Most Properties Survived But Future Prep is Key

HOUSTON—After the impact of Harvey and subsequent flooding, the damage assessment has begun. In addition, tax and legal advisors have also begun making recommendations for the future so owners can be more protected when the next hurricane strikes.

First, with regard to assessing damage, CBRE released a report that outlines the storm's impact on major commercial real estate asset classes in Houston and it has a silver lining in it for all property types with the exception of multifamily.

Fewer than 40 office buildings, or 4.2% of Houston's office stock, suffered damage. Displaced companies already are looking for temporary turnkey space, likely soaking up some of the 11.1 million square feet of availability in the market. Others that had marketed space for sublease have withdrawn it to preserve options.

The majority of Houston's warehouse and distribution center market weathered the storm without major damage. A spike in demand is expected for warehouse space from building supply companies, charities and consumer-goods distributors, which will further constrict availability.

Most damage was limited to neighborhood and strip centers in hardest hit submarkets. Still, displaced retailers looking for space face a tight market. As a result, Houston's retail sales will increase, especially for vehicles, home-improvement goods, furniture and appliances.

Up to 100,000 apartments were flooded, amounting to one of every six units in the area. Expect occupancy rates to rise and concessions for new renters to be curtailed amid the rise in demand.

In other metro areas struck by hurricanes in recent years, hotel occupancy increased by an average of 15% for the four months after major storms. The additional demand in Texas stands to deliver a 4.4% gain in revenue per available room for the US hotel industry rather than CBRE's previously forecast 3.5% gain.

“Houston's commercial real estate market is resilient after weathering Hurricane Harvey and the largest rainfall the area has recorded in decades,” says Spencer Levy, CBRE's head of research, the Americas.

“The outlook for recovery is optimistic, but short-term disruptions are to be expected. Available space to house displaced companies, stores and residents—as well as relief workers—is likely to become scarce in certain Houston submarkets, and the rebuilding effort will temporarily fuel a rise in retail sales and additional demand for warehouses in the area from building supply companies. Overall, Houston's recovery will take time, but the area's strong economy will help it rebound soundly.”

Susan E. Golden, attorney at Venable LLP, tells GlobeSt.com that landlords should plan ahead for disaster recovery, have vendor relationships in place and vet the contracts in advance with insurers to be prepared for the next disaster. In addition, Golden says there are other pitfalls to avoid.

Flood control measures put in place on one property can inadvertently direct future flooding onto others, so coordination with public agencies and neighbors is essential.

Regarding recapture of relief funds: it is not possible to use two sources of funding for the same expense, so do not seek federal disaster relief funding for expenses covered by insurance.

Flood waters spread contaminants and wet conditions can result in mold and ensuing health hazards so owners are advised to avoid flood waters and expedite clean up as much as possible.

If a property owner is lucky enough to find a contractor in an emergency, there may not be time to negotiate a contract price and scope, so Golden says it is best to get a price cap and time limit for how long the owner will be without a contract.

Insurers and public agencies look for documentation that reimbursement costs are reasonable, but again, federal relief funding cannot be requested for expenses covered by insurance.

Create a process for coordination to ensure that every tenant is not planning to use the freight elevator at the same time.