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.”