Assessing the impact of hurricanes Harvey and Irma on Man GPM’s portfolio of US single family rentals.
- Hurricanes Harvey and Irma brought considerable damage to the mainland United States at the end of August and into early September 2017
- Man GPM manages 601 homes (around USD107m in total value) in Houston, Tampa and Jacksonville - areas which were among the worst-hit by the hurricanes
- 98 of these homes suffered some form of damage and the total cost of repairing this damage (post-insurance) was USD282k
- As a percentage of Man GPM‘s total US single family rental (SFR) portfolio under management, this represents a 0.04% impact
- A prudent approach to risk management is crucial when building a portfolio of SFR assets
The paths and severity of hurricanes Harvey and Irma in relation to Man GPM’s SFR portfolios
After developing into a Tropical Storm in the Caribbean, Hurricane Harvey made landfall in southern Texas on 25 August, and then proceeded to meander over the east of the state and adjacent waters for a four-day period. Rainfall of over 129cm (51 inches)1 made Harvey the wettest hurricane on record within the contiguous United States, causing catastrophic flooding affecting hundreds of thousands of homes and displacing tens of thousands of people. Figure 1 shows the positioning of Harvey soon after landfall and its projected path for the subsequent 5 days. We also plot the location of homes under Man GPM’s management in the Houston MSA2 (317 properties).
Figure 1. Hurricane Harvey’s position after landfall and projected path – Saturday 26 August, 2017 – 1am
Source: National Hurricane Center HARVEY Graphics Archive, 5-day Forecast Track and Watch/Warning Graphic3; Man GPM.
Irma was first identified by the National Hurricane Center as a tropical wave over western Africa on 26 August, but by 10 September it had made landfall in Florida, having passed violently through several Caribbean territories. While Harvey had been notable in particular for the extreme levels of rainfall, Irma was characterised by powerful sustained winds with 130mph recorded at Key West, FL4. That said, Miami, Naples and Jacksonville were all impacted by flooding due to storm surges. Figure 2 shows the widespread nature of Irma’s impact as it progressed up the west coast of Florida as strong winds around the eye of the storm impacted the wider state. The map shows Man GPM’s 72 homes under management in the Tampa area and 212 homes in Jacksonville, two metropolitan state areas (MSAs) widely affected by Irma.
Figure 2. Impact of Hurricane Irma – Monday 11 September, 2017 – 2am
Source: National Hurricane Center IRMA Graphics Archive, 5-day Forecast Track and Watch/Warning Graphic5; Man GPM.
The extent of damage to some worst-affected properties in the portfolio
Across the portfolio of single family homes managed by Man GPM, there were 67 homes damaged in Houston and 31 homes damaged in Florida (Tampa and Jacksonville) as a result of the two hurricanes. Damages ranged from serious flooding of the properties and leaking roofs to fallen trees and broken fences.
In the Houston MSA, one particular home suffered extensive flooding damage as a result of rising water levels and torrential rainfall (Figure 3).
Figure 3. Flooding in Houston MSA – damage to property
Source: Google Maps, NOAA Hurricane Harvey Imagery.
The damage suffered by this particular home had an estimated pre-insurance repair cost of USD34k. Once the hurricane had passed, our local property manager inspected the property and Man GPM coordinated early repairs, working with insurers and conducting a follow-up property inspection. The initial steps taken to return the home to its prior habitable state are outlined in Figure 4.
Figure 4. Returning property to former condition
Source: Man GPM, debris cleared from flooded home. Carpets and drywalls removed to allow property to dry.
In the Tampa MSA, a home was struck by a fallen tree (Figure 5) requiring extensive repairs to the roof and wall structure, expected to cost in the region of USD40k.
Figure 5. Property damage caused by fallen tree
Source: Man GPM, tree fallen on rear of house in Tampa MSA.
Overall impact at the portfolio level
Across the Man GPM SFR portfolio, the total financial impact is shown in Figure 6. Across the Man GPM portfolios, only one sub-portfolio’s insurance policy deductible amount was met in terms of total damage to properties. Taking this insurance policy claim and its associated deductible amount into account, the total cost to repair the damage across the 601 properties in Houston, Tampa and Jacksonville is only USD270k, representing 0.04% of the total value of homes managed by Man GPM nationwide. We believe this demonstrates the potential resilience of our property portfolio to large natural catastrophes such as those experienced during the unusually strong 2017 hurricane season.
Figure 6. Total financial impact of hurricane damage
|Total Portfolio Value managed by Man GPM||$730,000,000|
|Total property value by region||$56,000,000||$51,000,000|
|Total property count||317||284|
|Total Properties Damaged||67||31|
|Total Estimated Repair||$310,000||$110,000|
|Post Insurance (taking into account 4 underlying separately insured portfolios)|
|Total Estimated Cost||$160,000||$110,000|
|Total Estimated Cost across portfolio||$270,000|
Source: Man GPM, figures rounded.
The importance of risk management: Man GPM’s active approach
The passage of the two recent severe hurricanes over relatively large swathes of the southern United States was a truly terrible event for local residents. The ongoing costs and efforts required to return the impacted areas and their communities to their former condition are mammoth. However, losses across Man GPM’s portfolios amounted to around 4bps6. We understand that natural events like these are outside of our control, and the extent of physical damage to individual properties can vary significantly. In this context, we take active measures to manage the portfolio-wide risk of serious incidents like these through regional diversification, prudent individual property selection, avoiding properties near flood zones and carefully structured insurance policies. We believe this helps reinforce the case that single family rentals have grown into a robust asset class which is investable for large institutional pools of capital seeking investments that offer the potential for stable income streams and capital gains.
The risk mitigation principals highlighted above are at the core of Man GPM’s portfolio management process and are implemented by our team on the ground in Charlotte, North Carolina. Here, the team is focused initially on trying to identify appropriate properties that help mitigate the potential adverse impact from natural disasters, as well as optimising for other important factors such as proximity to good schools, lot positioning in well-maintained neighbourhoods, floorplans and property age. Our team works closely with local property managers and frequently visits properties to try to prevent significant problems from arising. This approach, coupled with Man GPM’s proprietary property database technology, gives us a ‘360 degree view’ of our portfolio of nearly 4,000 homes, as we seek to deliver attractive returns to our investors.
Past performance is not indicative of future results. Returns may increase or decrease as a result of currency fluctuations.
1. Experienced in Cedar Bayou http://www.nhc.noaa.gov/archive/2017/al09/al092017.public.038.shtml
2. Metropolitan Statistical Area.
4. National Hurricane Center: http://www.nhc.noaa.gov/archive/2017/al11/al112017.update.09101318.shtml?
6. Across Man GPM’s three underlying client portfolios where damage was incurred, the respective portfolio level impacts were 18bps for Portfolio 1, 2bps for Portfolio 2, and 3bps for Portfolio 3.