- Truly great real estate investors and developers are not motivated just by the bottom line dollar value of investment potential.
There have been (unlucky) 13 hurricanes so far in 2017 at the time 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 in Puerto Rico and the Virgin Islands.
The devastation was complicated further by the current political climate and competing interests of politicians and interest groups.
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. Fortune estimated in September the combined impact of Harvey and Irma at $150 billion to $200 billion in damage and lost productivity. Estimates for Maria are already at nearly $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 could take years to recover from and may 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, 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 added.
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,” he said.
“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.
One way to build a brand’s reputation and create opportunities for good buzz is to create positive ways to support not only market recovery but also 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,” Roberts said.
“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,” said 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 profitability, 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, lenders and other potential clients.
Challenges for post-disaster rebuilding
In most markets, the labor shortage in the construction sector is only getting tighter.
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 workforce may be experiencing transportation challenges, equipment damage and increased homelessness, further exacerbating economic insecurity. These extreme shortages, and extreme needs, result in a shrinking labor force and higher labor costs.
Areas like Puerto Rico and the Virgin Islands have even more problems with labor recruitment because of the limited labor market and smaller population in general.
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 the long term.
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 innovations in products, methods and processes that give investors a whole new focus and level of expertise.