Bailing Out

After hurricane ivan slammed into Pensacola, Fla., in September 2004, damaging 60,000 homes in two counties, The Mitchell Co. doubled its sales over the following 18 months. And after Hurricane Katrina ripped up coastal communities in Alabama, Louisiana, and Mississippi in late August 2005, Mitchell—which is based in Mobile, Ala., and builds homes in Mobile, Pensacola, and Orlando, Fla.—sold out its inventory of 60 homes and 20 manufactured housing units in a week. The company was able to reopen its headquarters two days after Katrina hit because it had a crisis management plan in place, in which each office has its own water and food supplies and is linked by satellite phones.

“Our focus right now is staying in business,” said John Saint, Mitchell's CEO, in an interview with BUILDER in late October. Saint sees “enormous” potential for new-home sales in hurricane-ravaged markets, including Biloxi and Gulfport, Miss., where his company controls 1,600 lots on 600 acres and where, Saint said, Mitchell's production-building activity should shift into a higher gear over the next year, “once people get their insurance checks.”

But he added that when Mitchell showed federal and state officials how it could put manufactured homes on the ground in 45 days, their response was less than urgent. “The government doesn't work like you or me,” said Saint, who barely contained his enmity toward bureaucrats who “have not done a good job. There are still people sleeping in tents, and if it weren't for the churches, private businesses, and neighbors, people would have starved to death.”

This builder's experiences capture the complicated and often chaotic dimensions of post-Katrina relief and rebuilding in its initial stages, when devastation and demand must be weighed against a high degree of uncertainty about the ultimate recovery of a region that, truth be told, stopped registering on most large builders' radar screens long before the recent hurricanes touched land. With few exceptions, the industry's leading production builders say they have no plans to expand into the affected Gulf Coast states, where they are confining their efforts to fundraising in support of companies and organizations that specialize in providing emergency shelter or building affordable homes.

By late October, Costa Mesa, Calif.–based HomeAid America had collected $500,000 in donations from builders such as Hovnanian Enterprises and Shea Homes, which HomeAid is using, in combination with $3 million from Ameriquest Mortgage, to construct two 4,000-square-foot units of transitional housing in New Orleans for women and children evacuees who return to that city. “We're trying to create some momentum there,” explains Michael Lennon, HomeAid's president. Habitat for Humanity International launched a campaign to raise $200 million to build between 1,000 and 2,000 homes in the Gulf Coast (see “Habitat Helps,” page 216). And the NAHB, which provided $1 million to help get local builders back on their feet, formed a 501(c)(3) charitable organization to solicit money for future disaster emergencies.

The three states that Katrina assaulted need all of the capital, assistance, and new ideas they can muster to resuscitate cities and towns where, according to the latest American Red Cross estimates, the storm affected a total of 852,791 homes, including the destruction of 352,930 homes and apartments, and another 139,930 housing units that suffered major damage. Kevin Taylor, who owns Plum Homes in Gulfport, says that “everything” between Highway 90, which runs along 26 miles of Mississippi's coastline, and railroad tracks three miles inland was wiped out.

That destruction dwarfs what other recent hurricanes caused in the United States and puts into perspective how daunting this rebuilding effort will be in terms of time and manpower. After Hurricane Andrew blew through Southern Florida in 1992 and took out 28,000 homes, the state spent 11 years rebuilding. In New Orleans, which had averaged only 5,000 to 6,000 home starts per year, “the need is going to be somewhere [between] 40,000 and 50,000 housing units a year over the next five years,” said Bruce Karatz, CEO of Los Angeles–based KB Home, in a Sept. 23 interview with The Wall Street Journal. Karatz also told CNBC that “big builders like us, who know how to build thousands of houses at a time, have something to add to that rebuild[ing].”

KB has entered into a joint venture with The Shaw Group, a Louisiana-based construction and engineering firm, to buy undeveloped land near New Orleans on which to build single-family homes. The partners have acquired 3,000 acres of farmland in Jefferson Parish, where they intend to build 20,000 houses. KB and Shaw are also looking in Baton Rouge, where D.R. Horton started acquiring lots in November. There are other builder initiatives, too. Rolling Meadows, Ill.–based Kimball Hill Homes has aligned with a high-powered coalition that's devised an ambitious redevelopment plan for what David Hill, the builder's chairman, calls “a new New Orleans” (see “A New Vision,” page 218). Atlanta-based John Wieland Homes and Neighborhoods is involved in a program it calls “High Five,” which will use proceeds from the sales of five houses Wieland builds in Atlanta, Raleigh, N.C., Charlotte, N.C., Nashville, Tenn., and Charleston, S.C., to fund a housing project in New Orleans, which Wieland could start by late spring 2006, according to its CEO Terry Russell.

