| June 22, 2006 (Bloomberg) -- Before Hurricane Katrina, Kyle Curry edited film in a New Orleans production studio. Now, he lugs a toolbox as a hands-on real estate speculator, capitalizing on one of the hottest housing markets in the U.S.
``This is my new career,'' says Curry, 45, standing in the muddy front yard of a 1920s bungalow-style house he's rebuilding, and plans to resell at a profit, near Loyola University in the city's Uptown district.
Curry is one of an army of small-time house ``flippers'' reaping big returns for themselves even as they help spur the New Orleans real estate market's recovery. Some 100,000 single- family homes in the city were damaged by flooding that accompanied Hurricanes Katrina and Rita last year. The cost of repairs may climb to $8 billion, says Jay Brinkmann, an economist with the Mortgage Bankers Association in Washington.
Since January, renovations have begun on 34,000 homes, according to the city's permitting department. About a third of the houses are being flipped by speculators, Curry estimates. The gains are worth the sweat: Curry says he may make an 80 percent profit for three or four months of work on each home.
The median price of a single-family home surged 23 percent to $175,000 in metropolitan New Orleans in the first three months of this year compared with the same quarter in 2005, according to the National Association of Realtors in Chicago. That's more than double the 10 percent gain in the U.S. median price during the same period.
Opportunity From Chaos
Residents returning to New Orleans are driving demand as they compete for a smaller inventory of livable homes in the still-devastated city. New Orleans's population had dropped to 158,353 on Jan. 1, from 437,186 last July 1, the U.S. Census Bureau estimated earlier this month.
``Out of chaos and catastrophe come opportunity,'' says Richard Berry, owner of Century 21 Richard Berry & Associates, a real estate agency in nearby Harvey, Louisiana.
Berry, 62, is renovating three properties he bought in the last month, in addition to running his brokerage. He plans to purchase more houses to flip.
``Most people don't want to, or don't know how to, renovate a house,'' he says. ``They want to turn the key and move in.''
Home Depot Returns
Demand for construction materials is so high that Home Depot Inc., the world's largest home-improvement retailer, reopened two stores in May that were destroyed. The Atlanta- based company also established a store near the Louisiana Superdome, site of some of the most agonizing scenes of stranded families after Katrina hit on Aug. 29.
Los Angeles-based KB Home, the fifth-largest U.S. homebuilder, is teaming up with Baton Rouge-based Shaw Group Inc., the state's largest contractor, to build houses in New Orleans and in nearby Jefferson Parish.
Still, it's individual entrepreneurs who are cashing in.
``If you're a regular person who knows how to swing a hammer, opportunity is jumping up and down in New Orleans,'' Sterling Joe Ory, a broker with Re/Max New Orleans Properties, says as he sips a glass of white wine at the Palace Cafe, on the edge of the city's French Quarter. Ory credits house flippers such as Curry for boosting the property market.
Curry bought two houses in May that had stood in six feet (1.8 meters) of water for two weeks, paying $140,000 for each, half their pre-Katrina value.
Buying More Houses
The New Orleans native says he'll spend about $40,000 to renovate each property, which he purchased from neighbors. After fixing them up, he plans to put them on the market for about $325,000. He'll use the profit to buy more houses, he says as he takes a break from supervising his crew of half a dozen workmen, some of the thousands of laborers who have flocked to the city.
Speculators in New Orleans and the surrounding suburbs are buying and selling houses for similar amounts and using the proceeds to buy more property, real estate agents say.
``Our goal is to restore 20 houses,'' says Berni Breen, 54, who quit his job as global vice president for sales at software company FTR Ltd. in Phoenix after Katrina to move back to his native city and renovate properties.
He and his son, Steve, are working on their third house, a seven-room ranch they bought in May for $40,000 in Gentilly, a neighborhood south of Lake Pontchartrain that was inundated with eight feet of water. Next month, they plan to buy house No. 4, paying $36,000 for a property near the University of New Orleans.
`Not the Job I Expected'
``Tearing out rotten joists is not the job I expected after getting my degree, but me and my dad feel we have to do this to rebuild the city,'' says Steve Breen, 24, who graduated from the University of New Orleans in May.
Brinkman of the Mortgage Bankers Association says buyers are able to secure financing much as they did prior to the hurricanes. ``We're seeing lenders be more flexible with some of their requirements,'' he says.
The speculators say they're buying from people who have decided not to return to New Orleans, which is still experiencing some civil disorder. National Guard troops are being sent to the city after a weekend of violence prompted Mayor Ray Nagin to call for help. Nagin's request for 300 soldiers and 60 state police officers followed the shooting deaths of five teen-agers.
The house flippers may soon have competition from a government program to encourage reconstruction. Later this year, the state of Louisiana will distribute federal grants to people willing to repair their homes. Homeowners will be offered as much as $150,000 to rebuild, as long as they occupy their residences for at least three years. The program will also be used to buy property from people at a price set by appraisers.
``Eventually, we are going to see government programs provide something of an alternative market,'' says Brinkmann, a New Orleans native. ``But for now, it's the independent speculators who are defining the market.''
`Wash and Rinse'
About 80 percent of the city's houses were flooded after Katrina. Some were soaked a second time after Hurricane Rita, which made landfall on Sept. 24 -- what the city's real estate agents are calling a ``wash and rinse.'' Most of the houses in the lowest parts of the city, such as the Lower Ninth Ward, sat in 10 feet of water for two weeks and will have to be bulldozed, says Ricky Lemann, an agent with Keller Williams Realty.
The dry 20 percent were located in the highest area of the city, bordering the Mississippi River. The ``sliver by the river,'' as natives refer to it, includes the upscale Garden District and the French Quarter.
``Since Katrina, I've started calling it the `isle of denial,' because you can live there and never know there had been a hurricane,'' says Lemann, 46, who lives in the Garden District.
Not Uptown Enough
The city is slowly coming back to life in concentric rings that radiate from the Garden District, starting with Uptown. That neighborhood stood in about six feet of water, prompting homeowners such as Curry to joke: ``We're uptown, but not quite enough uptown.''
Neighborhoods such as Uptown, Broadmoor and Carrollton are alive with the sounds of miter saws and hammering. Many homes have fresh coats of bright paint. Front yards and porches hold signs with slogans such as ``Rebuild, Rebirth.''
Miles away, in neighborhoods near the 17th Street Canal and the Industrial Canal, which were breached by Katrina, the streets are deserted. ``Miles upon miles of devastation,'' Lemann says, driving through some of the worst-hit areas in his mustard-yellow Toyota FJ Land Cruiser. ``Everything is gray and lifeless.''
Most of the houses in the northeastern and eastern ends of the city remain full of mold-covered furniture and clothes, many with their front doors standing open.
Marked With an `X'
Here, the deserted houses still have an ``X'' painted on the front by rescue workers during the floods, with the date the house was searched and the number of bodies found.
Residents who tried to escape the rising waters spray- painted some of the houses with messages such as ``Help.'' One simply wrote: ``Katrina you bitch.'' Piles of debris, some as high as 20 feet, line the roadsides. Many neighborhoods have no traffic lights because there's no electricity.
Even in neighborhoods closest to the high-lying Garden District, renovating flood-damaged houses involves risk, says Jim Kerrin, an agent with Prudential Gardner Realtors. In May, Kerrin, 57, bought a house to flip for $125,000 in the Lakeshore East neighborhood, close to Lake Pontchartrain.
``There are a lot of good buys,'' says Kerrin. ``It's a little bit of a gamble, as well. If we have another bad hurricane season, these good deals might not look quite so good.' |
