Hurricane Sandy: The Commercial Property Toll

Crane Collapse on 57th Street

Crane Collapse on 57th Street (Photo credit: Sarah_Ackerman)

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.
2005′s Katrina topped $100 billion in damage; the number suggest that this time around, New York and New Jersey could have had it worse with Sandy.

28. November 2012 by Wayne Grohl
Categories: Foreclosure, office, Property | Tags: , , , , , , , | 47 comments

Comments (47)

  1. Superstorm Sandy has wreaked havoc over the entire economy. To the extent that this is reflected in pricing of property and securities, we’ve probably absorbed the better part of the shock to the system. Longer term, Sandy will come to be regarded as a storm that changed the course of political history.

  2. GSE’s annocuncement to freeze FreddieMac foreclosures in New York and New Jersey for one year has a two year effect.
    The Government Sponsored Enterprise (GSE) has encouraged its servicers to help all borrowers with Freddie Mac owned loans that were directly impacted by the storm. Freddie has requested that its servicers suspend foreclosure and eviction proceedings for up to 12 months, waive assessments of penalties or late fees against borrowers with disaster-damaged homes, and not report forbearance or delinquencies caused by the disaster to the nation’s credit bureaus. The GSE has also advised homeowners to contact their mortgage servicer to find out more about their current options.
    Making insurance available for both mortgages and home rehabilitation – HUD’s Section 203(k) loan program will allow those who have lost their homes to either finance the purchase of a new home or refinance their existing home along with its repair through a single mortgage. This information needs to be more readily available to homeowners. Many of them have no clue any of this exists.

  3. We have to wonder if superstorms like Sandy will become more the norm than the exception. It could mean we have to think very differently about where and how we do business.
    Renee

  4. This is a very good summary of the current Sandy situation. That being said, here in Florida we have committed to a very serious coastal construction setback requirement. It is politically difficult, but in the long run is appropriate for public safety as well as keeping insurance rates down. In addition, upgrading the deteriorating infrastructure would also go a long way towards ensuring some of the damage is never repeated. Underground utilities including the electric grid would be a top priority. While no one wants their taxes or utility bills to go up, again it is better to share the pain with a greater number of individuals in the short term for a far more improved long term gain. Commercial real estate would then be an even better future investment and the dollars lost due to downtime could be minimized. Code Enforcement is another area that is oftentimes overlooked, but clearly is an issue that needs to be examined. These are but a few of the many opportunities the NE area that bore the brunt of Sandy could use as they move forward from the wrath of these types of storms. Finally, those that heeded the early evacuation warnings are to be commended. Thankfully, most did just that, saving lives. Hurricanes are so common in our state that the fear of ‘crying wolf’ is always in the back of our elected officials’ minds. The leadership shown by the three governors in particular with this issue was a great example for the rest of the US.

  5. “means at a big enough scale, Sandy might just be a blip on the books.” In relation to the rest of the US Commercial RE, I think thats a great statement.

  6. Interesting facts. It’s amazing how quickly the real estate landscape can change from natural disasters like this. I am pleased that it is not going to have a major national effect in the long-term, but my heart goes out to all who have suffered from this disaster.

  7. The big question for the rebuilding is will they incorporate the latest projections regarding climate change and be willing to spend the money and make the sacrifices for a very uncertain future or take the easy route of denial?

  8. There’s no doubt that mega-storm Sandy interrupted lives and the national (likely, international) economies. I also think it had a measurable impact on the Presidential election. In a talk at last week’s Virginia Economic Summit, Political analyst Larry Sabato showed a graph of popularity ratings of each presidential candidate over the 30 day period leading up to the Nov. 5th election. On it, he showed landmark dates including the 3 debates and how they affected the ratings; my comment was that he also should have shown the date of Sandy on the chart as well because it was right at that time that Obama gained momentum and Romney began to slip.

  9. One blessing that has come from the disaster of Hurricane Sandy: There are tradesmen all over the country who have work or extra work right now, re-building, rewiring, etc. While no one would feel fortunate to be effected by Sandy, there is a silver lining for the country in the midst of the storm.

