Post-Disaster Real Estate Investment

In our home, we joke that our family is a disaster magnet. While we were on our honeymoon, my groom and I watched CNN as Florida wildfires came dangerously close to our new apartment full of wedding gifts. When my husband and I first moved to DC, we spent the night in the basement with our toddler for Hurricane Irene almost immediately upon arrival. Our younger daughter’s first day of school in Maryland involved an earthquake during potty time. When living in southern Virginia, the huge river that bisected the town overflowed its banks, coming dangerously close to flooding our home. We moved to Florida in July, just in time to live through Hurricane Irma.
Devastating hurricanes can create challenges, questions, and opportunities for real estate… Click To Tweet

Through fire, flood, hurricane, earthquake, and yes, even locusts (Northern Virginia) we’ve been abundantly blessed or lucky, depending on your point of view and belief system. Irma was the first time I ever really worried. My husband likens the sound of the massive storm passing over our area to spending the night on an airport runway. I remember the look of the palm trees in our new backyard blowing horizontal for hour upon hour as the early morning turned to howling midday.

And again, we were fine. As we drove through the area after the curfew was lifted, we were amazed at how well our little corner of Florida had survived the storm, which was a Cat 2 when it got to us. Blessed (or lucky) once again.

The 2017 Hurricane Season By The Numbers

There have been (unlucky) 13 hurricanes so far in 2017 at the time of the writing of this article. Harvey, Irma, and Maria have been the big three, causing massive devastation throughout Texas, Florida, and the Caribbean, with especially destructive effects on the US Territories of Puerto Rico and the US Virgin Islands.

The devastation was complicated further by the current political climate and competing interests of politicians and interest groups, with their assessments of what could have or should have been done and what was left undone. According to who you believe in this day of “alternative facts,” both preparation and recovery efforts were either the best ever or the worst.

Putting numbers to the damage is no easy task. Harvey’s range is $65-200 billion in damage. Irma is estimated at $50-100 billion in the US alone, not to mention Caribbean islands like Barbuda, which was 95% destroyed, making damage estimates almost beside the point. Estimates for Maria are already at $100 billion with recovery not even really underway.

This is, of course, only the material damage. The number of lives lost and the devastating effects on the health of survivors is still largely unknown. In addition, the number of jobs lost and the ongoing economic implications of massive unemployment in affected areas will take years to recover from and will probably never be made up in terms of personal earning potential and wealth building for those affected.

Real Estate Investment Opportunities

According to real estate writer Jeff Rohde of J. Scott Digital, one of the important considerations in evaluating investment opportunities is the possibility of disproportionate damage and, consequently disproportionate opportunity. “For example, in Houston following Hurricane Harvey the already tight industrial sector is doing extremely well due to the additional space needed by construction companies involved in rebuilding,” said Rohde.

In addition, single family homes were disproportionately affected by Harvey due to their larger footprint. This, taken in combination with the growth of the rental market in Houston makes multi-family a huge opportunity for savvy investors. “In almost all U.S. markets the number of renters is steadily growing, so one could say that Harvey pushed more homeowners into the permanent home renter category a little faster than they would otherwise have gone,” Rohde adds.

However, Rohde cautions against making sweeping generalizations based on this particular disaster’s economic aftermath. “Because hurricanes are seasonal and hit the same areas time after time, I would be cautious of suggesting a specific asset class just because it happened to be spared in one hurricane season.  Lack of hurricane damage would be one investment consideration, but an investor should look at the other social and economic factors as well when making a long term buying decision.”

Doing Good While Doing Well

For real estate investors, there is clearly an opportunity here, but what possibilities exist beyond just making money (and, it must be acknowledged, doing so in circumstances predicated upon the misfortune of others)? Truly great real estate investors and developers are not motivated just by the bottom line dollar value of investment potential. They are also keeping their sights set on ways that their development can improve a community. After all, better communities create better real estate markets, which creates both tangible and intangible ROI.

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One way to build your brand’s reputation and create opportunities for positive buzz is to create positive ways to support not only market recovery, but the recovery of the individuals caught up in the aftermath of a massive natural disaster.

Baltimore’s Evan Roberts owns Dependable Homebuyers, a team of investors who flip properties in Baltimore and along the East Coast. After Hurricane Sandy, they saw the opportunity to create a win-win for devastated homeowners in the northeast.

“We had a lot of success working with flooded homeowners. Many of these homeowners lacked the proper insurance required to rebuild,” said Roberts. “We were able to work out a deal where we'd rebuild their homes as a multi-story duplex at no cost to them. They'd keep the top unit, replacing their flooded home, and we'd then sell the bottom unit to recoup our costs and make a small profit.”

Thinking about how to create winning strategies that benefit not only investors but also the affected population creates opportunities for great investors to support both the community and their bottom line. Unfortunately, it also allows unscrupulous investors the opportunity to further victimize those affected.

“It’s important to note that some investors will look to take advantage of devastation by cutting corners and not doing right by the community,” says Summit & Crowne’s Abhi Golhar. “Plain and simple, this is just not right. Working alongside homeowners and the communities they represent will yield win-win opportunities, as long as your heart is in the right place.”

In an era and economic climate that loves to talk about “outside-the-box” thinking but mostly rewards the tried-and-true, innovative solutions that benefit everyone create not only profitability, but incredible goodwill and the opportunity to build a brand that is known for authenticity and fair-dealing. That’s a reputation that can go a long way with colleagues, with lenders, and with other potential clients.

Challenges For Post-Disaster Rebuilding

In most markets, the labor shortage in the construction sector is only getting tighter, through a combination of factors ranging from immigration uncertainties, lack of access to education and training, and the ongoing opioid addiction crisis. These shortages are even more pronounced in areas that have experienced natural disasters, since laborers living on the economic margins may have relocated to stay with relatives or to attempt to rebuild their lives in a new location.

In addition, the work force may be experiencing transportation challenges, equipment damage, and increased homelessness, further exacerbating their economic insecurity. These extreme shortages, and extreme needs, result in a shrinking labor force and higher labor costs.

Areas like Puerto Rico and the US Virgin Islands have even more problems with labor recruitment because of the limited labor market. Add to this the logistical difficulty of bringing in the supplies needed and replacing heavy equipment damaged in the storm and it becomes harder and harder for investors to meet margins. It will take innovation and know-how to meet the challenges posed by these types of conditions.

One of the most mutually beneficial ways of meeting the challenge of tight labor markets is by cooperation between investors and potential labor within the affected communities. People there need jobs and have a personal investment in rebuilding their neighborhoods. Bringing in outside expertise to help develop and guide a local labor force creates partnerships that benefit everyone, both in the short term and in the long term.

The Bottom Line

There’s no aggregate group more innovative and risk-embracing than real estate investors, and no more exciting opportunity than the one presently available in these areas. The investor who is willing to make some big moves can find some big rewards in newly created, visionary real estate markets. And the opportunity to help the survivors of these disasters may lead you to create products, methods, and processes that give your investment business a whole new focus and level of expertise.

What You Will Learn

  • The 2017 Hurricane Season By The Numbers
  • Real Estate Investment Opportunities
  • How To Do Good While Doing Well
  • The Bottom Line