Helene, Milton One-Two Punch Cranks Up Complexity, Cost Of Rebuilding

The impact of the dual hurricanes that crashed over the Southeast will lead to a pricier-than-usual recovery period for commercial real estate. The back-to-back storms are expected to amplify labor costs, materials scarcity and the painful price of rebuilding in a new normal that demands added resiliency and comes with sharply increased insurance costs. 

Hurricanes Helene and Milton made landfall just 12 days apart, and while the full scale of the damage will take time to compile, Moody’s estimates the storms caused between $35B and $55B in insured losses.

“This is the worst I’ve seen it. Back-to-back storms — it was a lot for the region,” said Steve Cona, president of the Associated Builders and Contractors Florida Gulf Coast Chapter and a lifelong Tampa resident. “It could take a year for companies to get paid for the money they lost, and some businesses can’t afford to stay out of operation that long.”

A few days after Helene hit, Cona said he had never seen such a “catastrophic” amount of water in his life, which left the region reeling. After Milton hit, infrastructure held and worst-case flooding was avoided, but he still estimated up to two years for reconstruction, especially in hard-hit coastal areas. 

While the immediate wreckage of the storms remains immense, the long-term damage to the region’s real estate, especially its insurance rates, might be significant. Many rural areas in North Carolina, Tennessee and surrounding states face “total constructive losses … with prolonged recovery after the catastrophic infrastructure damage,” according to Moody’s. 

“There’s quite a few different ways that having these two storms on top of each other will lead to challenges,” Moody's CRE Associate Director Natalie Ambrosio Preudhomme said.

Moody’s analysis added that the quick succession of two major storms will complicate the claims process, including challenges with event attribution and deductibles. If Helene exhausted a deductible, Milton damage could end up costing a property owner more money. 

Going forward, since insurance models rely on past damage, the outsized impact from Milton will increase commercial real estate insurance, said First Street Foundation founder and CEO Matthew Eby, whose nonprofit specializes in flood insurance information and risk data. 

Moody’s said the damage from Milton will strain the reinsurance firms that pay out when disasters strike and filter down into CRE cost calculations in roughly a year, when many owners, developers and investors will be weighing the costs and opportunities of rebuilding.  

The reinsurance market has already signaled that rates will remain steady or rise, Moody’s Managing Director of Model Product Management Julie Serakos said, and capacity is “already stressed” for CRE. Florida-only carriers renew their treaties next June, which may come with a series of decisions that increase rates. Global rating agency AM Best predicts the damage from Milton will severely strain the insurance market.

The geography of the regions hit by this duo of storms complicates the recovery process, and the problems will be exacerbated by widespread infrastructure damage. In inland regions such as Asheville, North Carolina, small towns spread out amid overflowed rivers and winding mountain roads present issues repairing infrastructure and moving workers and materials to job sites. 

The recovery will hamper the regional tourism industry so many areas depend on, a negative cycle that will only slow rebuilding and dampen investment. Over the next week or two, insurance companies will survey the scene and get a better understanding of the full extent of the damage. 

In Tampa, Helene already walloped expensive waterfront commercial districts and tourist destinations, but the city’s downtown avoided the dire worst-case scenario projected as Milton approached. 

On Friday, Florida Gov. Ron DeSantis, speaking in front of a downed construction crane in St. Petersburg, said he was optimistic about rebuilding.

“There's always going to be a demand to live in a beautiful part of the world,” he said.

Cona said a swath of beaches, from St. Pete to Clearwater, was already flooded and jumbled by Helene, just as tourists and snowbirds started descending on the region, presaging additional economic hits to central Florida. Tax revenue from visitors, now in doubt, was supposed to fund the Tampa Bay Rays’ new $1.3B stadium, while the team’s current stadium, Tropicana Field, saw its Teflon fabric roof shredded by storm winds. 

Workforce issues will add additional complications. Cona said the Tampa region had been in the midst of a building boom, despite a shortage of construction workers, and rebuilding will just add stress. And more rural parts of western North Carolina will likely struggle to attract workers, especially with numerous rebuilding efforts stretching the labor force even more. 

Supply chain and materials issues, already challenged by global instability, will also add costs to the recovery, said DPR Construction Supply Chain Leader Tim Jed. He predicted “an immediate slowdown of people being able to provide stuff” in the short term.  

The full extent of the challenge will take days or weeks to gauge, but he expects opportunistic pricing on drywall and labor challenges as temp workers get pulled between different regions and the demand of commercial and residential builders. There are already signs the storm has impacted gasoline and freight costs.

The cost of windows, roofs, doors, electrical infrastructure and concrete are all expected to spike due to increased demand. In addition, in Spruce Pine, Georgia, a singular facility that mines quartz for the advanced electronics industry was knocked out by Helene, meaning the price of semiconductors and solar panels will be inflated in the coming months. 

The significant damage to roads, bridges and tunnels will impede labor, said Nicolas McNamara, CBRE global business development director, adding a “kink in the hose” for recovery that will lead to longer project durations and higher costs. Widespread power outages won’t help.

Recovery from Hurricane Ian in 2022 took roughly a year and a half, Cona said. He predicted up to two years to recover from Helene and Milton. 

“I think our industry is extremely resilient,” Urban Land Institute Tampa Executive Director Lee Lowry said. “I think we're going to recover. I think we'll find the best of it.”

That optimism will be tempered by what many expect to be a more expensive season of rebuilding, particularly in the residential sector. The home insurance question will also heavily weigh on the futures of Tampa, North Carolina and the other areas impacted by these storms, as the one-two punch washed away communities on the Gulf Coast, some that had just recovered from Idalia a few years ago. Recent reports suggest storm-based insurance claims have been denied at higher-than-average percentages in Florida.

Citizens Insurance, the Florida state provider of last resort, will be especially depleted by Milton, which caused significantly more wind damage in Tampa and central Florida than Helene. Moody’s poststorm analysis suggests Citizens could “bear significant losses.” That almost certainly means higher premiums and a more expensive cost of living. And many homes in the region were built before Hurricane Andrew and the strengthening of building codes.

“The rising cost of insurance is a huge element on that [net operating income] table everyone in real estate understands,” Eby said. “But the flip side is population migration. Does it change the commercial real estate values because there just aren’t any people here anymore?”

For commercial structures, increased insurance, on top of higher labor and materials costs, all during a high inflationary period with still-high interest rates, adds “bloat” that makes it challenging for rebuilding to pencil out, CBRE’s McNamara said. 

In Tampa, in particular, there will be increased calls for more resilient construction, McNamara predicted, plus improved building codes statewide, akin to what is seen in Miami-Dade County. It is a costly change that would raise the price of rebuilding. He imagines there will be under-construction projects that “developers will simply walk away from” as a result.

The delicate balance of mandating rules and regulations for rebuilding and insuring new properties without making development too cost-prohibitive will become a flash point for the future of Florida real estate.

“How can we be better prepared for storms, and how can we still make Florida attractive for people to come and invest and live?” Cona said.

“There's going to be fewer and fewer of those that then list Florida as something that is a long-term bold investment, and that's going to slowly but surely ripple through,” Eby said. “Then who wants to build there?”