Confronting Katrina’s Toll

As Gulf Coast property owners dig out, national MF industry pitches in.

228

Amid costly clean-up efforts in the waterlogged Gulf Coast region, many multifamily owners have shifted thoughts to building rehab or high-priced new construction. Others plan to gather insurance money and relocate.

Many pesky factors complicate the ambitious wish to stay put — for one thing, plenty of property owners and managers have themselves been rendered homeless by Katrina. Also, building materials are more expensive than ever. Suppliers of wood products have been wiped out, too. Another headache: many homeowners, about 60 percent of those along the coast, did not carry flood insurance.

Meanwhile, in the aftermath of a catastrophe that will costs U.S. taxpayers hundreds of billions of dollars to recover from, property pros around the nation have plenty of questions–not the least of which is why the Federal Emergency Management Agency (FEMA) is choosing to house those rendered homeless in hotels rather than relatively less expensive apartments.

Aside from this consternation, however, members of the broader multifamily industry have stepped forward with tremendous acts of generosity at a time when they’re sorely needed. Indeed, it’s a big disaster, and the industry has a lot of stories to tell. Here are few that were related directly to AP:

FLOOR COVERAGE IS SPOTTY
While flood insurance became mandatory in 1973 for housing in a federally designated flood zone — for those dwellings purchased with a federally insured mortgage — many parts of the hurricane-crushed Gulf Coast were not formerly considered flood-risk regions.

Glen Gardener, president of operations at Prudential Gardener Realty, lost 25 of his 26 office spaces in the region. He was lucky on one count — his French Quarter four-plex still stands, despite a fallen tree that rests in the veranda.

“I had just dropped my flood insurance last year,” Gardener says, “because the flood insurance people told me, “You don’t need it, it’s silly. It’s never flooded in Bay St. Louis, Mississippi.”

Gardener isn’t sure how much capital he’s lost, and he’s not in the mood to estimate. For now, he’s working in his Baton Rouge office and thinking proactive thoughts where revitalization’s concerned.

Joseph Michelli, president of Columbia Management near New Orleans, says his company saw 1,500 to 1,800 multifamily homes struck. What’s his across-the-coast apartment-casualty estimate? Five thousand to 10,000 units, at the very least.

“Only one of my clients didn’t have flood insurance, and he’ll carry it in the future,” Michelli says.

Do Michelli’s clients plan to skip town or stick around?

“Some of the smaller firms are opting to take the insurance and relocate, but the real estate markets are going to increase… so many larger investors are going to rebuild.”

When will insurance companies pay off?

“I don’t know. Clients are getting concerned about when it’s going to happen,” Michelli says. “We’ll probably start seeing proceeds within the next three weeks.”

According to economists for the National Association of Home Builders, the full impact from Hurricanes Katrina and Rita on the housing market is still unclear. But the number of destroyed homes is unprecedented in American natural disaster history.

Katrina wreaked havoc in Louisiana, Mississippi, and Alabama — in New Orleans, Mobile, Ala. and other cities, floods left thousands of homes permanently uninhabitable. Standing water carries contaminants which are nearly impossible to remove. Therefore, no matter how gung-ho investors and owners say they feel, it could take them years to get flooded buildings up and running again.

The New Orleans real estate market is supposedly set to explode in coming months. Existing home sales are expected to increase 3.4 percent to 7.02 million units, according to David Lereah, chief economist, National Association of Realtors. New housing — both single family and multi — will purportedly increase 4.8 percent to 2.04 million units, the biggest hike since 1973.

QUESTIONS NOW AND LATER
Michael Semko, in-house counsel and national lease manager for the National Apartment Association (NAA), answered somewhere between 500 and 1,000 calls in the first six weeks after the disaster.

“A lot of legal questions come up,” Semko says. “Are we allowed to treat these displaced persons differently under the fair housing rules..? If we offer these guys free rent or discounted rates, is that going to get us in trouble?’ And of course, it’s not.”

Questions Semko sees on the horizon: “If I own a building that’s not damaged, but is in a broken-down/shut-down zone, am I entitled to insurance compensation? If I prepaid rent, am I entitled to a refund? What about my security deposit?”

“If you had a building that wasn’t damaged, but there was a mandatory evacuation…do your residents have to pay rent?” Semko says. “I would say no, but that’s what my instincts tell me.”

The NAA, and other national organizations, including the National Multi Housing Council (NMHC), collaborate closely with FEMA to distribute information to Katrina’s homeless.So far, the collaboration between the multifamily industry and FEMA has been rocky. When reports leaked out in mid-October that FEMA was extending its subsidy for those rendered homeless to stay in hotels, the NMHC and NAA issued a rather terse statement.

“The average hotel/motel rate of $59 per day works out to $1,770 a month, which exceeds the median cost of rental housing even in some of the nation’s most expensive housing markets,” said Jim Arbury, senior VP of the NMHC/NAA Joint Legislative Program. “We are not only bewildered, but outraged. Our industry has been at the forefront of this disaster since day one.”

PROPERTY PROS REACH OUT
Communication has been one of the toughest Katrina hurdles.

Semko can’t locate his network of attorney colleagues on the Gulf Coast. In some cases, Louisiana people can’t find their people. Seemingly overnight, hurricane-help websites have sprung up, providing links to other info-packed sites, connecting philanthropic apartment owners with evacuees.

Homestore.com hosts Relief.welcomewagon.com. The webmaster pulls temp housing data from related websites. Volunteers self-post.

