Freelance Writer & Editor
By Susan Ladika | Hurricane Proof: Gulf Coast Developers Look For Ways To Shore Up Their Properties From Stormy Weather | November 16, 2008 | Developer
Charley, Frances, Jeanne, Ivan, Katrina, and Rita. Famous siblings? Well, they are related in a sense. They are the series of hurricanes that pummeled the Gulf Coast between 2004 and 2005, leaving thousands homeless and causing millions of dollars in damage. The devastation of Hurricane Katrina alone—the costliest and deadliest of all the storms—was enough to convince developer Jim Hayes to follow a different model with his new residential property, Audubon Village, along the Texas coast.
Hayes, managing principal of Crown Team Texas, a Beaumont, Texas-based residential development firm with four projects under way in the Gulf Coast, was the first developer in Texas to adopt standards created by the Institute for Business and Home Safety (IBHS), a Tampa, Fla.-based organization that launched a program in 2000 to designate homes as fortified against hurricanes and other natural disasters. Hayes first began exploring the IBHS standards after a visit to the Florida panhandle and its Alys Beach community, the first project in the country designed to withstand natural disasters.
Today, Hayes is building Audubon Village, which began construction in 2006 (just months after Katrina and Rita), to those same standards. He is also the first developer in the country to use modular construction to do so. The elevated wooden homes that make up Audubon Village on the Bolivar Peninsula near Galveston, Texas, are built in a shop, then erected on site. The houses withstand hurricane-force winds and sit above flood level. With water, “the only thing you can do is get above it,” he says.
Hayes and other developers that own property along the Gulf Coast are finding new ways to adapt and build ever since the spate of deadly hurricanes tore through the region less than five years ago. They are raising the bar for building to withstand natural disasters. Some developers are driven by new building codes; others are motivated to lower ever rising insurance costs by going above and beyond existing construction codes. Still others aim to address growing consumer demand for hurricane-resistant housing.
In New Orleans, post-Katrina rebuilding efforts continue to make the headlines. And recent storms such as Hurricane Gustav force developers and municipalities to continuously re-evaluate existing standards. “There are a host of hurricane requirements that are in play for so-called high-wind regions,” says Jon Luther, executive vice president of the Home Builders Association of Greater New Orleans.
Prior to Katrina, for instance, Louisiana had a mish-mash of building codes. Now, the state mandates only one—the International Residential Code (IRC). Meanwhile, in the area south of Lake Pontchartrain, both the IRC and enhanced hurricane-resistance requirements are being enforced.These involve, for example, strapping roofs to foundations and installing hurricane-resistant windows, Luther says.
The recent adoption of the IRC, coupled with additional regulations for high-wind regions, initially raised construction costs by about 7 percent to 9 percent, Luther says. He adds, however, that costs may have decreased a bit over time as builders have become more familiar with the provisions and have been able to off set expenses by buying materials in bulk or using contractors who can get better prices on hurricane-resistant materials.
However, according to Luther, the higher prices have not deterred developers from doing business in the state. “It’s the cost of living here; it’s the cost of doing business here,” he says.
In Florida, which adopted a statewide code after Hurricane Andrew ripped through the southern part of the state in 1992, developers have recently begun designing with the consumer in mind, says Blake Whitney Thompson, vice president and general counsel of The Cypress Co., a St. Petersburg, Fla.-based land investor and developer of condo communities along the Gulf Coast. “The consumer has changed more than anything,” Thompson says. “We make the end product hurricane-friendly from the [start].”
This might include installing windows rated to withstand hurricanes, employing different types of tie downs to attach the roof to the foundation, and using mold- and mildew-resistant materials in building interiors.
These materials can add from 5 percent to as much as 10 percent to total construction costs. However, these numbers were substantially higher in past years due to the lack of materials and the limited number of subcontractors with the know-how to work with such materials. In addition, today’s lower land prices mean builders can install these extras without having to increase home prices, Thompson says.
Meanwhile, developers are able to give consumers what they want—savings on their annual insurance premiums of anywhere from $1,000 to $2,000. “We’re building with insurability in mind,” adds Thompson, who says developers have also seen decreases of up to 10 percent in insurance premiums “based on being more hurricane-savvy (in construction techniques).”
For developers, hurricane-resistant features are becoming easier to incorporate. When IBHS, which serves insurers and reinsurers, established the “Fortified …for safer living” program, its goal was to help decrease property losses. Today, the organization has spurred many developers in the Gulf Coast to change the way they build.
Take Alys Beach, the first community to build to the IBHS designation. Construction on the 160-acre tract east of Destin, Fla., began in 2003 and was unaffected by Katrina two years later. With 30 custom-designed homes now in place, it is about 5 percent complete, says development spokesman Mike Ragsdale.
Homes are made of individual concrete blocks that are fitted together and are designed to withstand winds of up to 160 miles per hour. And tests indicate that the windows can stop a bullet fired at point-blank range. The construction is “more of a European standpoint. We build it to last for centuries,” Ragsdale says.
Although prices in the upscale development top $1 million per home, designing aesthetically gratifying homes that meet IBHS standards can also be accomplished cost-effectively. Case in point: Hayes’ Audubon Village. Designed as a community of second homes, the individual homes, which top out at 1,440 square feet, range in price from $130,000 to $288,000.
