Hurricane Sandy: The Commercial Property Toll
First, the good news. With thoughts to those on the eastern seaboard still struggling with interrupted electrical, infrastructure damage and the like, it appears that the aftermath of Hurricane Sandy is not going to seriously disrupt the wider US economy. That’s not to minimize the very real trials of our friends out east, it’s rather to put things into perspective. Sandy’s huge impact up against the monumentally enormous, single largest economy in the world - the $14 trillon GDP US economy – means at a big enough scale, Sandy might just be a blip on the books.
That said, Sandy’s impact to commercial property in the northeastern seaboard is significant and still being compiled:
- Some risk management professionals are touting disaster models that say that Sandy will top out last year’s $4.7 billion in damages left by Hurricane Irene.
- Bloomberg reports a significant fraction of lower Manhattan’s office space is still not fit for occupation. Reports were up to a third as of November 13th.
- The Fed puts Sandy’s impact on industrial production at a loss of 0.4% in October. Excluding Sandy’s impact, production at US factories, mines and utilities would have been up about 0.6 percent.
- Due to the closure of Wall Street, delays were felt in pricing of over $7 billion worth of commercial mortgage-backed securities, including bond issues from Motel 6 and Las Vegas’s Fashion Show Mall.
- Sandy-induced interruptions in the foreclosure pipeline ranged from courthouse closings to the GSEs announcing a 12-month freeze on New York and New Jersey foreclosures on loans held by Freddie Mac.
- Commercial lease terms plus Sandy equals rent interruptions. Since most commercial leases stipulate a landlord needs to provide working conditions as a stipulation for collecting rent payments, landlords are either dipping into their own pockets to find space for tenants in unaffected areas, or seeing no rent as the recovery proceeds.
- Physical damage to structure and contents of office, industrial, retail and multifamily.
- Business interruption caused by storm surge.
- Losses to infrastructure and follow-on business interruptions. See: flooding of tunnels and subways.