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CRE Industry Takes Stock of Hurricane Sandy Damage

Big Business Interruption Losses Anticipated
November 2, 2012
As the Northeast and Mid-Atlantic dig out from Hurricane Sandy, commercial real estate firms have begun releasing loss estimates and damage assessments and the tallies are significant.

As of this morning, Eqecat Inc., an insurance risk modeling firm, is estimating initial insured loss between $10 billion and $20 billion with an additional $30 billion to $50 billion in total economic damage.


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At the low end, losses from Hurricane Sandy would roughly equal losses generated by Hurricane Irene, which struck the East Coast in August 2011. However, due to the widespread nature of the storm, it will take some time for catastrophe modeling firms and local loss adjusters to accurately estimate insured losses, Eqecat said.

Fitch Ratings expects that flooding from excessive rainfall and high storm surge will be a substantial component of damages from Sandy, in addition to damage from strong winds.
(It is important to note that homeowners' policies cover wind losses, but generally do not cover flood losses. Conversely, many commercial policies cover both wind and flood losses, as do crop insurance policies.)

While many lines of insurance will be affected, including property and auto, there is the potential for significant business interruption (BI) and contingent business interruption (CBI) losses related to the flooding as the affected areas work to restore power and resume operations following the storm. The massive storm is impacting a wide variety of businesses in densely populated areas, including retail, corporate offices, transportation, manufacturing, and energy plants.

CoStar has compiled damage assessments from CRE firms with significant operations in the impacted regions.

Ambac Financial


Ambac Financial Group Inc. and Ambac Assurance Corp. indefinitely closed their headquarters at One State Street Plaza in New York and relocated their headquarters to their disaster recovery site in Kingston, NY.

Ashford Hospitality Trust


Ashford Hospitality Trust said it looks like its physical damage could be less a $1 million. However, the company added that reports were still coming in and while it could still get a surprise, it was calculating a revenue loss at about $3 million. The company said it already has offset some of that revenue loss with incremental business from people having to stay at its hotels because their homes are without power.

Atlantic City


Gaming operators in Atlantic City, NJ, and across the mid-Atlantic region appeared poised to re-open properties relatively quickly, limiting the storms impact on cash flow. However, Fitch Ratings said it believes longer term effects on physical infrastructure and consumer sentiment in New Jersey and surrounding states could have a material impact on fourth-quarter gaming demand.

The big question for the industry remains the status of roadways and other infrastructure in the Atlantic City and feeder areas, which may limit the ability of casino employees and customers to get to Atlantic City's 12 gaming properties easily.

Brookfield Office Properties


Brookfield Office Properties Inc. reported that preliminary reports indicated water, window and other associated collateral damage were minimal.

The World Financial Center, the company's largest asset in Manhattan suffered limited collateral damage from the storm. In anticipation of the storm, all properties were powered down. Power has been restored in all of Brookfield's office towers at the complex which was recently renamed Brookfield Place.

The retail areas at the center have also been reopened and the Winter Garden is fully operational. The company invites workers, residents and visitors in Lower Manhattan to utilize the shops and common public areas as other retailers in the area remain closed.

One Liberty Plaza, located at Broadway and Liberty Street, also sustained minor collateral damage from the storm. The building is currently without power due to Con Edison's shutdown of service in the area but is ready to reopen once power returns.

Flooding took place in the sublevels of One New York Plaza; Brookfield's other holding in Lower Manhattan. At this point, water removal from the sublevels is substantially underway and Brookfield is taking all necessary steps to bring One New York Plaza online as quickly as possible.

There are no problems reported at Brookfield properties in Midtown Manhattan or Boston and Washington DC, Brookfield's other major markets on the eastern U.S. seaboard.

CoreSite Realty


CoreSite Realty Corp., a provider of data centers, said its facility at 32 Ave. of the Americas in New York, was impacted, but there was no disruption to customer service levels. Due to extensive power outages in the New York region, the data center switched over to generator power. It is checking regularly with Con Edison as to when normal power is expected to be restored, but remains confident in its ability to continue running on its emergency generators as long as necessary given that fuel deliveries have been secured and remain on schedule.

Equity LifeStyle Properties


Equity LifeStyle Properties Inc. reported no injuries to its residents, customers or employees along the Atlantic seaboard and in the Northeast.

The company has a total of 56 properties (21 manufactured home communities and 35 RV resorts) that were within the storm's trajectory. Property damage losses at those properties are preliminarily estimated to total less than $500,000. The bulk of those losses are expected to be for removal of damaged trees and debris cleanup.

Three RV resorts that would otherwise have been open for customer use on weekends remain closed due to loss of electricity as a result of the storm. All of its manufactured home communities are open; one was without electricity. The company does not yet have an estimate for business interruption losses, but they are expected to be relatively limited.

The company believes that it has adequate insurance, including business interruption coverage. The company said does not believe that the storm will have a material impact on its financial condition or operating results.

FelCor Lodging Trust


FelCor Lodging Trust reported that it felt some impact from the storm, however, the actual property damage was fairly immaterial, relatively speaking. Only three of its 14 hotels, Philadelphia, Holiday Inn; BWI, Embassy; and Wilmington Doubletree had notable water intrusion, but in a limited number of rooms and those rooms should be back in service this week.

