The Impact Hurricane Ian Could Have on CRE

Hurricane Ian is, and continues to be, a dangerous and destructive force, causing death, injury, and disruption. Some estimates of economic damage running a minimum of $30 billion and possibly as high as $70 billion.

Although it will take time to get accurate numbers, Trepp estimated the commercial real estate exposure in what has been one of the hottest markets in the country.

Start with loan exposure. The total is $51.95 billion, based on the hurricane path forecast from September 28 through 30. Agency lenders are on the hook for $31.07 billion, or about 61% of the total, mostly Fannie Mae and Freddie Mac. Commercial mortgage-backed securities (CMBS, largely Conduit and SASB) are another $17.27 billion. In third place are commercial real estate collateralized loan obligations (CRE CLOs) at $2.98 billion.

Next, Trepp looked at metropolitan statistical areas (MSAs) and ranked them by outstanding loan balances and then by percentage at high risk—at least 4 on a scale of 1 through 5—of environmental-related physical damage (ERPD) or environment-related business interruption (ERBI).

“Tampa and Orlando account for approximately 46% of the total loan exposure,” Trepp noted. “Cape Coral, the MSA taking the brunt of Hurricane Ian’s initial force, accounts for roughly 4% of the exposure (outstanding balance of $2 billion) with 99% of the properties at high risk for physical damage and 76% at high risk for business interruption.”

But Jacksonville has an $8.1 billion risk, the third highest. The most at risk in other states are Charleston-North Charleston, South Carolina ($2.9 billion outstanding); Savannah, Georgia ($2.0 billion); Hilton Head Island, South Carolina ($0.8 billion); Myrtle Beach, South Carolina ($0.4 billion); Hinesville, Georgia ($0.1 billion); and Brunswick, Georgia ($0.1 billion).

Then there’s the are the types of properties: multifamily, retail, lodging, healthcare, office, mobile home, industrial, and other. Trepp only provided a breakout for Cape Coral-Fort Myers in Florida, but the specifics for any locality is important. The potential for property damage is of great concern, but business interruption is an additional layer of concern.

Retailers, for instance, could experience a period of no operation, potentially affecting the ability of them to pay rent and of landlords to have cash flow for their own operational expenses. With heavy damage in tourist areas, lodging facilities are bound to take a hit.

Multifamily tenants aren’t businesses, but they depend on being able to work. Again, that may not be possible as their employers could be shut down due to conditions. And under Florida law, landlords are responsible for a number of things, including, in absence of specific health, housing, or building codes, maintenance of plumbing, roof, windows, screens, roof, floors, and other structural components. Also, running water and hot water, as well as heat during the winter.

There don’t seem to be obvious exceptions, and the law is stringent. “A tenant must notify the landlord, in writing, by hand delivery or mail, of noncompliance with Florida law or the requirements of the rental agreement. The written notice shall also indicate the tenant’s intention to terminate the rental agreement due to this noncompliance. The tenant may terminate the rental agreement if the landlord fails to come into compliance within seven days after delivery of the written notice.”