Aftermath of Hurricane Milton: Assessing the Impact on Florida's Commercial Real Estate and Municipal Bonds
- Courtesy of Bloomberg
Hurricane Milton was set to be one of the most catastrophic hurricanes in recent US history, as mandatory evacuation orders were established along the entirety of the west coast of Florida and throughout the Hurricane's expected path. A few days ago, Milton appeared to be a typical tropical storm. Still, in 24 hours, Milton transformed into a raging category-five Hurricane that sent the people of Florida fleeing. The Tampa Bay Area appeared to be the section that would take the biggest of blows, with predictions revealing it as the storm surge's center point. "If Milton stays on its course, this will be the most powerful hurricane to hit Tampa Bay in over 100 years," According to the National Weather Service in Tampa.
Luckily for the west coast of Florida, storm surges were not as severe as previously expected, as flooding did not reach the 10-15 feet prediction. While flooding in the area stayed low, this didn't stop wind gusts from reaching 100pmh in several spots along the west coast of Florida, according to CNN and NBC. These intense winds caused more issues, with several tornadoes appearing from coast to coast. "We anticipate there's going to be confirmed casualties on the tornadoes, and that was all the way on the east coast of Florida," said Florida Governor Ron Desantis.
Tropicana Field in St. Petersburg, Florida with its roof shredded from intense wind gusts
- Courtesy of DRaysBay
Hurricane winds extended to the rest of the peninsula, profoundly affecting an area stretching roughly 160 miles vertically. With hurricane winds and intense rainfall, you will be left to wonder about their lasting effects on the state.
How will Hurricane Milton affect commercial properties in Hurricane Milton’s path?
" This is probably going to be the most expensive hurricane that has ever hit Florida." - Ken Johnson at the University of Mississippi Walker Family Chair of Real Estate. With total expenses caused by the Hurricane reaching record highs, commercial real estate, in particular, is a significant component. 235,338 commercial real estate properties in Florida reside in areas with a 50% probability of 50 mph winds. According to Moody's, the estimated value of these commercial properties is $1.1 trillion.
The astounding $1.1 trillion does not include the municipal sector of Florida. There is roughly $30 billion worth of municipal debt in the areas hit by Hurricane Milton. According to Bloomberg Intelligence, properties ranging from healthcare and senior living have a debt level of $9.9 billion, while airports' debt is $2.7 billion. Not all properties built using this debt were affected equally, so waiting until more numbers come out concerning the storm's total damage is essential.
How Does Hurricane Milton Impact the Viability of Commercial Real Estate Investments and the Municipal Bond Market in Florida?
A hurricane like this tends to get one thinking about people's willingness to enter the municipal bond market moving forward. "The magnitude of this storm and the fact that it's right after Hurricane Helene, it's likely to intensify the discussion about climate risks and the muni market," said Cooper Howard, fixed income strategist at Charles Schwab Corp. While Hurricane Milton will limit the state of Florida's ability to pay off the debt and interest on these properties, I don't see it as something that will ultimately handicap them. Much of the state's revenue is sourced from areas not affected by the storm, or at least not to a significant degree. This leads one to believe that the municipal market in Tampa could remain relatively strong given this storm's impact, as faith in the state's ability to pay should remain constant.
On the other hand, non municipal commercial properties, as listed in Moody's calculations, could have deep-rooted effects, particularly on Commercial mortgage-backed securities (CMBS). According to Moody, real estate in the retail, industrial, and office sectors make up roughly 165,000 properties, all of which were predicted to have a 50% chance of experiencing severe enough winds to cause damage, accounting for $599.2 billion. In addition, approximately 99.8% of Florida businesses are classified as small businesses, according to the US Small Business Administration Office of Advocacy in 2022. The overwhelming amount of small businesses puts the vast majority of these commercial properties at risk of defaulting on their mortgages, as they don't possess other locations to generate revenue. "If you have a project that is reliant upon the revenue generated in that area and is very specific to that area, you do have to consider it.", said Jeff Scruggs, head of the public sector and infrastructure group at Goldman Sachs Inc. Hopefully these commercial properties won't be put out of business for too long. Still, it's necessary to consider how this could put holders of Florida CMBS at risk of not receiving the return they expected.
Where does Florida go from here?
Regarding federal governmental financial assistance, the Federal Emergency Management Agency (FEMA) will likely be relied upon to bring Florida back to some semblance of stability. Unfortunately, many Americans question FEMA's ability to provide such help, as they have had to deal with large sums of money in response to Hurricane Helene and other disasters.
- Courtesy of the Winchester Star
FEMA Acting Associate Administrator for Response and Recovery Keith Turi said Monday, "We have the resources we need to respond to both Helene and Milton." Despite a confident response from this FEMA associate, the question remains: will Florida receive the help it needs to dig itself out of this natural disaster, or will it be up to the people of Florida to find a way out?
