NAIOP New Jersey: What You Need to Know About FEMA's Revised Flood Maps

Complicated Post-Sandy Revisions will have a Major Impact on CRE. End Quote

Bergen-Passaic, NJ (1888PressRelease) May 01, 2013 - The impact of superstorm Sandy continues to evolve, notably in the form of the Federal Emergency Management Agency's (FEMA) redrawing of flood maps along the East Coast, including New Jersey. That evolution provided the topic of discussion for the first seminar of a two-seminar program presented by NAIOP New Jersey, the commercial real estate development association, at the Sheraton Meadowlands Hotel. The flood map seminar provided two Continuing Education Units (CEU) for attendees.

According to discussion moderator Richard Burrow of Langan Engineering and Environmental Services, FEMA's plan is to publish the preliminary revised maps this summer, targeting the end of 2014 for final adoption after public comment and further revision. The changes from current mapping will be "significant," he said, "with a major impact on structures located in Flood Zones A and V. Due to Sandy, the ABFE Maps were published as an interim guide for rebuilding, but the Flood Insurance Maps were being revised already as major storms are occurring with greater frequency."

Burrow explained the basis of the changes regarding FEMA's Advisory Base Flood Elevations (ABFE), based on the tidal impact on the storm surge, illustrating that impact on the basis of a 30-acre site in Hudson County. For that site and others along New Jersey's oceanfront and waterways, "there is added importance for designing buildings for wave impact," as well as the impact of fill on those sites. "It is imperative to have those sites accurately mapped.

"Everyone is hyper-sensitive," Burrow said, noting particularly that, "it will impact your insurance coverage. It is important to take steps to procure insurance at a reasonable price."

When the "final" maps are published, insurance and other matters will rely on flood-proofing, Burrow noted, including everything from building above the flood plain on stilts "so water can flow unrestricted" under a structure, to what he termed "dry flood-proofing," accomplished by constructing walls and levees around a property.

"The key steps to be taken are to 'classify, compare, and consult'," he said. "Make sure you understand elevation-'classify'. 'Compare' datums and elevation. And 'consult' with experts because this is a complicated process," he said, prefacing the panel discussion.

Regarding insurance, "there is a lot of misunderstanding," said Brian Ruane of Willis National Real Estate. "It is complicated-make sure you understand the federal and regulatory requirements of flood insurance going forward. FEMA's Bill McDonnell concurred, noting as well the phase-out of federal subsidies "for economic reasons." With that phase-out, flood insurance "is going toward a more actuarial rate-everyone will have to pay the actuarial rate."

Panelists all stressed the importance of obtaining flood insurance in any case, and Dave Gibbons of Elberon Development Co. stressed the importance of "making sure your tenants understand the ramifications." He urged owners to "check all your leases" as to whether the cost of flood insurance can be passed along to tenants, and to work to determine tenants' "tolerance" on the issue.

"Leases being drafted going forward should carefully spell out these issues," said James Rhatican of Wolff & Samson. In addition to the pass-through of costs, the issues from a legal standpoint include casualty clauses, options to rebuild "in accordance with regulations," and more. "A good lease will contemplate a lot of these issues."

For building now (or rebuilding in the aftermath of Sandy), "build to the 100-year flood level," Gibbons urged. "The higher you go, the safer you will be-but it will be more expensive," said Gary Veenstra of Langan. On the financing side, "lenders will be very careful about elevations," said Rhatican. "They may well require a project be built to a certain elevation to obtain insurance."

As to FEMA's remapping process in the post-Sandy world, that process itself is complex because "FEMA's maps are so old," said Dr. Jon Miller of the Stevens Institute of Technology, which has formed a strategic partnership with Langan to address construction-related issues. "FEMA is modeling storms in addition to Sandy, and the maps will never represent a single storm and the peculiarities of each. The calculations of risk will be based on historical data."

Rhatican noted the potential impact on land use laws and "the odd interaction between FEMA, the state and local municipalities." Part of that impact involves existing infrastructure, especially roads and utilities, which took a hit from Sandy. "A lot of factors have to be addressed when building or rebuilding a site."

How does all of this impact the industry's dealmakers? "Brokers are as good as the information they have and are able to convey to the client," said Rhatican. "The more you know, the better. There are no narrow issues, and all the information is critical to getting a deal done."

The message of the importance of CRE brokerage professionals having all the information they need on the FEMA flood map topic provided a segue to the event's second seminar, a broad nuts-and-bolts presentation of the spectrum of issues on the brokerage table. Titled "Agency & Disclosure and Legal Issues for Commercial Real Estate Brokers," presenters were Andrew Houston of Cassidy Turley, Jonathan Meisel of Jones Lang LaSalle, Bob Sharma of Cushman & Wakefield and James Rhatican of Wolff & Samson.

"An important part of what we do is to provide critical and timely information on industry issues, and connect our members with the experts who can assist them based on their particular needs while offering the continuing education credits that are now required to maintain professional licenses," said Michael McGuinness, CEO of NAIOP New Jersey. "Today's two-seminar program has accomplished each of those goals."

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