  10. Such a shock to all, this storm caught New Jersey’s coastal community off guard. The National “pull” has been Greatly appreciated and will never be forgotten. “Silverton Strong” is the words I heard from my home neighborhood. I think we have all together made us even more “NEW JERSEY STRONG”

    We will again rise and be a destination of choice.

  11. The good thing about all this mess is to see the human nature, the love and care for the others, the beauty of giving without expecting, the real values of the American People, the big hearth!!! GOD BLESS AMERICA! and let’s turn ourselves back to Him!

  12. We seem to be forgetting that we live on a world that has been having natural disasters for eons. Now that we have built upon those high risk areas and the cycles continue it has become increasingly apparent. Hurricane Sandy, as an example, has made this cycle very clear. The question is: what to do about it moving forward?

  13. As residential solar gains in popularity, the question arises as to how survivable these systems are to severe weather events. New Jersey has a robust solar program… Has anyone seen any data as to how well residential solar power systems weathered Sandy? If damage was widespread, it could impact how widely these systems should be implemented in hurricane-prone regions. Would love to see if there is any datab out there to shed light on this issue.

    • That’s an excellent question, Thomas. Because the commercial real estate angle isn’t the best one to take for coverage of residential solar, the topic isn’t in my “wheelhouse”, even though I’m personally very interested in sustainable energy.

      For coverage, I’d like to refer you to NAR’s Green Resource Council, where they keep tabs on practices and vendors and outcomes for this stuff.

      http://www.greenresourcecouncil.org/

      Visiting GRC is a giant step any NAR member can take toward answering these questions.

      Thanks for reading!

  14. You say “Sandy might just be a blip on the books”. However, in your more detailed list you say a ” significant fraction of lower Manhattan’s office space is not fit for occupation”. That’s a problem, not a blip. I recall seeing a photo of the 86th street subway stop flooded. 86Th street !!Damage to the system is yet to be determined and undoubtably will be significant.
    Also you use “mines” as a category of increased economic growth. Which mines are growing ? The mining industry is under attack and a main target of the current administration.
    “Bond issues of Las Vegas’s fashion show mall” ? That’s the best example you can give of $ 7 billion of debt not sold ? Let’s get real here.
    Each time I read the article it gets worse.

    • Hi Jack,

      I did take pains to mention that Sandy’s impact is significant, and I do apologize if I inadvertently gave any other impression. You’re right: there are monstrous challenges in infrastructure damage repair that are particular to Manhattan and the follow-on effects are going to be with the area for a long while. Nobody should forget that.

      Concerning mines: the Fed reported on November 16 “The output of utilities edged down 0.1 percent in October, and production at mines advanced 1.5 percent” in its report “Industrial Production and Capacity Utilization – G.17″ which you can download here.

      As far as the delay of bond sales, as far as I can find, the pricing on the various bonds was delayed by Sandy, not canceled.

      Thanks for reading!

  15. Such devastation and experts warn we could be in for more of this kind of serve weather. It creates more questions than answers, which remain to be seen. The dollar amounts are staggering, but you have to wonder with all the construction that will be required to repair all this damage, if that might counter some of the vast expense required to get buildings habitable again. One could only hope the silver lining would be job creation, like a Phoenix rising. The One57 building surely will be breath taking, but I wonder with this recent storm, is it in our best interest to be building such tall buildings anymore? This one did stand up to the force of a super storm, only time will tell.

  16. This natural disaster is another in a long string of increasingly severe weather events including tornadoes, flooding from heavy rains, drought in the plains, earthquakes in the mid-Atlantic states, and hurricanes. No matter what you believe to be the cause of these events, there is a compelling argument for a national catastrophic insurance fund that will spread the risk instead of devastating the local insurance markets every time one of these events occurs. Following the event, private insurers typically drop out of the market and rates skyrocket depressing the real estate markets, both commercial and residential. National flood insurance addresses one facet of the issue but there are many other causes that should be included in FEMA insurance.

  17. But how much of Sandy’s impact could have been predicted? From what I’ve read, the poor state of the infrastructure in the area was well known — even 10 years ago, people were predicting that unless a billion or so was invested in improving the state of the electric grid, communications, etc a “serious storm” could have this impact. It has now and HOPEFULLY as things are repaired, they will be done right to prevent similar things from occurring again.

