How Commercial Real Estate and Natural Disasters Are Correlated
Following the devastating flooding caused by Hurricane Harvey the Houston area – and with other tropical storms and potential hurricanes making headlines – natural disasters and the impact on infrastructure is something on many people’s minds.
Houston, like many cities built near the ocean, has a unique set of challenges.
“But Houston is the most recent example of where there’s quite a bit of development that’s occurred on land that’s effectively just above sea level,” said Greg Warsek, Associated Bank’s Illinois Market Manager. “So, when you have a weather issue like this where that amount of water comes so quickly, there’s just nowhere for it to go and obviously the resulting devastation for that city has been pretty significant.”
Situations like this cause developers, city planners, commercial real estate experts and many others to take closer looks at ways to approach development differently. But even innovative development strategies can only do so much.
“There’s already been quite a bit of change in building codes that have elevated how construction was done there, so hopefully that minimizes (rebuilding troubles) a little bit,” Warsek said. “And what I mean by that is, usually the first floors, there’s not much on them – they’re elevated construction – HVA systems are elevated, (and) things of that nature might minimize some of the damage. But the water that they’re talking about down there was much more significant than whatever they could have built around in terms of the building codes, so I think it’s going to take many years for the rebuilding to occur.”
Trying to Apply Lessons Learned, Whenever Possible
While most areas of the Midwest don’t have to fear this type of catastrophic flooding, each area of the country has its own concerns to consider.
“I think a lot of the southern belt communities that have bodies of water look at some of the things that occurred and try to learn things,” Warsek said. “I know Florida’s learned a lot of lessons over the years and changed their codes to adapt. I know there’s quite a few lessons learned from the real estate industry looking at New Orleans in terms of what happened there. A lot of what was developed in Houston was pretty recent in the last 10-15, 20 years so hopefully some of the right building occurred that, like I said, hopefully will minimize some of the damage as the water recedes.”
But how does insurance factor in?
“For commercial real estate, it’s your typical flood insurance that you get, but there’s special insurance if you’re in what’s called a flood plain,” Warsek said. “Some of the states that are located around large bodies of water like the Gulf or the Atlantic have special insurance, depending on where they built and it’s a complex issue and it’s getting very expensive. I know some commercial real estate developers that are even going so far as to self-insure because it’s getting so expensive.”