'Never Seen Anything Like This': CRE Assesses Impact Of Hurricane Ian

Gretchen Smith woke up Friday morning in Fort Myers, Florida, walked her sister's dog and gazed upon the aftermath of Hurricane Ian: downed trees, uprooted vegetation, debris from damaged homes and vehicles floating in the floodwaters in her single-story townhouse neighborhood.

Smith, a director with Cushman & Wakefield Commercial Property Southwest Florida, was being asked to check on the properties her firm manages the day after the Category 4 storm, but that would have meant having to use her car.

“They wanted me to drive around and look at properties, but I can't do that. There are no gas stations,” Smith told Bisnow during her walk. “I'm not wasting my gas on that. Sorry.” 

Cushman & Wakefield is among many owners and managers of real estate in southwest Florida assessing how their properties fared in one of the strongest hurricanes ever to hit the United States.

But the extent of the damage wrought by the storm will take time to ascertain, as search and rescue efforts are still underway for a storm that killed at least 48 people as of Sunday evening.

“Here's my biggest message for people out of town: They're nervous because they can't get a hold of their property managers today,” said Lauri Albion, a senior adviser with SVN Commercial Partners in Tampa. “But that's because people are still securing their home, and assessing personal damage and many don't have cell service. There are no gas stations. And also driving around is dangerous.”

Albion took to the streets after the storm to survey the damage to her family’s properties and the properties she represents. She watched aerial footage of Fort Myers Beach and didn’t recognize it anymore.

“I’m a little shell shocked,” she said. 

Her home suffered roof damage, which was nearly universal in the area as winds as fast as 150 mph whipped the coast of southwest Florida, dealing Fort Myers, Cape Coral and Sanibel Island a direct hit. Sanibel Island was completely cut off from the mainland after its sole bridge collapsed.

Locals who spoke to Bisnow described uplifting scenes of neighbors helping neighbors, but also were dealing with widespread cellphone, internet and power outages and constant helicopters buzzing overhead, surveying the damage.

“A lot of the traffic signals were just hanging,” Albion said. “If you weren't careful, it would take out your windshield.”

A handful of commercial real estate firms contacted by Bisnow with properties in the hardest hit parts of Florida’s southwest coast — mainly Charlotte, DeSota, Hardee and Lee counties — couldn’t comment on the status of their holdings, saying they were still gathering information as of Friday. 

“We’ve just been in recovery mode and us assessing damage for our clients mainly and trying to see where we are. We’ve never seen anything like this,” said Zahra Antaramian, a principal with ADG4, a residential and commercial management and development firm in Naples. “We are trying to gauge how far we are now from getting things back up and what our clients have to look forward to in terms of insurance claims.”

For now, the price tag on the damage remains a game of estimates. Wind losses for both residential and commercial properties could rise to $32B, according to an analysis by CoreLogic. Losses from the storm surge could be up to an additional $15B.

Trepp, which tracks the value tied up in CMBS loans, estimates that the total potential debt exposure to properties in the path of Ian could be as high as $52B.

The damage from Ian happened seemingly at random. Many buildings were completely destroyed — largely those built more than 20 years ago, before building codes were updated — while others emerged nearly unscathed. Smith’s home had some roof damage and 3 inches of flooding in her garage, but one of her colleagues’ houses “completely washed away,” she said. 

Mercato Shops, a 455K SF open-air retail center in Naples anchored by Whole Foods, had power on Friday and the supermarket and Rocco’s Tacos and Tequila Bar were open for business, said Tim Perry, managing partner at North American Properties, which owns the center.

“We were very fortunate to have sustained very minimal damage. There wasn’t even a tree down,” Perry said. “I know there are many residents who were nowhere near as fortunate, but need to get a taco or need to get groceries.”

While the damage from Ian is expected to be historic, the storm seems to have demonstrated the power of modern Florida building codes. After Hurricane Andrew devastated the state in 1992, Florida lawmakers adopted a more stringent statewide building code, requiring new developments to withstand hurricane-force winds with features like impact-resistant glass and storm shutters.

“Buildings built to newer codes consistently have fared better during hurricanes and other storms than older homes,” University of Buffalo School of Architecture and Planning associate professor Nicholas Rajkovich told The Washington Post.

But those codes will only go so far in aiding newer buildings as the intensity of storms continues to increase with climate change, said Rich Sorkin, the CEO of Jupiter Intelligence, which provides weather modeling data for insurance and real estate companies.