    Unfortunately, repairs after the fact are going to cost far more than the preventative improvements would have.

  18. It is sad to see how much havoc has been wrought by Superstorm Sandy. If there is one thing to be grateful for is that it was not a full blown hurricane. I can not imagine how much worse it would have been if they were hit by a cat 3 or even worse a cat 5

  19. Visited NYC over Thanksgiving and you can see the damaged crane from the Top of the Rock. Pointed this out to my cousins using binoculars, really incredible to see the steel simply bent and twisted like a tie on a loaf of bread.

  20. The severity of the destruction is enormous probably even beyond the predictions of those that estimate the total loss and what the end cost/loss will be for the public and private sector. I hope that New York, New Jersey and all localities involved will take this as an opportunity to rebuild where it makes sense and do it with a new urban vision for a futuristic look in that area. In the end I believe we will see an improved look for the area.

  21. It would be interesting to know what kind of a stimulus the myriad of home improvement stores, furniture stores, car dealerships, HVAC companies, dumpster rental co’s, etc. will add to the economy.

  22. some incredible pictures after the fact.

    Storm damage…

    Hover over each satellite photo to view the before and after comparison. Use your mouse to slide from left to right.

    Thought this was pretty amazing.

    http://www.abc.net.au/news/specials/hurricane-sandy-before-after-photos/

  23. How amazed I am at all that goes on behind the scenes that we don’t even know about. For instance, office rentals not fit for occupancy. The trickle down theory here is for the mortgage holder, the renter’s income as well as the employees of the company that does not place to work. My heart goes out to them and pray for the solution to come soon.

  24. Without diminishing the significant impact from Sandy, consider the overall impact dry weather conditions. Sandy wrecked homes and lives, interrupted business and will devastate many small businesses but the impact on the worldwide economy from drought conditions throughout the world dwarfs Sandy’s impact.

    We can plan and prepare for floods, earthquakes, tornadoes we must also work to reverse the negative impacts of climate change.

  25. Compared to the 1972 Hurricane “Agnes” which effected almost the entire East Coast of the United States (bad as it was) our most recent hurricane was a pussycat.

    The problem with Agnes was not only storm surges from the Atlantic Ocean but rivers cresting and wide spread and extensive flooding even in areas far from the coast.

    So I think it would be wise if NAR explored the feasibility of adding disclosures for buyers who purchase waterfront property and water view property as well as low lying property along the East Coast. At the very least, buyers should be informed that hurricanes have a very long history of mayhem in and around the various tributaries, rivers, and bays along the East Coast (to learn more about the 1972 East Coast storm Google “Hurricane Agnes”).

    • Hi Chris – Property disclosures are generally mandated by federal law or regulation, or by state law or regulation. That’s as it should be since not all real estate professionals are REALTORS®, and those who are not REALTORS® aren’t subject to the National Association’s policies, including the Code of Ethics.

      That said, Article 2 of the Code of Ethics and it’s applicable Standards of Practice address disclosure of pertinent facts relating to a property. You may also want to reference Appendix II to Part Four of the Code of Ethics and Arbitration Manual which also discusses pertinent facts. To access the REALTOR® Code of Ethics go to: http://www.realtor.org/mempolweb.nsf/pages/code

  26. With the obvious changes in climate and increase in severe weather we need to find ways to prevent interruptions to business by having emergency and contingency plans in place- such as having alternate places where business can be conducted from and saving business information on off-site servers. The alternative is to, as a business community, find ways to assist each other in recovery and be understanding with businesses affected. While the latter is not likely to be the observed course of action, contingency plan seems to be most practical.

  27. As a full-time resident of Florida, I can appreciate the destruction of a storm. As our weather patterns change worldwide and unlikely disasters happen in areas that are not typically affected, legislation for insurance becomes more important to homeowners across the country.
    Our hearts and assistance goes out to those in need.

  28. The bright side in all this gloom is that reconstruction will generate jobs and manufacturing, relatively soon. The cost of the rehab, paid from insurance claims and taxes, will be paid by the country over many years, in the form of higher insurance premiums and taxes.

