Insights

How_to_Prepare_Your_Investment_Property_for_Natural_Disasters

The damage caused by Hurricane Harvey illustrates the difficulties multifamily property investors can face in a natural disaster, and the importance of having resources in reserve to assist residents and recover as quickly as possible.

 

How to Prepare Your Investment Property For Natural Disasters

Feb 22, 2018

In the wake of the costliest hurricane season in US history, disaster preparedness is crucial for multifamily housing investors and management companies.[1] When planning for hurricanes, tornadoes, earthquakes, or other natural disasters, it’s critical to keep in mind that inadequate preparation can lead not only to property damage or loss, but also to loss of life.

General Steps for Investment Property Disaster Preparedness

To maintain a general level of preparedness for natural disasters, regardless of whether a property is in a high-risk area, a multifamily property management company must do the following:

Secure adequate insurance. A landlord needs sufficient insurance coverage for the building(s), liability protection, and rental income coverage.[2] This is standard practice, but it is important to carry the right amount of coverage in the case of a large-scale disaster or even if the property experiences a small fire or other localized incident. If the property is in a flood-prone or earthquake-prone location, flood or earthquake insurance should be considered. Your insurance broker can guide you through the details.

Keep up with maintenance. The importance of this cannot be overstated. On the grounds, loose objects that could float or be blown away by heavy storms should be minimized, and ground cover (flowers, bushes, and grasses) should be planted to help stabilize the surrounding soil. Attention should also be paid to the siding, roof, and, most especially, the foundation of all buildings on the property. A building’s foundation is particularly susceptible to stress. It should be kept in optimal condition and potentially be reinforced. Inside units, heavy appliances, such as water heaters, should be anchored.

Stock emergency supplies. Potentially lifesaving reserves of water, first aid supplies, and hardware (flashlights and batteries, tools, and emergency signage, for example) should all be kept in an easily accessible location.

Customize an emergency plan, and practice it. Every building staff member should be prepared to do specific jobs during an emergency. Managers should describe the roles in detail and lead practice runs twice each year. Evacuation routes should be planned and clearly posted, and a procedure should be in place for informing residents of impending risks and how to respond.

Be prepared to turn off utilities. Acting quickly to turn off electricity and gas can save lives. Turning off the water can help prevent property damage.

Educate residents. Residents need to know what to do if disaster strikes, but not all will seek that information on their own. Managers should make an effort to inform residents of general safety procedures and encourage them to have disaster kits at hand, store extra medications, and plan for the care and safety of their pets if forced to evacuate.

Be prepared to assist residents with special needs. The elderly and disabled may not be able to respond adequately to an emergency situation without assistance. Management should be aware of where they live and what their specific needs are, and have a plan in place to guide them to relative safety. For instance, staff members may need to help residents with limited mobility get down stairs in the event elevators are no longer functional.

Disaster-Specific Preparations

Hurricanes. A hurricane is a moving storm system characterized by high winds and heavy rains. The most severe hurricanes, such as Hurricane Harvey, which pummeled Houston last year, can have winds up to 130 mph and leave extensive flooding in their wakes. Hurricanes may envelop hundreds of square miles.

Because hurricanes form at sea and their movements are tracked, people living in their paths are typically warned days in advance. Management staff should prepare the property for the onslaught of the elements, and make sure residents have received warning. Properties should be evacuated on orders from authorities. During evacuations, staff should be available to help residents leave along pre-planned routes.

Tornadoes. A tornado is a violently rotating funnel of wind. The funnel itself might not be visible in storm conditions due to rain or dust, or it may be nearly transparent. While tornado winds usually do not top 110 mph, 300 mph winds have been recorded. Tornadoes arise quickly and unexpectedly, and travel fast.

While many communities in tornado-prone areas are equipped with tornado sirens, people have only minutes to take cover. If a warning has been issued, management staff should move rapidly to gather residents and guide them to a designated underground shelter or into an enclosed space on the ground level.

Earthquakes. Earthquakes occur predominantly along geological faults known as tectonic plate boundaries. Increased seismic activity (small earthquakes) may precede a major quake, but predicting earthquakes remains an imprecise science. Residents of earthquake-prone areas may be aware of the earthquake risk, but immediate forewarning of an earthquake is not yet possible. In some areas of the country, hydrocarbon production by hydraulic fracturing (fracking) has led to earthquakes. An earthquake can vary in intensity from imperceptible to devastating. In coastal areas, earthquakes are occasionally followed by tsunamis (tidal waves).

In preparation for an earthquake, older buildings should be retrofitted to bring their foundations and framing up to current safety standards. This can be complex and costly.[3] Resident education is also vital. Knowing how to protect oneself during an earthquake, and knowing how to behave immediately after is the key to earthquake survival. Residents and staff need to be aware of the risks of exposed and downed electrical wires, unstable or fallen structures, the threat of aftershocks, etc. They should also be made aware of the possibility of trapped individuals and pets.

Property Management After a Natural Disaster

Disaster cleanup is coordinated at the local or even regional level, depending on the scope of damage. Property management companies need to move fast post-disaster to record the damage to their properties and file insurance claims. Extreme natural disasters can result in considerable homelessness, so preserving all possible housing stock is a top priority.

At CWS, our disaster preparation and crisis management plans were put to the test last year when Hurricane Harvey struck in Houston. Our local staff worked overtime to prepare for the disaster. Additional personnel from our Austin, Dallas, and San Antonio offices arrived to help residents prepare to evacuate. After the hurricane, a hotline was set up and displaced residents were given $500 credits to help with relocation. Where possible, residents were accommodated in other CWS properties.

Four of our 22 properties in Houston suffered serious damage due to the hurricane. Each was heavily insured and we kept investors abreast of the damage and insurance claims from the very start. As the floodwaters receded, we quickly began to rebuild. Damaged sheetrock was removed and blowers were used to reduce mold growth at the affected properties. Mechanical systems, cabinets, and fixtures in damaged apartments were replaced. It’s been a difficult process, but we expect all repairs and construction to be completed by April of this year.

The damage caused by Hurricane Harvey illustrates the difficulties investors can face in a natural disaster, and the importance of having resources in reserve. Without the necessary human and financial resources at the ready, it could be incredibly challenging to assist residents and recover quickly.

At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and risk management to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.

Contact us today to get started with your next investment.

Helpful Resources:

FEMA’s Earthquake Safety and Preparation Checklist

Ready.gov’s Flood Safety Tips

Ready.gov’s Hurricane Safety and Preparation Tips

Ready.gov’s Tornado Safety and Preparation Tips

 

The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.

 

[1] https://www.nytimes.com/2018/01/04/climate/losses-natural-disasters-insurance.html

[2] https://www.multihousingnews.com/post/the-importance-of-managing-insurance-coverage/

[3] https://www.bisnow.com/los-angeles/news/multifamily/what-las-new-seismic-retrofit-law-means-for-building-owners-51989


If you would like to receive an e-alert when a new blog article is posted, please sign up below.

E-Alert Lists