FEATURE ARTICLE, OCTOBER 2005

Special Report: The Real Estate Industry and Katrina's Aftermath
Randall Shearin

Hurricane Katrina has had an effect on nearly every industry in America, and the shopping center industry has not been immune. In our lifetime, no natural disaster of this magnitude has occurred in the United States. There will be many lessons to the real estate industry that come from Katrina, and many success stories will be built on the new areas that will be developed as a result of rebuilding after the devastation.

The areas hit hardest by the storm were southern Alabama, southern Mississippi and southern Louisiana. Southeast Real Estate Business has attempted to find information on the state of retail in the areas that were affected by the storm, how the industry is responding to the relief efforts, as well as how the local economies will be impacted. We relied mainly on company press releases and news reports to compile this report, which continued to flow in daily as we compiled this article. Our demographics partner, ESRI, has supplied maps, showing which areas were affected by Katrina.

Retailers' Concerns

Chief among the areas of concern for retailers and property owners in the immediate aftermath of the storm was the property damage caused by the storm. As news reports filed in about looting in many areas, that quickly became another concern. The mass media reported looting in areas like New Orleans and Biloxi, Mississippi.

Fire and water damage is another concern of retailers and property owners. The upscale Shops at Canal Place in New Orleans sustained some damage due to wind and rain, but it did not flood. It was unknown by Madison Marquette, the center's manager, the extent of damage done by looters at the property. Joan Suko, vice president of marketing for Madison Marquette, confirmed that there was a fire in the Saks Fifth Avenue building at The Shops at Canal Place. The company was able to do a first assessment of the property on Friday, September 9, and believes that looters started the fire. A private security company had occupied and secured The Shops at Canal Place as of press time. Madison Marquette plans to repair and reopen the center as soon as possible. The company has accounted for all of its employees in the area.

General Growth Properties, which operates several centers in the affected areas, including Riverwalk in New Orleans, was unable to confirm the condition of its properties in the area as of September 12th, due to the government's mandate to evacuate the area. The company said its Number 1 concern is the safety of its employees. General Growth has remittance envelopes available at all of its 210 centers for shoppers to donate money to the American Red Cross. Federated Department Stores reported some stores flooded in the Gulfport area. The company has provided transitional assistance to employees and their families.

One of the companies most affected by the storm is Covington, Louisiana-based Stirling Properties. As one of the largest retail owners and managers in the Gulf states, Stirling was first and foremost concerned with its employees' welfare. The company reported on its Web site that a number of its employees had lost their homes and belongings to Katrina. The company reopened its headquarters office as well as 12 of its 16 offices in Covington on Tuesday, September 6. Stirling hoped to have its offices in New Orleans, Metairie and Gulfport reopened in the near future.

According to a September 9 filing with the Securities and Exchange Commission, Equity One Inc. has been marketing 13 Louisiana properties for sale but has discontinued these efforts indefinitely due to the impact of Hurricane Katrina on the market.

Economic Impact

The retail industry has always been a resilient one. We have no doubt that the retailers and property managers affected by Katrina will rebuild their properties in some shape or form. Some or all may not be rebuilt at once, but they will as the population returns to the areas as they are rebuilt.

Many people have asked our opinion on the economic impact that Katrina will have on the area. The economic impact for the areas affected is immense. Many of the casinos in Mississippi so heavily damaged or destroyed by Katrina have already announced that they will rebuild. The 29 casinos in Mississippi bring in $2.78 billion in gaming revenue every year. When people gamble, they also spend money on hotels, food and travel, and all of it adds to the state's tax base. It is estimated that the state of Mississippi is losing $500,000 per day in gambling tax as a result of the casinos' closure. Not all is lost: Mississippi's casinos in Tunica — the nation's third largest gambling destination — have already reopened, and is it hoped that the ones in Gulfport and Bay St. Louis are not far behind. When looking at Mississippi's casino industry, keep this in mind: before the first casino opened in the area 12 years, ago, the area was relatively unknown. The casinos brought with them 14,000 jobs. Mississippi's laws allow casinos only to operate on water in floating barges. There is some speculation that the state's legislature, in light of the damage suffered by the barges, may pass laws that allow casinos to be built on solid ground. This would allow the industry to come back bigger and better than before.

There is a special concern in the media with regard to rebuilding New Orleans. A market will exist there, and the hesitation for many residents to leave despite a mandatory evacuation in the days after Katrina tells us that there is a desire for many to live there. The New Orleans that returns will be different from the New Orleans that existed before Katrina. Imagine San Francisco after the earthquake and fire of 1906 and then look at it today. Cities are resilient, and their residents are loyal.