  29. This report only shows the negative impact on economy and to be fair, it should list the positive impact due to the recovering effort and reconstruction.

  30. These types of storms are on the rise and I believe that rebuilding in some low lying areas prone to flooding should be carefully reconsidered

  31. These “super/mega” storms like Sandy seem to be the norm. The positive and responsive attitudes shown in New York and New Jersey related to the recovery efforts are tremendous. However, proactive ideas and measures need to be recognized in the wake of this storm to protect homeowners across this country. Our hearts go out to those affected.

  32. The results of Sandy were devastating to the real estate market in the areas affected. Here in East Tennessee, we had an unusual surge in our market for this late in the year, mainly due to folks from the Northeast looking to relocate after the hurricane. It does appear that these storms are becoming a norm.

  33. Each year storms are wreaking more and more havoc on us. We can not control how the weather will be, but we can make more sensible decisions and get out of harms way. As a Florida resident, I am more apt to take precautions than to stay and wait it out! It certainly is not worth the lives that get destroyed by taking a stance to stay. Buildings can be rebuilt but a life taken is a life that is gone forever. Storms are now showing up in places that did not have them before. Our climate is changing more and more each year.

  34. Not being there to actually witness the devastation leaves us unaware of the impact of this storm. Entire towns with homes and businesses that have been in existence for many decades have been comletely destroyed. The entire character of towns impacted by this storm have been changed forever. Building codes require new types of construction unlike any that have existed up until this time. It can be likened to bombed out cities in Germany after World War II that had to be completely rebuilt.

  35. Amazing how we never seem to learn the lesson…

    We happily write checks to fix the damage after the fact, but can’t seem to bring ourselves to stop it in the first place.

  36. Good post, keep up the good work… You efforts putting this blog together was worth the while. Nice work Wayne.

  37. God Bless the poor inhabitants of New York and New Jersey that have been affected by Sandy. It will be years before many areas are restored with so much life and history lost in the process. We Americans, are a kind and caring people, but suffer from short attention spans. Unless this tragedy personally affected us, we have a tendency to forget and move on. Let’s hope these people get all the help they need and so greatly deserve.

  38. Interesting about the crane. Everyone watched it dangle for days wondering if it would fall. A couple of weeks later the same company had another major incident on a project in Canada.

  39. When it comes to Mother Nature vs Humanity, Mom always wins. I am certainly not one to agree with over regulation but… Planning departments of municipalities should not allow construction in areas where harm can be created by the natural components of living on earth. As I am sure none of the people who decided this was a great place to build homes are still alive, it is a good lesson for the rest of the world to take a good hard look at where you live and the latent yet potential dangers that exist. Even if those dangers wont materialize for 200 years, we still need to err on the side of caution.

  40. The silver lining will be better construction, green or sustainable features, and jobs.

  41. I have always loved the work NAR does for the community.

  42. It will be interesting to see how the rebuilding process plays out as compared to Katrina. If any lessons were learned that will translate into improved distribution of disaster funds that will more directly benifit the victims in a more efficient way.

  43. As an Alabama resident and going through several hurricanes, the impact of these storms will continue to be seen from now on. After Katrina, the nation saw gas prices soar. Seven years later they are still high becuase of Katrina and we will probably never see gas prices back to pre-Katrina. Along with fuel, building supplies will also see an significant increase as the rebuilding process starts. With the number of affected homes and businesses, rebuilding will take a toll on available supplies and will naturally have an impact on current pricing and like we saw with gasoline after Katrina. We will see the same such price increase on building supplies post Sandy and will precipitate throughout the nation as the residential market continues to recover and grow in some areas. Hopefully, this will not start another false boom only to result in another negative downturn.

  44. #444503499
    Hurricane Sandy’s had a great impact on New York and New Jersey and the way people live now and in the future. With the Election, the physical cliff and all the other things going on in the US Economy, the disruption seem small, but it is effecting a lot more than some think. Gas prices are down a dollar from last year, just in time for tChristmas. Commercial Real Estate interest may not have been prevalent in the past but is needed more now.

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