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Hurricane Florence Threatens More Than $33 Billion in Commercial Property

Nearly 759,000 Single-Family Homes Are Also in the Storm's Path
September 14, 2018

Hurricane Florence, an intensifying Category 3 storm nearing the shores of North Carolina and South Carolina, will imperil an estimated $33.5 billion in commercial real estate.

In an analysis of the coastline from Georgetown, South Carolina, to Buxton, North Carolina, the stretch of the East Coast likely to take the brunt of the storm, a CoStar Group analysis shows $33.5 billion in commercial and multifamily properties.

That is property value alone and does not include the value of the businesses or its assets in those properties, which could amount to tens of billions more.

High winds and heavy rainfall could cause loss of life, flash flooding as well as property damage, generating significant losses for insurers and reinsurers. While the storm's pattern has been unpredictable, meteorologists say the damage from Hurricane Florence has the potential to be of historic proportions for the East Coast.

 Read More CoStar Coverage of Hurricane Florence 

On the commercial property front, Morgan Stanley Research identified 1,383 commercial mortgage-backed securities loans underwritten since 2011 totaling $20.1 billion in the states of North Carolina, South Carolina and Virginia. Of those loans, 413 totaling $8.3 billion are within 25 miles of the coastline.

In addition, Morgan Stanley identified 1,669 loans totaling $23.5 billion of Fannie Mae and Freddie Mac multifamily loans in those states. Of these loans, 492 totaling $10.4 billion are within 25 miles of the coastline.

Primary commercial property and casualty insurers could incur significant claim losses on commercial property such as hotels and resorts, industrial and those related to tourism. In addition, commercial lines claims would probably include business-interruption losses, which could be substantial if the hurricane destroys critical systems and networks, causes long-term power outages, or interrupts business in the aviation, tourism and industrial sectors, according to analysis from Moody's Investors Service.

Based on findings from catastrophe modeling firm RMS, the effect of historical hurricanes in North and South Carolina considering present day exposures could result in significant insured losses for primary insurers and reinsurers. For example, given increased building along the coast, total insured losses from Category 4 Hurricane Hugo to the same area in 1989 would have amounted to about $20.5 billion in today's dollars.

U.S. equity real estate investment trusts owned 6,005 properties, excluding single-family housing, land and timber assets in the path of Hurricane Florence, according to bond rating agency S&P Global.

Single-tenant retail REITs own the most properties in the storm's projected path, with Realty Income Corp. owning 740 properties in the area – the most of any REIT. As of June 30, 5.1 percent of Realty Income's rental revenue came from its properties in the Carolinas.

Vereit Inc. owns 545 properties and National Retail Properties Inc. holds 479 that are exposed to the storm. Vereit's properties in the Carolinas represent 5.6 percent of the company's rental revenue, while National Retail Properties generates 4.8 percent of its annualized base rent through its North Carolina properties.

Single-family housing REITs own more than 15,000 homes in the Carolinas.

American Homes 4 Rent owns the most single-family housing units across the two states, 9,767 properties, representing 19.6 percent of the company's total property count. Invitation Homes Inc. owns just under 5,000 homes in the Carolinas, or 6.1 percent of the company's housing portfolio, while Front Yard Residential Corp. owns 939 rental properties, representing 7.9 percent of its portfolio.

On the single-family housing front, CoreLogic, a home property information, analytics and data provider, counts more than 758,600 homes in North Carolina, South Carolina and Virginia with a reconstruction cost value of $170.2 billion are at potential risk of storm surge damage from Hurricane Florence based on its Category 4 status.

Large national homeowner insurance carriers have the capacity to withstand this hurricane event because they carefully monitor their coastal exposure, geographic diversification, and have high-quality reinsurance protection and strong capital bases. Regional carriers are more vulnerable given their geographic concentrations, according to Moody's Investors Service.

[Editor's Note: CoStar Group's Field Research team is monitoring temporary flight restrictions to be imposed after the storm. When those are lifted, CoStar Group plans to deploy our aircraft to assess the damage.]
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