But Russell adds that rebuilding homes in Gulf Coast communities “doesn't match our business model” in a way that inspires Wieland to pursue broader construction opportunities there. Centex Homes is focusing on markets where evacuees have flocked, to determine what it could do to meet their housing and social services needs, says Neil Devroy, the Dallas-based builder's spokesperson. Other builders —including Pulte Homes, Lennar Corp., Beazer Homes USA, and Technical Olympic USA—either aren't commenting or say that building in that region isn't in their plans. “I'm not in the demolition business,” says Ron Tuttle, president of Holiday Builders' Gulf Coast division. “I don't even have the manpower on the ground to assess the infrastructure.”

The verdict most growth-minded builders have rendered about Gulf Coast markets is that they are strategically unfeasible. For one thing, these states are impoverished: The Census Bureau estimates that between 16 percent and 20 percent of these states' residents—and nearly 25 percent in New Orleans—live below the poverty line. Alabama, Louisiana, and Mississippi ranked, respectively, 42nd, 45th, and 48th out of 50 states in median household income in 2004. Their growth rates in population and jobs are pallid compared with those of cities in Florida, Texas, Tennessee, and Georgia.

Several builders point to other factors—such as the region's lack of available large land tracts and the vacuum of political leadership in New Orleans—as reasons enough to stay clear. But USA Today sent shock-waves throughout the entire nation when it reported that up to 40 percent of evacuees might not return, based on a poll it conducted with CNN and Gallup of people who were forced by the storm to relocate to other parts of the country. Only around 55,000 people, out of a pre-Katrina population of more than 462,000, were living in New Orleans as of mid-December, according to NBC News. “We've put up two families from New Orleans in our farmhouse, and neither of them plans to go back,” says Jimmy Rutland, a vice president with Montgomery, Ala.–based Lowder New Homes. More than a few builders wonder how many businesses that see these statistics won't be returning, either.

With the majority of homes in the region suffering flood damage, several builders note that the actual rebuilding probably falls outside of their construction expertise. “It's more like remodeling than home building,” says Marshall Ames, Lennar's spokesperson. And in three states that issued only 64,932 building permits in 2004, a critical issue facing any builder now will be finding enough contractors and laborers to handle exponentially more work. “So many [contractors] lost their homes and their businesses,” says Taylor of Plum Homes, whose best trim carpenter “lost everything, including his tools, and went to Florida. That's happened a lot.”

To help shore up this labor deficiency, the NAHB, says its CEO, Jerry Howard, is working through its educational arm, the Home Builders Institute, to contact vocational schools around the country and encourage their students to consider going to these markets as laborers and contractors. But Bill Becker, a New Jersey–based development consultant, isn't convinced that skilled workers from other states will flock in droves to the Gulf Coast region any time soon. “I just got back from a conference in Texas,” he says, “where the builders' attitudes there were, ‘We have our own market to take care of.'”

There are plenty of companies, though, that see the post-Katrina rebuilding effort as being up for grabs. David Robertson, CEO of manufactured home builder Cavalier Homes, testified before a congressional subcommittee that his industry could deliver 15,000 to 20,000 homes, constructed to FEMA's specifications, within three months. “When a disaster happens, we're often the immediate solution,” says Joanne Foist, marketing director for the industry's largest manufactured home builder, Riverside, Calif.–based Fleetwood Enterprises, which received a $170 million contract from FEMA that includes building 3,000 houses. On Nov. 17, the National Modular Housing Council (NMHC) and the Manufactured Housing Institute conducted a joint conference in Hattiesburg, Miss., with developers, retailers, and public officials to explore what role this kind of housing should play in the region's recovery. “I think [modular] housing will be a large component,” says Thayer Long, executive director for the Arlington, Va.–based NMHC. “There's only so long a person can last in temporary shelter. You need to give them a sense of ownership.”