“Any one- to two-story house in the path of storm surge, the building code wasn't going to help them,” Sorkin said. “But a 20-story building in the path of storm winds, building code is going to make a big difference.” 

Most people with whom Bisnow spoke expect the area to eventually recover and residents to move forward with the cleanup and rebuild. Antaramian worried that many of the people who moved to Florida in recent years would be scared away by their first Florida hurricane. 

"I would find it hard to believe this storm did not scare new Floridians away,” Antaramian said. "Coastal Naples is where you have upscale homes, areas that you never think really would be underwater. This is going to scare some people away. It is almost traumatizing and scary to see. I was raised in Naples and I have never seen mailboxes covered in water before." 

Florida has been one of the fastest-growing states in the nation in recent years — the state’s population increased nearly 6% between 2018 and 2022 — and the areas Ian hit directly have been among the most popular for migration, jumping between 7% and 9% in that same period. Fort Myers and North Port, Florida, were among the nation’s 15 fastest-growing cities during the early part of the pandemic, according to the U.S. Census Bureau. 

Development to accommodate the influx of people has made the area more vulnerable to climate change and increased the price tag of storms when they hit. Florida had the five hottest commercial real estate markets in the nation in the first quarter of 2022 — Orlando, Miami, Palm Beach, Fort Lauderdale and Fort Myers — according to the National Association of Realtors’ Commercial Real Estate Metro Market Conditions report.

“Even the inspectors can't keep up with all the amount of building that is taking place,” said Tomas Otero, a general contractor and founder of Otero Construction in Naples. “This is just adding fuel to the fire.” 

It could take longer and cost more to rebuild than for previous storms amid continued supply chain constraints, a chronic labor shortage, and inflation that the Federal Reserve has yet to curtail with higher interest rates, Otero said.

“This is going to take a long time to repair,” he said.

Questions remain about the ability of insurance to cover losses, as already six Florida insurance firms have failed this year, the Orlando Sentinel reported. Jesse Shemesh, president of investment firm Point Acquisitions, said he expects that insurance rates will spike in the near term as companies grapple with a surge of claims.

“They pretty much doubled premiums over the last couple of years,” said Shemesh, whose company owns a portfolio of single-family residential rentals and a warehouse in Southwest Florida. 

Sorkin said that is the typical pattern with insurance companies following a major disaster: Spike rates for a short period and then lower them after an influx of state and federal disaster relief helps the market return to normal and the insurance markets become competitive.

“They’re very, very short-term oriented in the way their pricing models work,” Sorkin said. “In the short-term, I think we’ll see pretty significant disruptions in insurance coverage.”

In the aftermath of another historic storm, more questions will be asked about the risk of investing in real estate that is so vulnerable to both storm surges and sea level rise. Investors haven’t yet factored in climate change risks in their pricing and capitalization rates, Sorkin said.

Widespread climate change impacts could force lenders to raise the cost of their loans to offset the threat of worsening weather events. And while building codes along many coastal cities have tightened in recent decades, the intensity of hurricanes could see those codes fall short of protecting structures in the next 20 or 30 years, Sorkin said. 

“That is a bad time to be betting against climate change which is what effectively everybody has been doing until now,” Sorkin said. “This is just not a sustainable economic model at this moment.”

Those active in the real estate industry still disagree. Carroll Organization President David Perez said his firm has been buying apartments in coastal markets since 2017 and has weathered hurricanes Harvey, Michael and Florence during those times. Ian won’t likely deter Carroll from investing in Florida, either. 

“If you ask Floridians, it’s just part of life,” Perez said. “Generally we’re not buying on the water, and it’s easier to recover from those situations.”

Albion said she is currently helping an investor from the Northeast buy an office building in Naples as a way to earn income in retirement. Hurricane Ian isn’t deterring him from closing on the deal, Albion said, even though he’s uncertain as to the fate of the home he was building on Sanibel Island.

“People want to be here and they don't have long memories,” she said. “There are properties that are going to change hands from people who are retiring and don't want to rebuild. But that's an opportunity for someone else to come in.”

Otero spent his weekend visiting his clients’ properties and surveying the damage. In one ground-floor condominium, he said the water line was 3 feet high and debris was sticking to the walls. Despite the pain of rebuilding, he said he was undeterred about doing business on Florida’s southwest coast.

“It’s so beautiful down here, 99% of the time, people just don’t want to leave. It’s beautiful. It’s paradise,” Otero said. “This is where I'll die. Florida, I love this place.”

Alex Gratereaux contributed reporting to this story.