New Orleans' officials have pledged to rebuild the city. Now the question remains: will people relocate there? Many residents have left and said that they have left for good. But with ports that once bustled, a thriving tourist economy and a lot of investment already in place, it is doubtful that the city will not be rebuilt. It is likely that a smarter New Orleans will be built.

In Mississippi, where the economy will be affected negatively by the loss of business generated by the state's waterfront casinos, plans are already set to rebuild. The casinos meant huge business for the state and it is unlikely the state will let that impact go for long.  

The rebuilding efforts in the Gulf states will bring many construction jobs and the need for raw materials to the area. It is also going to mean business for developers. Along with the casinos and various other businesses that were decimated come thousands of jobs to operate them. Rebuilding retail in the area, as well as new housing, will help jump start a new economy.

The relocation of thousands of people from Katrina-affected areas will have some positive economic effects for some markets outside of the Gulf states. With vast numbers of the population of New Orleans and southern Mississippi relocating to other cities, the need for new housing — or the occupation of vacant multifamily space in some areas — could have a positive economic impact. In Atlanta, where the multifamily vacancy rate is hovering around 10 percent, the relocation of hurricane refugees is expected to have a positive impact on that market.

Retail Industry Responds

In the nation's time of need, the shopping center industry has responded. Many of the nation's grocers and wholesalers have banded together to donate more than $30 million in goods to victims of the storm. Retailers are raising funds at events and checkout donations in more than 15,000 grocery stores. One of the largest donations from grocery retailers came from Albertsons, Inc. The company's donations total $10 million, including $9 million in water, ice, food and other essential products. Most supermarket chains have developed programs that collect funds from customers at the register for relief organizations like the Salvation Army and American Red Cross. Many are also matching employee donations up to a certain dollar limit. Other retailers, too, are doing their part. Federated Department Stores has launched a $3 million hurricane relief drive, and the company will match employee and customer donations up to $1.5 million. The company has more than 500 employees in the Gulf states. Forest City donated $50,000 to the Hurricane Katrina relief effort and will match all employee donations to the American Red Cross. Walgreens made an initial donation of $250,000 to the American Red Cross Disaster Relief Fund. The company also donated truckloads of supplies and emergency medicines to relief efforts in affected areas.

Target announced a $1.5 million donation to the American Red Cross, with $500,000 going immediately to relief efforts. The company also offered real estate in Louisiana to the American Red Cross to establish a central command center to support the impacted areas of the storm and was looking into real estate availability in Mississippi and Alabama. Target also assisted the Red Cross with the distribution of essential products, including water, ice, energy bars and bug spray. Target stores in the affected area were given additional funds to provide in-kind product donations and grants to local non-profit organizations.

A stand out in the crowd has been Wal-Mart. The company donated $17 million in relief aid, including millions in merchandise. The company has set up some mobile stores in areas affected by the storm to quickly get needed merchandise to people. Wal-Mart had to close 123 stores affected by the storm, and it had reopened a number of them as of press time. The company offered its 34,000 workers displaced by the storm work in cities where they had relocated. Displaced workers whose homes were flooded or destroyed were also eligible for $1,000 from a relief fund.

CVS/pharmacy located a number of emergency pharmacy units in impacted areas along the Gulf Coast, including one at the Houston Astrodome. The company converted its units in Baton Rouge, Louisiana, to 24-hour stores to help cope with the influx of refugees to the area. The company also donated $504,000 in cash and pharmacy products to the American Red Cross.

The Home Depot quickly moved supplies to the affected area. The company sent more than 1,000 trucks in the area to stock its stores. The company also sent some 900 workers from other areas in to help existing store staff cope with the additional customer demand. Thirty-four Home Depot locations were affected by the storm, and as of September 7, only four still remained closed. The company had opened six temporary locations in storm-affected areas. The Home Depot has offered jobs at any store in the country to all of its 5,000 employees in New Orleans and the Gulf Coast.

Lowe's Home Improvement Centers, as well, was up and running after the storm. The company had all but three stores near New Orleans operational as of September 6. The company pledged to donate $5 million in aid and is matching $2 for every $1 donated to its relief fund for about 1,000 employees that were impacted by the storm.

ICSC, as well, is doing its part. In the immediate aftermath, ICSC's educational foundation established a fund to match members' donations [see sidebar] and also began an effort to work with the retail industry to catalog vacant real estate that could be used for housing those displaced by the storm, as well as for aid stations.

Sources for this article:
Food Marketing Institute
CNN/Money
The Washington Post
USA Today
ESRI
MarketWatch
company press releases

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