Originally Published OCTOBER 23, 2017
Hurricane Irma followed by Maria has permanently left her mark on St John in the U.S. Virgin Islands. The destruction is nothing short of emotionally and physically exhausting. Many are still without homes. Our small island community has literally been scattered thousands of miles apart. People have evacuated to all parts of the globe. Families are separated, lifelong childhood friends will not have holiday dinners together this year. Electricity will likely not be 100% restored for many months. No single property on St John escaped without some degree of damage. St Johnians rose up from the rubble to care for ourselves first, but we are thankful for the immense outpouring of support that has come from all over. People online remain eager to help. Homeowners struggled to get information about their damage with no communications. Travelers with vacations planned panicked about their deposits and worried how they could help their favorite vacation spot. The effects were wide reaching. The road to recovery is going to be long one. Yet still, people remain very interested in Real Estate on St John.
Take a look at this BEFORE AND AFTER. Many homes were hard to approach on first check. This home appeared totaled. However, after hard work and a big crew from Unique Island Assets, we got the interior fully cleaned out and recovered.
5 days after the first storm, I flew into San Juan and found a supply boat heading to St John from Puerto Rico. After loading it and 3 additional boats with water and other supplies we began making the crossing only to unload again. On the boat, I met a homeowner trying to get back to St John to assess his property. He had $750,000 in cash and was ready to buy distressed property. In the first emails I received, buyers were already contacting me. The day after a few more; after that even more. Here I was trying to find a way to communicate with my wife and daughter that I was OK and that all of our friends were alive and people wanted to know if there were any deals out there. I was still in shock. My arms were still vibrating from 12 hour chainsaw days. The shift was happening. The opportunities were being shuffled in a power play. The drool was starting to pool in the streets. I had to figure out how to answer people, but I also had to figure out how to get fuel, water and food. You adjust to the life of challenges, and if you have been on St John for a while, you adjust relatively easily. You get comfortable with the crazy, and then you realize, damn, I need to get to work. Not only getting back to being a broker, property manager and boat captain and musician as I have been for the last 19 years but now even more hats are added to my island closet.
So I searched for the answer over the hum of our generator and came up with these 5 steps of Real Estate Market Recovery after a Hurricane for a small resilient island with undeniable draw, desirability and beauty.
Step 1 – “When There is Blood in the Streets, Buy Real Estate” - I had heard this saying years before from a respected real estate investor. It’s vivid, awful and insensitive, but if you strip off the harshness, it has some wisdom in it for the hard ball investor. It makes sense to think you can score big in the immediate aftermath of a disaster. People are confused and desperate, wholly uninformed and emotionally unstable. Those who are not see the weakness and want to strike. Sellers may very well want out with the task ahead seemingly unbearable. These deals are most likely done outside of the typical real estate market, cash only. It is simply not possible to immediately close unless you are prepared to buy before the storm even hits. Even then, the government is shut down. Still, there are historic deals that occurred in this phase. The Peter Bay development for example, is said to be negotiated on the heels of a major storm. For sellers, keep your wits about you and try to keep emotions out of it (use a Realtor to help). For buyers, you can try to strike with a quick offers, you never know how someone values their property until you make an offer.
Step 2 –“Insurance is a Dirty Word” - Windstorm (Hurricane) insurance is an unpleasant product to buy. It’s bank required so if you have a loan, you probably have it. It’s expensive, running at three or more percent of replacement cost with very high deductibles (5-10% of replacement cost). Often people don’t insure for loss of use or loss of business in the case of rentals. In addition, people don’t insure “other structures” like fences, electrical monuments, car ports, garages etc. This leaves the insured technically underinsured and most owners short on cash for recovery. When claims get settled, many owners will simply look at those numbers and then call their realtor to get out. This second phase market will be busy and is where most of the hurricane transactions will take place. Buyers will cash in on great deals for their new “projects”.
Step 3 – “Company Town” – St John is now in a housing crisis! Homes that once were vacation rentals are now occupied by as many as 15 relief workers. Soon though, the relief workers will leave and the construction crews will arrive. Where will they all live? The island’s housing economy will have to adjust to recover, but vacation villas are unlikely to get involved in long-term rentals. Contractors will be forced to buy or rent employee housing to be able to get anything done. The already weary manpower pool will only dwindle if we cannot house them comfortably. Homes that can immediately provide housing will collect big on this and savvy buyers will capitalize on long term housing first with vacation rental goals in the long term.
Step 4 – “Flip Flop” – Flipping homes is one of those things that sounds like gold coins dropping in the bank to the novice Real Estate Investor. It looks easy, and for many people in the States, it may be. On St John, it’s another matter. On St John, flipping a home is no (johnny)cake walk and experienced investors on island will tell you, there is no cheap way to do it. There will be plenty of people looking for deals on project homes. They will pour their life into it. They will write a blog about it. Then they will add it up and list it for sale on the market for more then their broker suggests. This could clog the market with inventory.
Step 5 – “Chiropractor Visit” - It’s time to adjust! An embattled real estate market and a hurricane are a recipe for adjustment. I have been pacing back and forth trying to calculate the complicated web of economic effects on the micro real estate market that is St John. Here are my adjustment predictions
· Land – land sales will increase with values remaining stable or increasing from pre-storm values. The only real effect this storm had on Land is that it did some of the excavating and land clearing for you. Now you can see the view that Realtors have been telling you about and trying to sell you all these years. Yes, it was always there!!
· Unrepaired Damaged Homes – Damaged homes sadly will have damaged values. Simply, it will be hard to recoup the inflated price point that some poorly constructed homes once had, and those that were well constructed but must be sold damaged now come with a scar that will be hard to shake from the record for a long time.
· Repaired Homes – These homes will be slow to come to the market. Many of them will come on with inflated prices. Read your seller’s disclosure forms well buyers! Homes that are built to withstand will have value. Those pieced back together will remain stagnant.
· Un-Affected Homes – Homes that escaped relatively unscathed will see an immediate drop in activity. It is unlikely buyers right now are thinking about buying a full price home, but they should be. In time, these homes will boast their resilience to Irma and Maria and will come out ahead. Masonry homes with rafters poured into walls, back up(i.e. full time) generators, and quality shuttering systems will reign the marketplace when the Market recovers. These will champion the final stage of the recovery and define the new value of St John. Buyers would be wise to consider these homes while demand for them is low.
Looking to get in on the action? Look to your savings not to your lender. Cash deals are king right now and lending will be a challenge especially with the unknown insurance realities, which are fast approaching. Search the MLS here as listings get updated with new info about post storm conditions.
CONTACT USto talk about your real estate goals and see if you can find the deal you have been waiting for.