COVER STORY, AUGUST 2010

A CRUDE REALITY
Industry experts discuss the oil spill’s impact.
Jon Ross

When the BP oil well in the Gulf of Mexico started spewing gallons upon gallons of crude into the water in late April, the impact this tragedy would have on the commercial real estate markets in the Southeast was a huge unknown. Brokers in Mississippi, Alabama, Florida and Louisiana were devastated by the environmental implications of such a catastrophe, but they initially thought — had the spill only lasted a few weeks — their commercial livelihood wouldn’t be negatively impacted. In most cases, these predictions were right. Industrial real estate in the Southeastern Gulf region has been seen a slight change for the positive as BP has leased industrial tracts of land for its cleaning effort, and office space is still holding strong; the real problem concerns real estate directly tied to tourism.

Economies in the Gulf and, by extension, the area’s commercial real estate industry, rely heavily on beach visitors and other vacationers. When fewer people take trips to the area, hotels start feeling a pinch as well as restaurants and other property types that rely on outside money for a huge chunk of business.

“[The spill] affects the supply chain in that fewer and fewer tourists come to the Gulf Coast; as a consequence, your hotels are affected, your casinos are affected, charter boat fishing is affected,” says John Patrick Gifford of NAI Latter & Blum in New Orleans. With charter boat fishing impacted, tourists who are looking for Gulf-fresh seafood, which is now unobtainable, have started going elsewhere. “When you look at how much seafood we supply to the rest of the country, you look at the moratorium Obama is putting in place and what that does to the service industry … we could have some massive unemployment here.” As of press date, the federal administration’s 6-month moratorium on deep-water drilling was still being battled over in the appellate courts. 

New Orleans is far enough inland that it won’t directly feel the pain from the oil spill, but the residual economic stagnation could still reach the city. “Before this recent slowdown … we were faring well on a comparative basis. We do have a base of business, but certainly we’re not happy about this latest setback,” says Rich Stone of NAI Latter & Blum. “We don’t have the direct impact that some of the communities on the Gulf Coast have that are extremely tied to tourism.”

New Orleans knows a little something about making economic growth from heartbreaking situations. The city is still getting back on its feet after Katrina, but the recovery process did bring needed federal dollars to the area and has helped uncover a new economy. The same thing will happen due to the BP oil spill, Gifford predicts. While nobody wants economic cultivation at the hands of tragedy, BP’s recently announced $20 billion escrow account reserved for Gulf Coast recovery will go a long way to help the area turn itself around.

“$20 billion is $20 billion, and I think that will sustain a good part of the economy,”  Gifford says. “You’d like to have economic development in a different manner than a giant oil spill, but I think that spill will have a positive affect in the amount of money we pump into the regional economies.”

Many of the Louisiana cities near the coast that have economies centered around oil exploration have some concerned citizens in their midst. If a moratorium on drilling is pushed through, many companies will end up laying off workers and will eventually consolidate their commercial footprints.  

Tourism officials have been pumping money into advertising to battle the perceived notion that the Gulf is no longer safe for visitors. According to officials in Florida, people were scared away from the area’s coastline before there was even a hint of oil anywhere near the state’s beaches. This negative association is going to be one of the major battles fought in the real estate world in the next few years.

“Because of the perception immediately people began canceling fishing trips, vacations — and that’s been going on since April,” says John Griffing of NAI Halford in Pensacola, Florida. “It was just a perception thing long before any oil reached our beaches. Our businesses that depend, some solely, on visitors have had just a terrible time since April.” Those businesses also include vacation rentals and other beachside residences. “It has really impacted the waterfront condominiums,” Griffing says. “Nothing is renting and nothing is selling right now on the beaches or anything close to the water.”

Much like Louisiana, however, clients outside of the hotel and restaurant industry are not too worried about the spill’s immediate economic impacts. Griffing has leased a large amount of waterfront to BP, and NAI has helped smaller contractors involved in the cleanup effort find commercial space.

“It’s just sort of business as normal because very few of our clients have been affected by it,” Griffing says. “We don’t lease space to commercial fishermen because they’re on their boats all the time.”

Even with a small to negligible impact on commercial real estate, most brokers are still worried about the health of their industry. The spill’s economic devastation is a huge sticking point for future commercial users.

“The perception of the potential for years and years of oil chips and tar balls and tar chips washing on our shores will impact those who want to come here and spend a week or spend 3 or 4 days, as a lot of groups do, and fish one day and play golf 2 or 3 days,” Griffing says. “They don’t want to do that if there’s a perception there that you’ve got to put your fish back, you can’t eat them because something’s wrong with them.”

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