SPECIAL REPORT: GULF COAST REPORTING

Gulf Coast struggles to rebuild
Mississippi apartment owners confront labor shortages, rising wages, slowinsurance payments in push to get damaged units livable again.

By Liz Enochs

APARTMENT FINANCE TODAY • MAY 2006

Four blocks from a backhoe rumbling down the beach clearing away debris and just a few steps from the shells of houses torn apart by Hurricane Katrina, a gaggle of church volunteers in blue t-shirts hammers away at the newly-framed walls of a house being rebuilt in Bay St. Louis, Miss.

About two miles north, a different kind of rebuilding is taking place, as two dozen construction workers earning double what used to be average wages bleach and dry the studs in empty two-bedroom units, hammer sheetrock, paint walls, and install new refrigerators, stoves, and tubs in a 128-unit garden apartment complex that will serve low- and moderate-income residents when it reopens in a few months.

This is the kind of reconstruction happening in pockets all over the Mississippi Gulf Coast, where more than 100,000 residents are still living in trailers after Katrina washed away entire neighborhoods, smashed businesses and splintered apartment buildings up and down the 20-mile-long stretch of coastline.

Ubiquitous sheets of blue FEMA tarpaulins protect torn rooftops from rain and wind as crews of workers labor to patch damage and restore living quarters before the new hurricane season starts this June.

“We’ve never seen this kind of devastation before,” said Tish Williams, executive director of the Hancock County, Miss. Chamber of Commerce.

More than 43,000 apartments were destroyed by Katrina in Louisiana, Mississippi and Alabama, and about another 75,000 were damaged, according to data from the Red Cross.

Estimates by the Federal Emergency Management Agency (FEMA) suggest that nearly all of the apartments on the Mississippi Gulf Coast suffered some damage, with 3,626 units destroyed and another 6,267 taking major hits.

A 2004 market survey by W.S. Loper & Associates, a housing research firm based in Jackson, Miss., counted a total of 23,409 apartment units on the coast. FEMA’s estimates show that nearly 21,500 suffered at least minor damage.

“Some of them are still tied up in insurance and some are probably negotiating to sell and some are negotiating to convert to condos if they can,” said Mike Rowell, publisher of the Apartment and Condominium Directory, an advertising circular for the Mississippi Gulf Coast. “I’m seeing stuff happening, but it’s very slow.”

Off the top of his head, Rowell rattled off a list of a dozen apartment complexes consisting of more than 1,600 units that were destroyed by the storm, most of which he predicted would not be rebuilt.

Long list of challenges

For apartment owners and managers on the coast, the biggest challenges these days are dealing with insurance companies or otherwise finding money to rebuild, eradicating mold, finding housing for their employees, and coping with shortages that have pushed up the costs of both labor and materials.

Even though local officials are operating out of trailers in the hardest-hit parts of the coast, “Cities have issued [rebuilding] permits very quickly,” said Cliff Bates, director of acquisitions at Park Development, Mississippi’s largest multifamily housing developer.

Plus, proposals to rezone areas for affordable housing developments, which he called a “tough proposition” before Katrina hit the coast, now meet little opposition, he said.

The Park Cos., which owns the 128-unit Bay St. Louis complex, claimed about $9 million in insurance losses on the development, which flooded with about 10 feet of water in addition to suffering smashed roofs and windows that opened up second-story units to rainwater damage.

At an average reconstruction cost of more than $70,000 per unit, the insurance settlement – which is being paid out as each phase of renovation is completed – will barely cover repairs. Renovation is costing as much as or more than new construction would cost, said Don Reed, a senior vice president with Ambling Management Co., which recently took over Park’s management arm.

But unlike Park, many property owners on the coast didn’t have flood insurance, and most are still fighting to get insurers to pay their claims. Officials at Park “had adjusters lined up and ready to go” as soon as the storm hit, said Reed.

In Pascagoula, one apartment owner has rented out her top-floor units, but kept the bottom-floor apartments empty because she doesn’t have the money to rebuild, said Debbie Groves Caldwell, Ambling’s regional property manager for the Gulf Coast.

Even though housing for construction workers doing renovations is scarce, apartment owners with units in livable condition are in a prime position to capitalize on the imbalance between supply and demand.

Park, like most apartment owners on the coast, is raising rents by about $100 per unit at its market-rate developments and to the maximum allowed at its projects funded with low-income housing tax credits. At Ashton Park, the company’s affordable-housing complex in Gulfport, that will mean rents of $510 and $585 for two- and three-bedroom units, respectively.

At the company’s market-rate Westwick Apartments in Biloxi, work is almost finished on the 54 units damaged by hurricane winds and rains, and 40 of those are already pre-leased, said manager Nita Groce.

In for the long haul

Half a dozen blocks away at Edgewater Bend Apartments, roofs and chimneys were pulled off, beams were exposed, and in some cases ceilings collapsed, but housing has been so hard to find that some residents with nowhere else to go simply stayed in their apartments as construction crews worked around them, said assistant manager Shannon Ostenson. Renovation on the 176-unit garden complex is completed and it’s 100% leased.

Still, even with employers bidding up wages in the scramble to find workers, the Gulfport-Biloxi metro area had the highest unemployment rate in the nation in February, at 15.6%. And some are estimating that it could be a decade before the Gulf Coast is completely rebuilt.

“It’s going to be a long process,” said Bill Webb, the Gulf Coast regional manager with the Mississippi Development Authority.