Big Challenges in Big Easy: Gulf Coast Real Estate Managers Improve Disaster Plans
Kaschube, Amanda, Journal of Property Management
Behind the force of Category 4 Hurricane Katrina, came damages estimated from $70 billion to $130 billion, making it one of the most costly storms on record.
For property managers, the cleanup effort is twofold: They must rebuild their portfolios as well as their clientele. However, with growing concerns about living below sea level and the potential for future storms, cleanup is not easy, said Joe Pappalardo, president of Latter & Blum Property Management.
"People have calculated the ongoing risk of living in a hurricane zone and suffering wind damage, like anywhere else in the United States," he said, "but I don't think any of us anticipated the prolonged damage."
Before and after
While Hurticane Katrina had a staggering effect on New Orleans' economy, the numbers before the storm were already harsh, according to a study by Property & Portfolio Research.
Pre-Katrina, total employment growth in the second quarter of 2005 fell to 0.5 percent after peaking at a seven-year high of 1.3 percent in the first quarter. Population growth averaged just 0.2 percent over the past 10 years, a fraction of the 1.2 percent growth nationally.
Even so, property managers said their vacancy rates were low. Pappalardo's properties in New Orleans had a low- to mid-90 percent occupancy rate, and Ronald Rauber, CPM, propetty manager for Select Properties, said his property was at a 95 percent occupancy rate.
Richard Stone, director of commercial sales and leasing at Latter & Blum in New Orleans, said pre-Katrina, 70 percent of New Orleans' population resided in Jefferson and Orleans parishes--the areas the hurricane hit hardest.
After the hurricane, Pappalardo said properties in the unaffected suburbs were 100 percent occupied, but affected properties were uninhabitable. His properties in Baton Rouge saw occupancy surge from 80 percent to near 100 percent. Rauber's properties in New Orleans were 40 percent occupied.
"Most of our properties are in Jefferson parish. Literally all of our properties were affected," Rauber said. "I supervise eight structures. Five suffered flood damage, and the other three had severe wind and rain damage. We're a week away from some, months away from others. Totally, of our properties in New Orleans, there's about $3.5 million damage."
Property & Portfolio Research found 60 percent of New Orleans' office space was damaged, and the vacancy rate jumped from 18.2 percent before the storm to 64.6 percent after Katrina. Its study predicted vacancies will return to the 20 percent range over the next two years, although the net result will be less demand and supply.
Along with the rate influx for hotel space, the demand for warehouses has increased since Katrina. Out of approximately 55 million square feet of warehouse space, 11 percent was vacant prior to Katrina. Within two weeks of the hurricane, vacancies decreased to less than 5 percent, Stone said.
"We've leased every warehouse that's available and modern," he said. "Certainly, some tenants will leave once the city is rebuilt, but it's as low a vacancy rate as we've seen."
Real estate realities and challenges
Since 1851, 49 hurricanes have directly hit Louisiana--18 being categories 3 to 5, according to information from the National Weather Service. …