One posting from Cedar Park, Texas, reads: “We do not have an extra bedroom, but my girls are willing to sleep on a sofa bed downstairs and will offer their beds to anyone needing them.”

Bill Bacque, CEO of Van Eaton and Romero, in Lafayette, La., launched one of the largest sites of its kind, Hurricanehousing.net, with his friend Patrick Caffrey of Caffrey Real Estate in New Iberia, La., and nearby friend Chad Theriot of CBM Technology. Two days after the flooding, the old Louisiana friends appeared on a morning news show. They offered to host a call-in center for displaced persons looking for relief. By the end of day one, Bacque’s overwhelmed receptionist was in tears.

“It became obvious, something else needed to be done,” Bacque says. “I kept thinking of an eBay type environment where you could essentially put people with needs together with people who had the product, in a direct way.”

Within one more day, Bacque and Caffrey found themselves on a conference call with FEMA and Homeland Security’s Disaster Housing Resources, an online organization created for use during a previous Florida hurricane.

Within one week, Hurricanehousing.net had joined forces with the U.S. government to bridge communication.

“If there was housing or a job opportunity in Philadelphia,” Bacque says, “volunteers would drive people to where they need to be.”

The site now lists available units around the country, posts missing persons alerts and missing pet information.

Jeanne Delgado, VP property management for the NMHC, grants that the site is less than perfect, but says she makes use of it every day, out of necessity.

“Hurricanehousing.net has been the ultimate repository of information,” Delgado says. “But at any given time, you don’t know how many units are on there. A spare bedroom is one entry. Lincoln Properties could be putting up 30. But these will come up as two entries.”

MF GOES GRASSROOTS
Because chaos has erupted in the disaster’s wake — mass communication is still an iffy proposition — many companies are taking matters into their own hands. They reach out to churches, shelters, and, in some cases, to their own employees’ families. They gather all the property managers they know and ask one another, “What can be done?”

Three hundred and sixty thousand evacuees fled to Texas. Ric Campo, chairman and CEO Camden Property Trust in Houston knew he had a lot of employees with family from New Orleans. Campo wanted to help. He devised a three-pronged approach, first taking his volunteer agenda to friends in the rich Texas property game, then tagging 30 units in his own 7,000-unit portfolio for two months’ free rent.

He worked with the Urban League to find evacuees in dire need. Finally, Campo drummed up a business model for Camden which allowed him to rent fast and cheap to 400 Katrina families in need.

“We furnished most of the 30 free apartments and had groceries in their refrigerator when they moved in,” Campo says.

The other apartments were rented using SureDeposit for only an $87 move-in, short term leases with no premium, and six-month leases with 30-day cancellations.

Camden relaxed occupancy rules. For example, two-bed units typically house two adults, but the city will allow three adults and several children to reside in this size space. Campo says many of his two-bedroom units currently house eight people. It makes his head hurt, but it’s helping.

How much money will Camden sink into this good-will effort?
Campo estimates $150,000.

Other firms on Campo’s wide-reaching volunteer team include Trammel Crow Residential, Equity, Milestone, JPI, Orion Residential, The Connor Group, Wood Partners, and Westdale Asset Management.

Ken Valach, executive managing director of Trammel Crow Residential, found evacuees at a local Houston church. His company’s one multifamily building in New Orleans suffered a massive blow, but Valach says there’s almost no way to reach out to those renters. The best he can do is help locally and wait for Trammel Crow renters in need to contact the company’s phone service. When former renters call, they will be refunded any prepaid rent and all security deposits, Valach says.

What was the biggest headache during the relief campaign? “There were rumors of FEMA vouchers,” Valach says, “And Houston city housing vouchers, so these rumors were going around from day one. There really were no vouchers in place.”

Another tough aspect: the huge number of move-ins at once. Trammel Crow owns 300 apartment homes in Houston with a 65 percent turnover annually, or about 195 a year. Typically, the company sees 16 move-ins per month; during the post-Katrina chaos, managers faced as many as 50 move-ins a day. Trammel Crow is providing more than 1,000 homes for evacuees, adopting a short-term lease set-up in keeping with Campo’s laid back approach.

Capitol Development Group, in partnership with ProLand-scapes, Inc., in Atlanta, is providing 100 homeless families with newly-renovated apartments. Families receive up to four months free rent. The company has waived application fees and security deposits. Apartments come furnished. Capitol also sponsored a recent job fair to help evacuees find work fast.

“We’re pushing our construction guys to deliver apartments faster, which is a good thing,” Capitol rep Denise Koehl says. “They’re working seven days a week.”

What’s the most challenging aspect of charity work?

“Communication, Koehl says. “And we haven’t been able to accommodate specific geographical requests. They get apartments at all our communities. But some have already enrolled their kids in school and don’t want to move again.”

GIVE ME A TAX BREAK
Capitol donates apartments with a monthly rent value of $650. Koehl tries to estimate profit and loss in her head… and suggests the latter is fairly high.

What about tax-break options? Is that something these companies have considered?

Koehl says no, it hasn’t entered her mind; life has been a whirlwind since Katrina struck.

“I think you’re really just going to have less income than you would have had,” Valach says. “But they’re talking about ways to do something with tax breaks.”

What does the NAA make of this outpouring of property management compassion?

“I can tell it’s coming from the heart,” Semko says. “So many times the stories in the media are about how a big apartment company is screwing somebody out of their security deposit or charging double rent. I think people really want to do the right thing.”

Author: Betsy Boyd