Motivated Sellers: Disaster Capitalism in the Bahamas, Coming to a Neighborhood near You

October 16, 2019

 

“Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work together for the benefit of all.”  –   John Maynard Keynes

Philadelphia Inquirer:

It didn’t take long. Shortly after Hurricane Dorian damaged countless homes and businesses in the northern Bahamas, real estate investors started calling local agents in search of bargains.

“We’ve surprisingly had several calls,” said Colin Lightbourn, who manages real estate company Engel & Volkers’ Bahamas office in Nassau. “People are asking if there is anybody selling properties in any of those cays and to keep them on our list.”

“They say, ’I don’t want to sound heartless, but if any properties come up, I’m a buyer.’”
While the timing of the phone calls may appear awkward, the inquiries from would-be buyers is not new for a region whose island nations and territories are often roughed up by hurricanes.

In 2017, investors scanned the Caribbean for bargains after Hurricane Maria pounded St. Maarten, Puerto Rico, and even Barbuda, the latter of which was declared uninhabitable by its government.

There were discounts to be had. On Dutch St. Maarten, for example, a five-bedroom home with an ocean view was on the market for $3.5 million before the storm but was reduced to about $1.9 million in damaged condition after the storm passed through, the Wall Street Journal reported at the time.

Some of the would-be buyers include investors in search of profits, foreign nationals seeking vacation homes, or hedge fund operators who see future profits in apartment buildings and hotels.
Overall, agents say, investors are attracted by depressed prices, and a possible upside fueled by government disaster funding and new capital from the private sector.

 Still, timing is critical. And so is knowledge of insurance, construction, regulations, and local contacts, agents and other experts say.

“I’m not sure I’d rush today,” said Michael Pappas, founder of the Keyes Co. brokerage firm in Miami. “But if you did the homework and started making the connections, there are those [owners] that will get out and sell.”
“There probably are some deals now … people need the cash,” he added. “These people lost their living. They’re going to take a big discount to be able to liquidate today. There may be good opportunities if you can find the people.”

Houston Chronicle:

Investors large and small are snapping up thousands of properties flooded by Hurricane Harvey. From billion-dollar Wall Street funds to mom-and-pop flippers, they’ve already purchased at least 5,500 flooded homes, often for dimes on the dollar.

In the process, they are transforming some Houston neighborhoods into block after block of rentals. They’re interrupting county plans to buy out flood-prone properties. And they’re leaning on the taxpayer-funded National Flood Insurance Program to protect them from future floods.

“All we’re doing is perpetuating a cycle of flooding,” said Harris County Flood Control District operations chief Matt Zeve.

Small and mid-sized private companies have dominated the post-Harvey market so far, some sending in executives from California, Colorado and Las Vegas. But now institutional funds, which woo wealthy investors with promises of double-digit returns, are dipping their toes in the water, too.

The $4.6 billion Tricon Capital Group, of Toronto, wants to spend $600 million in Texas before the end of next year, according to area brokers trying to persuade the company to buy flooded homes in Houston. A $30 billion New York City private equity firm, Cerberus Capital Management, has picked up at least a dozen flooded homes among 980 it purchased after Harvey. A California firm, B&P Investment Group, is looking to spend $400 million, targeting homes flooded by the release of water from northwest Houston’s Addicks and Barker reservoirs.

“Four hundred million is a lot of money,” said Ryan Pina, president of the Orange County-based B&P. “We’re looking to go in and essentially rehab the city of Houston, bit by bit.”

The investment firms aren’t all focused on flood zones. Records show they’ve purchased as few as 150 Harvey-flooded homes so far. But wholesalers and brokers, eyeing a market full of homes stripped to the studs, are encouraging their purchase.

“There’s so much money sitting on the sidelines, looking for a good return, looking for a good yield,” said area wholesaler and investor Eddie Gant.

But flood plain experts, local officials and real estate agents warn that the practice of buying flooded houses has consequences:

It prevents or delays government agencies from buying out homeowners whose houses have repeatedly flooded. Harris County said it has already lost to private parties 88 Harvey-flooded houses it wanted to buy.

It puts renters in harm’s way, since Texas law doesn’t require landlords to tell tenants their homes have flooded or sit in a flood plain.

Since flood insurance is available at deep discounts through the federal government, investors are often insuring their properties on the back of the American taxpayer.

 

3 Responses to “Motivated Sellers: Disaster Capitalism in the Bahamas, Coming to a Neighborhood near You”

  1. dumboldguy Says:

    Why no comments on this piece? is it because it’s just a foregone conclusion that the greedy real estate and finance interests are going to do what they did that brought on The Great Recession?—-and that the bought and paid for Repugnants are going to help them?

    Bend over, American taxpayers—-you are about to get it again.

    • Brent Jensen-Schmidt Says:

      And the global financial crisis of 2008. Of course regulations were put in place to prevent that happening again……which have been removed over the last 2 years. And the world is ONE big market.


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