Gabriel Frank | Multi-Housing News
An assessment of the impact on investment and how operators are coping with the cleanup.
Two weeks after it made landfall, Hurricane Ian has proven to be one of the most destructive, deadly and costly storms ever in the U.S. The storm caused more than 130 deaths and damage estimates range from $28 billion to $63 billion. That damage, sustained in one of the nation’s most populous and economically important states, raises many questions about both the short- and long-term impacts on the key aspects of its multifamily housing sector.
The state’s lengthy history of dealing with hurricanes and strong building standards points to a strong, if slightly uneven long-term recovery. More specifically, managers have encountered the largest hurdles in their operations.
Weathering the storm
In the realm of investment, across the board, several with insight into the state’s multifamily sector believe that even though the storm was deeply damaging, investors and developers understand the environment they are working in and weigh the risks of such events in their decisions. Overall, investment and development across the state is unlikely to slow, even in the face of such catastrophic damage. Still, it may be too early to gauge the long-term effects.
Some of this reality is in part due to population growth and strong demand in the state, where prospective residents, managers, and operators tend to take the impact of such storms into account. One storm, no matter how damaging it may be, is not likely to stop it in the long term. As Chip Tatum, executive vice president of the Florida Apartment Association (FAA) told Multi-Housing News, “There was high demand and unprecedented population growth, and I think that operators understand that there are inherent risks of operating in an environment like Florida.”
Resiliency is a feature of many developments, and factors such as building codes and storm-related regulatory standards are often strengthened following a storm or account for them directly in their construction. Such a practice is very comforting to investors, who seek to both capitalize on the state’s promising present and future, but are equally wary of nature’s wrath. “Florida, unfortunately, has hurricanes, and that is part of living and investing here,” said Zack Olsen, Marketing Manager at TLR Group. While the storm’s effects may have been damaging, they are likely taken into account by anyone entering or already in the market. “Florida as a whole will be resilient,” Ned Roberts, First Vice President at Marcus & Millichap told Multi-Housing News.
Kevin Donnelly, vice president of the National Multifamily Housing Council’s division of Government Affairs, Technology and Strategic Initiatives (NMHC), detailed those considerations. “The challenges are nothing new in Florida and [both] owners and developers have built climate resilience and flood mitigation into their plans. Assuming demand for housing remains strong, then I expect it is unlikely that we would see a large number of firms completely end investment in Florida.” Seeing storm resiliency as a common feature in properties, Donnelly named it as a given in any future projects and investments in the state. He called it “probable” that investors will consider flooding and climate-related concerns at the forefront of their future plans.
In fact, those that have sustained damage are likely better off rebuilding than exiting the market. Cole Whitaker, a senior managing director in Berkadia’s Orlando office, reports that firms are pausing investment and development activity “only in the hardest-hit markets” such as Fort Myers and Naples. Rather than exiting it outright, they are simply “rebuilding existing inventory.” For its part, Berkadia is actually expanding its Florida investment and development portfolio, “moving forward on deals in other parts of the state with no real storm-related issues.” Overall, on the investment front, any slowdown appears to be limited to the regions that have sustained the most damage and does not seem to affect other parts of Florida’s multifamily sector.
Finance and insurance fracture
On the finance side, developers and investors will probably find relatively little difficulty in finding financing for their activities throughout the state, though economic woes unrelated to the storm might prove to be a hindrance. In isolation, however, the most pressing issue are the ever-rising insurance rates.
For Whitaker, insurance underwriting will likely be a setback, given that costs were already high before the storm, and because of the prospect of future losses. “It was already challenging to underwrite insurance costs prior to Hurricane Ian so it stands to reason that in the future, underwriting insurance costs will be even more challenging,” Whitaker said. For this reason, some insurers have left the market entirely. For Tatum, this issue is “top of mind,” in terms of finance-related difficulties, especially as impacted communities require massive repairs.
Sherry Freitas, senior managing director at RangeWater, sees such costs as possibly slowing investment transactions and development deals. “Between insurance costs and rising interest rates, overall deals will be more difficult to get across the finish line,” said Freitas.
Management’s ultimate test
While investors and developers overall have appeared to weather the storm with relatively mild impact, managers face much bigger struggles. The challenges are many: the scale and scope of damage, the need to house displaced residents in an already tight market, procuring hard-to-find materials and personnel for rebuilding. For these reasons, the hardest-hit areas will take the longest time to recover.
On the housing supply front, Tatum sees all multifamily managers as being in the same boat, with “everybody is in disaster recovery mode.” The most difficult question: “Where do you put displaced residents in a market that is [already] tight on supply?” he asked. Managers often don’t or can’t have the answers, as the apartment communities where they could redirect their residents might be fully occupied or damaged.
In another critical area of supply, procuring materials has proven to be a difficult task. According to Whitaker, getting materials from backed-up supply chains was “already difficult, prior to the storm. Construction supplies certainly may be more difficult to acquire in the hardest-hit areas that have an immense immediate need.”
Olsen estimated that repairs will often take three times as long as they would in normal circumstances. “What should take two to three months to accomplish is now taking seven to eight,” he said. Freitas described the prospects for RangeWater’s clean-up and mitigation of its own properties as both extensive and lengthy.
Furthermore, Donnelly points out that even when communities can get disaster aid and rebuilding funds, most are often disproportionately focused on the single-family market, and multifamily is put on the back burner. While the NMHC has been advocating for change in this aspect and some improvements have been made, “we have a long way to go,” Donnelly said.
Nonetheless, the state has acknowledged the difficult recovery ahead, “taking it with all the seriousness that it should,” according to Roberts. For instance, as Roberts described, it has eased some of the regulatory hurdles that would normally compound construction efforts, having lifted a requirement that a licensed roofing subcontractor be involved with every re-roofing job, that should “lessen the impacts” of the daunting task ahead.
Above and beyond
Despite the damage and suffering inflicted by the storm, the recovery presents an opportunity for multifamily managers and other stakeholders to assist their residents and rebuild their properties in the best possible way. Local affiliates of the Florida Apartment Association have undertaken email campaigns to members, asking for their available inventory, Tatum noted. The FAA affiliates are also participating in the Hatching Hope disaster relief program, which offers emergency aid and relief to its affected members’ residents.
“Members of the Apartment Association of Greater Orlando and the Southwest Florida Apartment Association have helped distribute more than 100,000 pounds of supplies ranging from disinfectants to diapers and from paper towels to pillows,” according to Keli Wright, founder of the Alabama-based Hatching Hope.
Freitas noted detailed RangeWater’s properties as having communicated what availability they had for displaced residents, often reducing move-in fees. Additionally, the firm’s managed communities also provided food and water to residents and helped them connect with their families. Overall, it was a manager going above and beyond, an example of “management helping residents and residents helping residents.”
As Tatum put it: “This is where we step up and show the best multifamily has to offer.”