HouseRaising, a Charlotte-based construction management company that celebrated its first anniversary on Sept. 1, 2004, has committed to opening sales offices in Biloxi and Gulfport, Miss., and in Slidell, La., with the intention of building 25 custom homes in each market over the next year. HouseRaising has been getting the word out about its services to local builders through insurance companies and chambers of commerce. Greg Wessling, its chairman and CEO, says his company has already obtained commitments from strategic supply partners such as pro dealers 84 Lumber and Lowe's Cos. (where Wessling had been a high-ranking executive) and has more than 50 certified builders in its network, many of which he says are ready to go down to the Gulf Coast states to build homes. Wessling expects HouseRaising's construction activities in that area to commence by the late first quarter of 2006.

Cazesta Custom Homes typically builds 10 to 12 homes a year in and around Gulf-port. In late October, it had a 35-unit subdivision going through the approval process for homes that, according to Cazesta's owner Kenny McNair, would range from 2,400 to 5,000 square feet and start at $275,000. But Cazesta also recently completed a smaller, five-unit development whose houses ranged from 1,300 to 1,400 square feet and $80,000 to $90,000. “We'll be doing more of that kind of work,” predicts McNair. This past fall, Plum Homes—which builds seven to 10 homes per year ranging from $300,000 to $700,000 and from 2,500 to 6,000 square feet—was in the process of purchasing 38 more lots in a gated golf course community called The Oaks, in Pass Christian, Miss., which Taylor says is “very convenient for people who might be leaving New Orleans.” He's already hired more supervisors and expects Plum's annual production to more than double to 20 homes. Tuttle says that Holiday Builders has been eyeing Grand Bay, Ala., where he says evacuees from hard-hit Pascagoula, Miss., 12 miles west, might gravitate.

While the early stages of rebuilding have been expedient and somewhat random, there are signs that, as municipalities dry out, regroup, and return to some semblance of normalcy, a more coordinated recovery effort could emerge that, at the very least, strengthens existing building codes and, potentially, introduces new approaches to neighborhood development to the region.

Louisiana lawmakers discussed enforcing a uniform building code that, had it been in effect before Katrina, might have prevented 80 percent of the $10 billion in wind damage caused by that storm, according to Louisiana State University's Hurricane Center. One hitch, though, is the price tag: The application of this code would add between $1,000 and $12,610 to the cost of building a house, which averages $130,000 in that state, depending on where the home is built in relation to the coastline.

Saint of The Mitchell Co. said hurricane-resistant codes are effective and noted two high-rise condos his company built on the beach in Gulfport that withstood Katrina because they were constructed with high-impact windows and reinforced steel and concrete, and they were designed with no residences on the first floor, so flood-water damage was minimal. Saint said those high-rises' $350-per-square-foot costs were 30 percent above conventional construction, “but it's worth it, because when you lose a 14-story building, you never recover from that.”

On a grander scale, some government and business officials see the aftermath of Hurricane Katrina as their chance to wipe clean an admittedly smudgy slate and reinvent communities with an eye toward making them not only more sustainable, but livable. In October, 300 planners, architects, and government officials participated in a six-day Mississippi Renewal Forum in Biloxi, where ideas that percolated could produce the blueprint for Gov. Haley Barbour's initiative to rebuild 11 cities. Aguiding force at that forum was the Chicago-based Congress for the New Urbanism, and what has leaked out of that meeting so far indicates that the rebuilding would place considerable emphasis on mixed-use communities with more-affordable housing.

Builders and developers were excluded from the forum but were briefed during a two-hour “town meeting.” Some critics see that slight as evidence of the industry's passivity about shaping the recovery debate. But Marty Milstead, executive director of the Jackson-based HBA of Mississippi, views the forum in a positive light because “it shows that the state is more concerned with developing communities, not just putting up rows of houses in six months.” Mil-stead is also confident that, regardless of what national and regional companies do, local builders will be integral to the rebuilding process, because “at the end of the day, it will be local folks who decide what they want and what gets built.”

Habitat for Humanity is one of the few builders aggressively involved in rebuilding communities damaged by Hurricane Katrina.

The housing industry took some knocks about its early involvement in the rebuilding effort following Hurricane Katrina. But one builder that has floated above the fray has been Habitat for Humanity International, the Americus, Ga.–based nonprofit whose mission to eliminate substandard housing and homelessness is in sync with the immediate needs of disaster-stricken, relatively poor Gulf Coast towns and cities.

