In Lafayette, La., the 116-unit property Highlands of Grand Pointe went on the market before the Deepwater Horizon blew and oil began spilling into the Gulf Coast. By the time the property traded in July, the first buyer had dropped out and a second buyer paid 10 percent less for it.
It wasn’t the spill itself that caused the first buyer to back out; it was the administration’s since-overturned moratorium on drilling that forced the buyer out, according Matthew L. Heininger, a partner in the Austin, Texas, office of Apartment Realty Advisors who covers the Gulf Coast and brokered the Highlands of Grand Pointe deal.
Interestingly, that’s just one of the ways the massive BP oil spill is affecting the apartment industry on the Gulf Coast. In Lafayette’s case, the other issue is jobs.
“Lafayette is not just a place where guys who work off-shore live,” Heininger says. “It’s a place where many of the service providers for everything drilling- and production-related in the Gulf are based out of.”
And when the moratorium hit, those people were affected. In fact, it’s the same for much of Louisiana, though Heininger says many investors he talks to remain confident in the future of drilling in the region. “From a business standpoint, one of the biggest things people were worried about was the moratorium on drilling,” says Larry Schedler, principal of New Orleans-based brokerage firm Larry G. Schedler & Associates.
Outside of the wide-ranging environmental impacts, there are other concerns for apartment owners as well. In Mississippi and Alabama, the impact is on tourism. If the spill hurts tourism, workers lose their jobs and apartment owners ultimately have empty units.
“We have stuff in Alabama and Florida,” says David Lynd, COO of San Antonio-based The Lynd Co. “It’s already manifested in tourism. Even if no oil is hitting your beach, no one is going there.”
Adds one apartment owner with a property in Galveston, Texas: “It’s a doomsday scenario for a lot of those towns. Even before the real damage arrives, it's pretty much an end to tourism. It’s a mess.”
In some of those markets, developers had already used Go Zone incentives to overbuild after Katrina. So further job loss could be an even bigger problem for the real estate industry on the Gulf Coast.
But Heininger says tourism isn’t universally affected throughout the region, saying that people who come to the region to gamble probably won’t be deterred by the spill. “On the Gulf Coast of Mississippi, people are coming to go gamble,” Heininger says.” As you get into Alabama and Pensacola, Fla., those are more beach-driven destinations.”
Still, even if tourism is hurt, the influx of government regulators, aid workers, insurance adjusters, contractors, and BP personnel have actually given the area a much-needed boost in some places. “Rents aren’t down,” Lynd says. “There are so many people down there. You have more warm bodies.”
That’s what Heininger hears from his clients as well. “The feedback I’m hearing from people ranges from, ‘Things aren’t that different' to 'I just a got call from BP saying they want to lease 100 units.’”
While many of those workers won’t stay in the Gulf Coast for an extended period of time, Heninger says some people may commit to the region.
“In the end, what will come with that is increased regulation in that there will be more contractors and more government regulators and more heads on beds at the rigs and on the markets that support them,” Heininger says.
But Lynd thinks that limited gain may not offset all of the fishermen and others affected by the local economy, which can no longer do their jobs on a daily basis. “It will hurt the U.S. for our lifetime,” Lynd says. “For the rest of our lifetime, that region will have issues because of that spill.”