Speculators Rushing In as the Water Recedes
Would-be home buyers are betting New Orleans will be a boomtown. And many of the city's poorest residents could end up being forced out.By David Streitfeld
Times Staff Writer
September 15, 2005
BATON ROUGE, La. — Brandy Farris is house hunting in New Orleans.
The real estate agent has $10 million in the bank, wired by an investor who has instructed her to scoop up houses — any houses. "Flooding no problem," Farris' newspaper ads advise.
Her backer is a Miami businessman who specializes in buying storm-ravaged property at a deep discount, something that has paid dividends in hurricane-prone Florida. But he may have a harder time finding bargains this time around.
In some ways, Hurricane Katrina seems to have taken a vibrant real estate market and made it hotter. Large sections of the city are underwater, but that's only increasing the demand for dry houses. And in flooded areas, speculators are trying to buy properties on the cheap, hoping that the redevelopment of New Orleans will start a boom.
This land rush has long-term implications in a city where many of the poorest residents were flooded out. It raises the question of what sort of housing — if any — will be available to those without a six-figure salary. If New Orleans ends up a high-priced enclave, without a mix of cultures, races and incomes, something vital may be lost.
"There's a public interest question here," said Ann Oliveri, a senior vice president with the Urban Land Institute, a Washington think tank. "You don't have to abdicate the city to whoever shows up."
For now, though, it's a seller's market, at least for habitable homes.
Two months ago, Steve Young bought a two-bedroom condo in New Orleans' Garden District as an investment for $145,000. Last month, he was transferred by Shell Oil to Houston. Last week, he put the condo on the market.
In a posting on Craigslist, an Internet classified advertising site, Young asked $220,000. He got a dozen serious expressions of interest — enough so he's no longer actively pursuing a buyer.
"I'm pretty positive the market's going to move up from here," he said.
So, to their surprise, are many others.
"I thought this storm was the end of the city," said Arthur Sterbcow, president of New Orleans-based Latter & Blum, one of the biggest real estate brokerages on the Gulf Coast.
"If anyone had told me two weeks ago that I'd be getting the calls and e-mails I'm getting, I would have thought he was ready for the psychiatric ward."
Messages from those wanting to buy houses — whether intact or flooded — and commercial properties are outrunning those who want to sell by a factor of 20, said Sterbcow, who has set up temporary quarters in his firm's Baton Rouge office.
"We're pressing everyone into service just to answer the phones," he said.
These eager would-be buyers may be drawing their inspiration from Lower Manhattan, which proved a bonanza for those smart enough to buy condos there immediately after the Sept. 11 attack.
Of course, in southern Louisiana, everything is hypothetical for the moment. The storm destroyed many property records and displaced buyers, sellers, agents and title firms, so no deals are actually being done. Insurance companies haven't started to settle claims yet, much less determine how, or whether, they will insure New Orleans in the future. The city hasn't even been drained.
But people are thinking ahead, influenced by a single factor: the belief that hundreds of billions of dollars in government aid is going to create a boomtown. The people administering that aid will need somewhere to live, as will those doing the rebuilding. So will employees of companies lured back to the area, and the service people that attend to them.
All this will lead to what Sterbcow delicately calls a "reorientation" of the city.
"Everyone I talked to has said, 'Let's start with a clean sheet of paper, fix it and get it right,' " he said. "Some of the homes here were only held together by the termites."
What the owners of the city's estimated 150,000 flooded houses will get out of "reorientation" is unclear, especially if the houses were in bad shape and uninsured.
Some black New Orleans residents say dourly that they know what's coming. Melvin Gilbert, a maintenance crew chief in his 60s, stood outside an elegant hotel in the French Quarter this week and recalled how the neighborhood had been gentrified.
He remembered half a century ago when the French Quarter had a substantial number of black residents.
"Then the Caucasians started offering them $10,000 for their homes," he said. "Well, they only bought the places for $2,000, so they took it and ran."
The white residents restored the homes, which rose quickly in value. Gilbert said he expected the same dynamic when the floodwaters receded in the heavily black neighborhoods east of downtown.
The question of who should own New Orleans is already sparking tension. The first posting seeking New Orleans property "in any condition or location" was placed on Craigslist on Aug. 29, while the storm still raged. With small variation, it was repeated numerous times over the next week.
Some readers were infuriated. "Do you read/watch/understand any of the news broadcasts coming from the city? Or do you just go to 'Cashing in on Desperation, Despondency, and Depression: How to Make a Zillion Dollars investing in Disaster Area Real Estate' seminars. Sheeeeeesh!" wrote one.
The process of tracking down owners of deluged houses is greatly slowed by the absence of records. It's not going to be easy to find these people, said Farris, the Baton Rouge real estate agent.
What would she pay for a ruined house?
Farris demurred, saying it was too early to tell, but probably only the value of the land, if that. Though the French Quarter may be back to life within months, outlying districts such as North Bywater and the Lower 9th Ward will take years, if they ever do. Investors might hope this is the equivalent of buying land on the outskirts of a boomtown, but it's not a guarantee.
For one thing, there are already proposals to convert certain flooded areas — including some water-logged neighborhoods — into parks. Under the Supreme Court's recent ruling broadening the definition of eminent domain, speculators could be forced to sell their properties to the government.
That would be a great outcome for many homeowners in the parishes south and east of New Orleans that bore the brunt of the storm.
Six months ago, Todd La Valla, a Re/Max real estate agent, bought a four-unit apartment building for $59,000 in the community of Buras, an unincorporated hamlet in Plaquemines Parish 55 miles southeast of New Orleans.
The tenants evacuated in the storm, or at least La Valla hopes they did. He's sure the building is gone too, like just about everything else in the area. La Valla had no insurance, which means his $10,000 investment is probably a complete loss.
Yet where there's disaster, there's opportunity.
"I've had calls from investors in Los Angeles, Las Vegas, New York looking to buy property," La Valla said. "This is going to be hard for the poor, the elderly, those that didn't have insurance. But it's going to be great for some people."
At first, Lucia Blacksher thought she was in the bad news group. In June, she and her boyfriend put their entire savings, about $35,000, into their dream house — a century-old shotgun Victorian in the New Orleans neighborhood of Mid-City. When the storm came, they fled to Blacksher's parents' house in Birmingham, Ala.
The house, which cost $225,000, is partially flooded. Her boyfriend, a Virginian who figures he's seen enough of hurricanes to last him the rest of his life, wants to move. The insurance company won't return calls.
Last week, Blacksher was worried she would lose her beloved house either to foreclosure or a forced sale. One of those bottom-feeders would get it.
She was more optimistic Wednesday. Somehow, she would get through this.
"Because the house survived the storm, it will be even more valuable," she said. "You could offer me $300,000 and I wouldn't take it. No way."
Times staff writer Nicholas Riccardi in New Orleans contributed to this report.
(BEGIN TEXT OF INFOBOX)
Housing in New Orleans
Real estate investors are looking for bargains in the New Orleans metropolitan area after Hurricane Katrina, but in some areas prices already are on the rise.
Rent versus own in the city of New Orleans
Vacant versus occupied in the city of New Orleans
Percentage of owner-occupied homes in each price range in the city in 2004
Under $50,000: 5.6%
$500,000 and over: 3.9%