Group 1 Automotive


Group 1 Automotive Inc. said preliminary assessment damage at 24 of its East Coast dealerships indicated minor water damage at some facilities and the loss of a number of new and used vehicles due to flooding and falling debris.

The company is insured and estimates it will incur a $250,000 pre-tax deductible charge for the facilities' damages in the fourth quarter, as well as inventory losses that are estimated to be about $2 million based on preliminary assessments.

Business interruptions range from a couple of days in Group 1's Boston-area stores to potentially two weeks in the hardest hit areas of Long Island, NY, and northern New Jersey.

HCP


HCP said that at this point, it had a multitude of communities experiencing leaks and minor flooding and several properties operating on backup generator power. Hardest hit were two Sunrise communities in Brooklyn, NY, one of which was evacuated and the other where the residents have been moved to the second floor due to flooding. All of the residents were okay.

Home Properties


Home Properties Inc.'s East Coast apartment communities sustained some damage. The company had no reports of injury to any residents or employees. The company initially estimates costs of hurricane-related clean-up and repairs to be approximately $1 million to $1.5 million, which will be significantly offset by insurance reimbursement, the amount of which has not been determined.

Hyatt


Hyatt Hotels reported that the hurricane was clearly causing disruptions. More than 25 of its full service and select service hotels experienced business disruption, power loss or minor damage. All hotels were open except for one full service hotel - managed hotel in Manhattan and one partially closed hotel in New Jersey.

The big impact will really come from group business and banqueting, not just in New York, but also in Washington DC, and Boston, and a lot of that has to do with air travel disruptions, the company said.

Iron Mountain


Iron Mountain reported that it did not suffer any significant facility damage, however, it was having some operating challenges primarily related to local access.

The company said it expects "to see some noise in our Q4 service revenues" but that it was a little too early to quantify, but the storm was not expected to impact storage or any of the real fundamentals of the business for the quarter.

Kimco


Kimco reported that the impact on the portfolio is relatively tame considering the devastation that the storm brought to the area.

In the New York metro the impact was mostly to canopies besides some roof damage on a few centers, but very few issues that are shutting down the centers.

The one area that it has not been able to gain access to is Staten Island.

All of its properties will be fully covered by insurance.

Post Properties Inc.


Post Properties said it did experience some water and wind damage in the Washington, DC, area and power and water may be out for some time at its community on East 23rd Street in Manhattan. It said the damage was not significant.

PREIT


Pennsylvania Real Estate Investment Trust said that all of its shopping centers with the exception of Palmer Park Mall in Easton, PA, which is awaiting restoration of power, were fully operational as of Nov. 1.

Regency Centers


Regency Centers Corp. said that upon initial inspection, the company's shopping centers along the East Coast sustained only minor damage. Beyond power outages at a limited number of properties, the scope of damage has been limited to tree and debris removal and minor roof leaks.

SL Green Realty


SL Green Realty Corp. said its most impacted property is 180 Maiden Lane, which experienced heavy flooding. SL Green engineers and other professionals are working to remove the remaining water in the building's basement and to restore operating systems as soon as possible.

Four other buildings owned and managed by the company were without power. Those buildings are 100 Church St., 641 Sixth Ave., 304 Park Ave. South, and 673 First Ave.

The company carries comprehensive property, casualty and flood insurance and full coverage of losses is anticipated.

Sunstone Hotel Investors


Sunstone Hotel Investors estimated a hotel revenue and EBITDA disruption of $3 million to $4 million and $2 million to $4 million, respectively, for the fourth-quarter and full-year related to Hurricane Sandy.

Tanger Factory Outlet Centers


Tanger Factory Outlet Centers said its Atlantic City, NJ, property was the hardest hit. On Monday, it had eight or nine properties, representing about 38% of the portfolio closed.

As of yesterday, only Westbrook, CT, was still without power.

Tanger has a $50,000 deductible insurance policy for a "named event" such as Hurricane Sandy throughout its entire portfolio and maintained business interruption insurance also.

UDR Inc.


UDR Inc. said that damage to its Mid-Atlantic multifamily portfolio appears minimal at this time. New York City damage was more extensive and concentrated in its lower Manhattan properties, 10 Hanover Square, 95 Wall and Rivergate, which sustained ground level flooding, power outages, electrical and HVAC/boiler system failures and minor wind damage. The company's two remaining Manhattan communities, 21 Chelsea and Columbus Square, sustained only minor damage.

Full damage estimates from the storm remain unknown at this time. However, the company estimated that its liability could total $11 million to $14 million prior to receiving any insurance proceeds.

Walgreens


As of 10 a.m. EST Nov. 2, approximately 130 Walgreens stores in Connecticut, Maryland, New Jersey, New York, Pennsylvania and Virginia were still closed.

There have been no reports of Walgreens team member injuries, however many suffered personal property damage due to flooding and other weather related issues. Walgreens has taken a number of proactive measures to ensure employee safety, including ride-sharing arrangements and providing hotel rooms for some who are in need of housing.

Walgreens distribution center at Windsor, CT, was without electric utility power for several hours and relied on emergency generators to continue partial operation. Full power was restored this morning and the facility expects to be adequately staffed to resume normal operation within hours.

Another distribution center in Bethlehem, PA, was without power but the building is intact.

A smaller distribution facility in Nazareth, PA, sustained roof damage and flooding, which will require repairs before resuming operations.


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