That affordability was achieved in part with the use of pre-fabricated elements in the design of the homes. The modular pieces take 30 days in the shop to construct and another 30 days in the field to assemble. Slab and concrete work are done at the same time the walls are being built, so there is no waiting for one part to be completed before work begins on another. Since the homes are quicker to build, construction costs tend to be lower. The Audubon Village master plan calls for 130 single-family homes. So far about 15 are complete, and all but one have sold.
Yet, Audubon Village’s affordable price points do not mean fewer hurricane-resistant features. For instance, base flood level in the community is 17 feet above sea level, so Hayes put each slab at 17 feet, built an outdoor mezzanine level at 19 feet, and erected the floor of each house at 27 feet above sea level. What’s more, to help preserve the natural green spaces, Hayes donated more than 350 acres to the Houston Audubon Society; the homes are being built on 20 acres. “We don’t gobble up a lot of God’s green earth here,” Hayes says.
While the IBHS certification has yet to be reflected in insurance premiums for the homeowners, Hayes says, “I think it will eventually be recognized.” With homes built to withstand wind and water damage, “short of a tornado, we’ll be here.”
Even without looking to the IBHS, other firms are building to higher hurricane-resistance standards—mostly driven by the desire to achieve lower insurance rates.
Joel Cantor, CEO of Cantor Development in Tampa, Fla., is building Signature Place, a 36-story condominium tower in downtown St. Petersburg, Fla., and is installing high-impact glass throughout the building, although it is required only for the lowest floors (up to 60 feet). The 1,100 windows are designed to sustain winds of up to 180 mph. While the windows constitute about $2 million to $3 million of the cost of the $165 million project, they address a key safety concern for residents, Cantor says. The windows also result in lower insurance premiums—the average decrease is 30 percent, he adds.
Right after the storms that walloped Florida in 2004, insurance prices soared, and premiums hit $900,000 when construction began on Signature Place the following year. Since the peak, however, premiums have fallen significantly and are now at about $550,000, Cantor says.
According to Cantor, more and more construction decisions also are being shaped by insurance companies. Signature Place’s windstorm insurance is handled through German insurer Allianz, and insurance company representatives have been involved in meetings with contractors during which they requested specific design features and adjustments be made in order to insure the property.
One major modification to the plans encouraged by Allianz was constructing Signature Place in three separate, 12-story segments. Each segment is roofed off, reducing the likelihood of wind-driven rain penetrating the entire structure.
Indeed, insurance has become a contentious issue throughout the Gulf Coast and particularly in New Orleans. Luther says local builders talk of qualifying potential home buyers to purchase new homes only to later find that insurance costs have tripled, pricing buyers out of the market. Home builders in Louisiana, as well as in Alabama and Mississippi, many of whom are facing rebuilding challenges after Hurricane Katrina, have taken the issue to their state representatives and to members of Congress in hopes of some kind of redress. “All are trying to get affordable insurance,” Luther says.
Randy Noel, chair of the Louisiana State Uniform Construction Code Council and president of Reve, a construction firm in LaPlace, La., says Louisiana has set aside $100 million in state funds to be used as incentives to draw new insurance providers to the state. So far, half a dozen new firms have started offering policies.
With the New Orleans area still in the middle of a post-Katrina construction boom, Noel, who built up to 40 custom homes per year prior to the storm, says the area now “has got a little bit of an inventory hangover.” In the city, though, people are still focusing on rebuilding and remodeling efforts. Since flooding left a significant portion of the city under water, FEMA regulations now require that new homes, or those with damage that would exceed 50 percent of the pre-storm value to repair, be elevated at least 3 feet above street level.
Toni Wendel, president of Olde World Builders and Remodelers in New Orleans, says she has started to build houses that are elevated several feet off the ground. In many cases, the buyers are driving this design, requesting to go beyond the 3-foot requirement and add an extra foot or two to avoid future flooding, Wendel says.
A past president of the Home Builders Association of Greater New Orleans, Wendel says the association is now lobbying banks and insurance companies for breaks in insurance premiums and mortgages for homes that are built to the newly adopted IRC code.
In nearby Mississippi, which also faces challenges in its recovery building after Katrina, development is slowly taking place along the Gulf Coast, says Mike Boudreaux, president and CEO of Gulf Coast Investment Developers, in Biloxi, Miss. Currently, infrastructure is being put into place, and by next spring, he expects to see more high-rises coming out of the ground.
Boudreaux’s company was well into the construction of the Sea Breeze Condominiums-Resort on the Biloxi beachfront when Katrina hit. Other than wind-blown water that entered the complex, the building was unscathed. Yet the insurance premium for the $20 million project soared from about $135,000 to nearly 10 times that amount after the storm. Now, the premium has fallen to pre-storm levels.
While his condo complex withstood the storm, power was out in the area for a month. As a result, large developments are now built to include generators. To recoup some of the expenses from the higher construction costs, Boudreaux is reconfiguring layouts and downsizing unit sizes in order to increase the number of units in his buildings. At Sea Breeze, for example, the firm originally planned for 110 units ranging in size from 1,200 square feet to 1,400 square feet and selling for $350 to $400 per square foot. Now, the development contains 185 units ranging from 500 square feet to 850 square feet and selling for about $500 per square foot.
In other parts of the region that weren’t wiped out by the hurricanes, developers take different tacks. Cantor, of Tampa, for one, is focusing on major renovations. “I think there is a cacophony of different issues that are stopping construction,” he says. These include a lack of buyers, high construction costs, soaring energy prices and insurance premiums, hefty real estate taxes, and more government regulations. Based on existing sales prices, “building costs are way too high now,” Cantor says.