In October, Habitat launched “Operation Home Delivery,” a $200 million campaign to raise money for the construction of between 1,000 and 2,000 homes in the Gulf Coast over the proceeding 24 months. By early November, the nonprofit had collected more than $50 million, including $5 million donated by the financial arm of the Lutheran Church and $2 million from Citigroup. Spokesperson Joedy Isert explains that Habitat appeals to many disparate people and organizations because “they see that the [organization] might be best suited to rebuild the types of homes that were destroyed.”

Katrina provided Habitat with a national stage to call attention to its activities with audiences that normally might not be that aware of what it does. Its Web site was ubiquitously displayed during telecasts of Major League Baseball's playoffs, and a Habitat chapter framed a house near Minuteman Park in Houston during games three and four of the World Series. When President Bush visited a Habitat construction site in Covington, La., his attempts at carpentry were captured by The Today Show's cameras. A double CD, Hurricane Relief: Come Together Now, featuring such artists as the Neville Brothers, Barbra Streisand, Coldplay, and Norah Jones, was released in mid-November, and the proceeds from its sales will go to Habitat, the American Red Cross, and a music industry–sponsored relief fund.

PIECE BY PIECE: Workers erect a house in Slidell, La., in October. The house was provided by Habitat for Humanity International's “Operation Home Delivery,” which aims to build up to 2,000 homes in the Gulf Coast in 24 months.

Habitat's ability to provide affordable housing depends on three elements: volunteer labor, cash and materials donations, and the “sweat equity” of home buyers. Its efforts are abetted by longstanding alliances with home builders such as Centex, which has discussed with the organization ways to construct homes that could be transported to hurricane-hit areas. “We just did a demonstration house of that kind together that we displayed at the Minnesota State Fair,” says Centex spokesperson Neil Devroy.

To commemorate the 25th anniversary of its tree-replanting efforts after Mount St. Helens erupted, Weyerhaeuser Co. is helping 32 families move into Habitat-built homes by May 2006. The forest products giant donated $1 million and 25 lumber packages. Two of the homes will be in Mississippi and one in Louisiana. Natalie Valach, marketing manager for Weyerhaeuser Real Estate, the corporation's home building division, says the company might work with Habitat on another project related specifically to Katrina relief, which could get off the ground next year.

Kimball Hill Homes is working with a high-powered coalition that has prepared a comprehensive plan to create “a new New Orleans.”

This month, a coalition of builders, developers, and architects should be ready to present to government and business officials in New Orleans a major plan it has formulated to revitalize and transform the city.

The plan, devised by renowned Chicago-based architectural firm Skidmore, Owings & Merrill, was commissioned by a group calling itself the New American Village Collaborative, whose members include former secretary of housing and urban development Henry Cisneros; former NAHB executive Kent Colton; Randall Arendt, who founded Conservation by Design; and officials from Skidmore and the commercial developer Mesa Development. Another member is David Hill, chairman of Kimball Hill Homes, the Rolling Meadows, Ill.–based home builder that, in recent years, has gotten more involved in urban projects in Chicago and Detroit.

Hill says the plan, which draws upon “clusters of ideas and planning techniques” that proved successful in urban projects in other cities and countries, has no less of a goal than to create “a new New Orleans.” A preliminary outline of that plan, which Hill provided BUILDER, concentrates on the city and central section of The Big Easy. It touches on everything from rethinking how floods could be controlled through the creation of “natural environments” within the levees and a broader wetlands system, to how new transit corridors could support higher-density, mixed-income communities that are more energy efficient and surrounded by larger parklands.

The collaborative expects the plan to be completed for presentation to city or federal officials by late January 2006. However, it is not clear whom the group would show the plan to, as officials in New Orleans, Louisiana, and Washington have yet to dispel the perception that the city is politically rudderless. “New Orleans is a political dust storm, and in a storm you can't see that well,” says Hill. “Hopefully, this [plan] could be a useful contribution to [reducing] the chaos down there.”

If the plan gets off the ground, Hill also believes that more large builders might be willing to get involved: “Right now, there's no reason for builders to go down there, from a market standpoint. But there's a tremendous opportunity there, and what's needed is a new vision. You have to have some guidelines and a political decision process. Right now, there's no political framework.”

Hill speaks approvingly of the recent decision by Los Angeles Mayor Antonio Villaraigosa to support a $1 billion bond issue to provide permanent income to a special city trust fund for affordable housing for the homeless in Los Angeles, and to double the amount in that fund to $100 million. That kind of bold leadership, says Hill, is what New Orleans desperately needs at this moment.