While doing business in hurricane country sounds dangerous, it does offer a certain predictability. Once every few years, a freight train of a storm is going to rip apart some of your properties. And afterward—if you've been around long enough— you'll know what to do.
That seems to be the case with The Mitchell Co., a Mobile, Ala.-based multifamily operator. “Before the storm happens, you need to have your hurricane plan in place and distributed to all your managers and employees,” said Chuck Stephan, vice president and partner at Mitchell. He makes sure he's got home and cell phone numbers for all employees, and that in case the phones go down, all key staffers have either satellite phones or OnStar, an in-vehicle safety and communications system.
Mitchell also has backup sites located outside the hurricane belt for all its data and can set up automatic phone forwarding. The company's first step after a catastrophe is to take care of employees and residents by helping to find them a place to live.
Next, it gets down to the business of rebuilding. After Hurricane Katrina smashed into the Gulf Coast in 2005 and caused more than $20 million in damage to its properties from Mobile to New Orleans, Mitchell brought in work crews from Texas to help fix the damage. The company also took out a bank loan so it could get started on repairs right away. “A lot of people had the roof off and waited for the insurance company to show up—and the building had to be bulldozed,” said Stephan, who found his insurance carriers' response—to put it mildly— lacking. “The insurance people are always slow,” he said. “They didn't show up for months after the storm.”
To ensure that insurance adjusters had a record of how extensive the destruction was, Mitchell staffers went into each damaged property with a video camera and made a record of the torn roofs, smashed windows, and sodden floors. “We had some properties that were fixed so fast we didn't even make a claim,” said Stephan. The company had a deductible equivalent to 2 percent of the total insured amount on its properties, so it absorbed some of the loss itself.
One of the biggest things operating in hurricane country has taught The Mitchell Co.? Don't skimp on your insurance. In the aftermath of Katrina, the firm bought a 288-unit property in New Orleans that “probably should have been insured for $15 million or $16 million,” Stephan said. Instead, the owner had a $5 million loss but could only collect $2 million. Said Stephan: “I remember them bragging about how much they had saved on their insurance.”
- Get a “London windstorm clause.” This ensures that any damage occurring within 72 hours before or after a named storm hits will be covered.
- Make sure you have business interruption coverage that makes up for loss of rents.
- Push for as low a deductible as you can get.
- Buy the maximum flood coverage, and supplement it with a windstorm policy that will kick in after the flood policy runs out.
- Ask your broker to include debris removal and coverage for the temporary repairs that are sometimes needed until a full rehab can be completed.