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In Sandy's wake, a wave of investment

Little activity, say Realtors, but Shore region poised for a 'gold rush' like New Orleans saw after Katrina

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Homes destroyed by Hurricane Sandy.
Homes destroyed by Hurricane Sandy. - (Aaron Houston / NJBIZ)

Five months after Hurricane Sandy ravaged thousand of homes along New Jersey's coastline, experts say steep rebuilding costs and uncertainty over new flood elevations may be sowing fertile ground for real estate investors.

Investment activity is still very scarce at this point, according to several Shore-area Realtors, with homeowners still regrouping and assessing after the October storm. But with nearly 350,000 homes damaged or destroyed by Sandy, interest and opportunity are both in solid supply.

Patricia Mayer, a Diane Turton Realtors sales associate in Sea Girt, said it was barely two days after the storm when "phones were ringing off the hook from investors," who were looking for agents "to knock on doors and visit with people." Callers asked specifically to see properties that were being offered at half their pre-Sandy values, she said, and they were looking to pay cash.

And while such deals have yet to materialize, Mayer doesn't expect interest to fade.

"They were very specific in what they were looking for, and they're going to sit on the sidelines until those kinds of numbers start showing up," she said. "And those calls are coming from not only locally, but as far away as Florida."

Whether such large discounts become a reality remains to be seen, but Jeffrey G. Otteau, president of Otteau Valuation Group, in East Brunswick, said other factors are conspiring to open the door for investors. Many Shore homeowners have long since paid off their mortgages and were not required to have flood insurance, he said — and many who did have policies were only covered for up to $250,000 in damages.

Otteau also pointed to vagueness about how new flood elevation maps will be drawn and adopted for homeowners who rebuild with federal aid. Officials with the Federal Emergency Management Agency have said the final maps may not be adopted for two years, even though the state already has adopted the guidelines in an advisory form.

And yet another wildcard is the potential rise in mortgage delinquency rates, stemming from the hit to the Shore economy, Otteau said.

"They're going to get stretched out down there," he said. "And I expect investors will be going door to door asking and making people cash offers for buyouts.

Sandy's legacy in New Jersey has also produced frequent comparisons to New Orleans after Hurricane Katrina, and the real estate market may provide another link if investments become common. From January through June 2006 — about 10 months after Katrina — renovations were started on 34,000 homes, Bloomberg reported at the time, and a local investor estimated that about a third of them were being flipped by speculators.

"A lot of people thought it would be a gold rush," said Jonathan Wallick, a New Orleans contractor and former board member with the New Orleans Real Estate Investors Association. "As soon as you could get into town — within the first month or two — there were people looking for properties."

Wallick said some sales were driven by homeowners "who just didn't want to deal with their houses, and it was unclear for many months … what sort of help there would be from the federal government." Demand was "tremendous" for properties that were fixed soon after the storm, he said, though he noted many buyers were not prepared, trained or financed well enough to make their investments successful.

There was also a window of opportunity for speculative investors in New Orleans, said Ivan J. Miestchovich Jr., a finance and real estate professor at the University of New Orleans. That period spanned about 18 months — between the time of the storm in August 2005 and the start of an $8 billion, federally funded program that allowed the state to buy flood-damaged properties from victims.

"That created a little bit of a problem for those who wanted to flip, because they were competing against that program to buy property from owners who were maybe in a hurry to sell and just get out," said Miestchovich, director of the university's Institute for Economic Development and Real Estate Research.

Following Sandy, new attention was drawn to New Jersey's Blue Acres program, which allows the state to buy flood-battered land such as residential property. The Department of Environmental Protection is looking to continue buyouts under Blue Acres while seeking an additional infusion from the federal Hazard Mitigation Grant Program, DEP spokesman Larry Ragonese said. By next month, the agency could have a specific dollar amount and plan for the funding, though he noted that in the initial months after Sandy, most interest has come from non-Shore towns further north, like Sayreville.

In New Jersey, coastal home sales slowed considerably in the months after Sandy, Otteau said, adding further to the potential for speculation. In Monmouth and Ocean counties, November and December sales fell by 22 percent and 50 percent from 2011, respectively, compared to 1 percent and 7 percent increases statewide.

The Shore rebounded with a 19 percent rise in January, but Otteau said the year-end data "tell a compelling story." Those months are typically when activity around the beach picks up, he said, because it allows new buyers to be in their new homes by Memorial Day.

Billy Procida, a longtime New Jersey real estate investor and developer, said "the opportunity is obvious" after Sandy, especially along the Shore. But one major barrier to investment may be the same thing that causes homeowners to sell — the potentially murky regulatory process surrounding new flood elevations.

The effort to rebuild flood-prone neighborhoods is ripe for a clash between federal building standards and local planning boards, he said. Such a conflict may derail new investment opportunities, but municipalities can address that by proactively changing their zoning, as some Shore towns have done in recent weeks.

"The logistics are always where the breakdown occurs," said Procida, founder and CEO of Procida Funding LLC, in Englewood Cliffs. "After you get approvals, this is just vanilla spec homebuilding."

E-mail to: joshb@njbiz.com
On Twitter: @joshburdnj

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Joshua Burd

Joshua Burd

Josh Burd covers real estate, economic development and sports and entertainment. Before joining NJBIZ in 2011, he spent four years as a metro reporter in Central Jersey. His email is joshb@njbiz.com and he is @JoshBurdNJ on Twitter.

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