Florence and Michael, the season’s two most destructive hurricanes, not only caused death and devastation across the Southeast, but also put billions of dollars in commercial real estate financing in the Carolinas and Florida at risk.
Florence made landfall as a Category 1 hurricane on September 14 and caused more than 50 deaths across North Carolina, South Carolina and Virginia, while Michael slammed the Florida Panhandle as a Category 4 storm on October 10 and caused some 45 deaths across several states.
Prior to Michael’s landfall, Moody’s Investor Service identified $4.4 billion of commercial mortgage loans secured by 543 properties, mostly retail and multifamily, as being under threat. Looking at securitized commercial mortgages, Morningstar found 211 properties backing $1.2 billion to be in the storm’s path.
With climate scientists warning of an increase in hurricane activity, hurricanes continue to be a serious risk factor for real estate owners, developers and lenders, as well as investors with exposure to properties in hurricane-prone parts of the country.
Florida Lenders at Risk
CrediFi data shows that from 2015-2018, the biggest commercial real estate lenders in Bay County, Florida, one of 35 counties placed under a state of emergency when Hurricane Michael was approaching, include CBRE, Walker & Dunlop and Home BancShares, the Arkansas-based holding company of Centennial Bank.
This year’s Bay County loans include a $33.7 million Freddie Mac loan originated by Walker & Dunlop in January for Ashley at Breakfast Point, Coastal Ridge Real Estate’s 360-unit luxury apartment complex at 9700 Panama City Beach Parkway in Panama City Beach. The loan matures in January 2028.
After Hurricane Irma in 2017, Morningstar identified $26.6 billion of securitized commercial mortgages in Florida as being at risk. Irma is estimated to have caused as much as $65 billion in insured and uninsured losses for residential and commercial properties across five states.
Impact of Hurricane Florence
In the wake of Florence, Morningstar Credit Ratings said some $1.49 billion in securitized commercial mortgages were potentially at elevated risk because of major damage, mainly in North Carolina’s Cumberland and New Hanover counties, with combined exposure of $1.05 billion.
Though the investment research company did not expect waves of loan defaults as a result of Florence, it said flood damage could prevent some existing loans from being refinanced and jeopardize the payoff of roughly $51.5 million in securitized loans that mature over the next 12 months.
Since 2011, some 1,383 commercial-backed loans valued at $20 billion have been underwritten in the area ravaged by Florence.
And the hurricane season isn’t over yet.
“The National Hurricane Center has plopped an ‘X’ on the map and a cone that shows a disturbance out in the Atlantic that, if you extrapolate the cone way, way outward, takes it on a path toward Florida,” the Miami Herald reported Saturday.
The hurricane center said over the weekend that the disturbance was located east of the Lesser Antilles and “has a low chance of forming into a tropical or subtropical cyclone over the SW Atlantic Ocean” in the middle of this week.
The Atlantic hurricane season ends Nov. 30.
See which South Florida lenders have the greatest number of CRE loans at risk. View the Miami 2018 CRE lending report.