Hurricane Harvey May Accelerate Multifamily Absorption in Houston, Says RADCO CEO Norman Radow
Nearly a week has passed since Hurricane Harvey made landfall in Texas, drenching Houston and the Gulf Coast area with trillions of gallons of rainwater and sending residents scrambling for shelter.
While Houston is now, in the words of Mayor Sylvester Turner, “mostly dry,” CoStar estimates that roughly 72,000 residential units are situated within Houston’s 100-year floodplain and are expected to suffer water damage, if they haven’t already.
The volume of devastation has prompted property owners across all sectors of commercial real estate in Texas to issue press releases on the status of their properties.
Texas Real Estate Business reached out to Norman Radow, CEO of The RADCO Cos., a private equity firm in the multifamily space whose holdings were mostly spared by Harvey. The Atlanta-based company owns seven multifamily properties in Texas, including four in Houston totaling about 1,800 units. Of those, only about 1 percent, or 18 units, were damaged by Harvey.
The following interview captures his firm’s efforts to help displaced tenants, and offers insight on how Hurricane Harvey might positively impact future absorption and occupancy in Houston’s multifamily market.
Texas Real Estate Business: Prior to the storm, the consensus coming out of Houston seems to have been that multifamily rents and occupancies would stabilize in 2018 with fewer construction starts and greater job growth. How has Harvey changed this outlook?
Radow: I would generally agree with that consensus, pre-Harvey, though because we’re primarily in the Class B space, we were less affected by the new deliveries.
Still, Harvey is the first storm of biblical proportions that we’ve seen. The Red Cross is estimating that 67,000 housing units have been destroyed or damaged. In all likelihood, there are have been more units destroyed or damaged than the volume of excess units that exists today, which was expected to take another year to stabilize.
The optimism of 2018 may accelerate into the fourth quarter of this year. You’ll also see FEMA workers, engineers and construction workers coming in for the restoration effort, which will also help absorb some inventory. My gut tells me that the absorption may now occur faster than the pre-Harvey pundits thought.
TREB: How was RADCO able to safeguard its properties from water damage?
Norman Radow: We took a lot of precautions. We had hurricane straps on the roofs of our properties; we put in all new windows. We retrenched over the summer and added more drainage to our properties and lowered the water levels in our pools so they wouldn’t overflow. We also instituted an emergency plan that involved having every property manned during the storm.
As a result, only about 1 percent of our 1,800 units were impacted, even as our neighboring properties were inundated and severely damaged. Our contractors are already on-site repairing the few units that were damaged, looking at the pools and getting them re-established and fixing the air conditioners that were flooded. We’re really in better shape than most, and we’re very grateful for that.
TREB: Can you describe your plan to help tenants who have been displaced by Hurricane Harvey?
Radow: We have a lot of units that we wanted to make available as soon as we could to people in need. We’ve already gotten calls from charities and FEMA, but we’re not allowing the demand to affect our pricing. All our units will remain at pre-Harvey pricing levels for those in need.
The company has also put up a significant amount of money, which employees and investors are matching, in our 501(c)(3). We’ve used it to buy truckloads of linens and beds and emergency supplies, and we are bringing them to Houston so that those with no housing can have the basic essentials. We also recognize that many of our residents — restaurant workers, construction workers — make hourly wages and that they didn’t work this past week and may not for a few more days. We understand that and have put a hiatus on notices of rent collection.
We aren’t penalizing people because they’re out of work, and we’re committed to working with our existing tenants and making sure we give them every opportunity to maintain and keep their homes.
TREB: Can you describe the repair and restoration process for units that were hit with significant water damage?
Radow: The first thing to realize is that the systems for most of the garden-style apartments in Houston are on the ground level. So even if the second and third floors were untouched, the systems could have been damaged or destroyed, especially if they had to shut off the power. And if the air conditioning units met water, suddenly they’re blown and have to be replaced. So the second- and third-floor units may be uninhabitable for a period of time, even if no water touched them.
We’re in the summer, with all this humidity, and if the air conditioning systems go offline, those units could get mold. And even if it’s just an inch or two on the first floor, the water wicks up the drywall, and you have to take down much more drywall beyond the affected area. It could be the entire unit; it could three or four feet. But when the drywall comes out, you have to air it dry, treat it, put in new installation, then reapply the drywall — and some of the electrical stuff may have to be changed — so there’s a lot more work than meets the eye.
There are companies that specialize in this, and they’re inundated now. There’s no infrastructure to deal with 67,000 housing units, let alone the commercial structures that were also affected. So there just aren’t enough resources to service these units, which means there won’t be any air circulating and mold is going to fester. There will be a lot of residual effects, not to mention all the insurance claims. So, unfortunately, those who are optimistic about a quick recovery are going to be disappointed.
TREB: How might the effects of the storm impact future development and construction practices in Houston’s multifamily market?
Radow: What’s more important than any one approach to any one project is for the government to address this with a forward-thinking solution. Houston has no zoning laws. And we can appreciate the fact that the government allows the private sector to determine what to build and where, but there has to be some sort of overall arching scheme that considers water runoff and absorption.
That amount of water had to go somewhere. And without advance planning on where that water should go, where it will percolate and where it will be redeposited to the water table or run off into the gulf, you’re going to have a lot of damage. I’m hopeful that this storm will serve as a call to action for better public planning.
— Taylor Williams