprofit given $1.5 million to recruit new business to the city.

“Their approach to business is pretty dramatic,” said Wade Ragas, a professor emeritus of finance at the University of New Orleans. “It’s a major change.”

Ray Nagin, the city’s former mayor, killed a similar project before it got off the ground in 2009, arguing the board of directors lacked racial and gender diversity, which critics said was a smokescreen for his refusal to cede power to an outside authority.

Whichever the case, Landrieu is stumping hard to show times have changed.

“When you asked people two years ago, ‘Do you want to invest in the city of New Orleans?’ they were talking with their pocketbooks and the general answer was ‘No, I don’t like how the government works, it’s trending in the wrong direction,'” Landrieu told Reuters.

“Now, you can drive around the city and personally attest to the fact that has changed dramatically.”

New Orleans is counting on attracting venture capitalists and start-up firms from inside and outside the United States that are looking for cut-rate overhead costs and a city with economic momentum.

Nearly 450 of every 100,000 adults in the city started a business after Katrina, a rate 40 percent higher than the national average, according to a 2010 Brookings Institution report.

COMPETITORS

But because regional competitors like Atlanta, Miami and Austin, Texas, are years ahead of the curve, Ragas said, “it’s not realistic to think New Orleans is going to bag Fortune 500 companies,” but will instead be forced to start small.

“We have to go after growth firms that see the locational advantage of being in New Orleans,” Ragas said. “We are a relatively inexpensive city.”

Topping the list in the city’s future footprint: a $1 billion, 1,500-acre university medical center and veterans affairs medical complex, expected to create more than 20,000 jobs over the next 10 years. The BioInnovation Center opened in June, housing five biotech start-ups and two venture capital firms and is designed to link university research to the commercial sector.

Budding start-ups, ranging from French video game developer Gameloft to movie effects company Bayou FX, set up shop in New Orleans this year, crediting state and city incentives that cover payroll expenditures, moving costs and facility upgrades.

On the negative side, what worked so well for New Orleans for decades — its image as America’s bacchanal capital — could be its greatest liability.

“New Orleans is one of the most beloved cities in America; however, people think of it as a place to visit and don’t think of it as a place to relocate their family,” said Michael Hecht, president of Greater New Orleans, Inc., a regional economic development agency.

“We are transitioning to the point where our most significant battle is for hearts and minds because we’re winning on making the case for business.”

Developer Reuben Teague, whose company Green Coast Enterprises is planning the Lower Ninth Ward complex featuring the supermarket, said he and his partners were enticed by state and federal money being allocated this year by the city to help the beleaguered neighborhood return to life.

That, he said, is evidence the city is finally getting serious about helping a neighborhood marginalized for years.

“The storm created an enormous need for people to think creatively about how to make things happen,” he said. “Katrina swept away of the old way of doing business and revealed the fundamental weaknesses of that model.”