Get ready for a $5 billion bill, NY

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The aftermath of Superstorm Sandy presented tens of thousands of property owners in the city’s newly expanded flood zone with a difficult decision: stormproof their homes or face insurance premiums that are set to go up by as much as 18% each year.

Two years later, however, homeowners and landlords are discovering the choice is a false one. Federal Emergency Management Agency guidelines designed to make coastal beach homes flood-resilient do not take into account New York’s unique mix of row houses and high-rise buildings. And it is now becoming clear just how difficult and costly it would be to retrofit older buildings without drastically altering the look and feel of neighborhoods.

“It’s like trying to fit a square peg into a round hole,” said Laurie Schoeman, resilience program officer at housing nonprofit Enterprise Community Partners’ Manhattan office. “It just doesn’t work.”

To comply with federal guidelines as they stand now might cost more than $5 billion, according to a conservative Crain’s estimate based on case studies and interviews with experts. That’s a steep price for middle-class homeowners, landlords of rent-stabilized properties and the cash-strapped New York City Housing Authority, which owns more than a quarter of the rental units in the flood zone.

Large apartment towers, which represent 61% of the homes in New York’s flood zone, present the greatest departure from most of the 5.5 million properties in FEMA’s National Flood Insurance Program. Yet to get the lowest premium, everyone has the same guidelines.

“FEMA has one solution for residential buildings, whether you’re a single-family home or a 100-unit masonry tower: You need to raise your lowest floor and mechanical systems,” said Jessica Yager, policy director at the NYU Furman Center.

At risk are an estimated 87,000 ground-floor apartments that sit in the 100-year floodplain. Landlords would need to get rid of many of them in order to score the lowest premiums.

Two events led to the current situation. Last year, FEMA released new preliminary flood-zone maps, updating them for the first time since 1983 and nearly doubling the number of at-risk buildings to 70,000, representing about 250,000 apartments. A similar increase in the flood-zone area is expected by 2050.

In addition, Congress jacked up insurance premiums in hopes of shrinking the National Flood Insurance Program’s $24 billion debt. The idea was to charge building owners based on the actual risk of flooding and end the heavily subsidized rates that had allowed middle-class homeownership to flourish on waterfronts for decades. In response to an ensuing outcry, lawmakers passed another law delaying those rapid increases, which could be as much as 18% for current policyholders, although owners who are entering the program for the first time may face even steeper costs.

The city and several nonprofits are using that delay to suggest changes to the insurance program, so that New York’s needs are taken into account. So far, they have been unsuccessful in getting any.

“FEMA’s focus has been on protecting single-family homes around the country,” Ms. Schoeman said. “But when Sandy hit New York City, the question became: How to we apply that guidance here?”

Earlier this month, the Department of City Planning provided an answer. To visualize what the retrofits would actually look like under existing regulations, it released a report showing case studies for housing types, including apartment towers.

For those buildings, heating, hot water and other mechanicals would have to be moved out of the basement, and units below the flood elevation would have to be vacated.


Institutional investors who own pricey digs on Manhattan’s Lower East Side or in Chelsea might be able to absorb such costs, which experts peg in the millions. But NYCHA and midsize landlords like Katz Realty Group, which owns property in Sheepshead Bay, Brooklyn, as well as smaller individual owners in Coney Island and the Rockaways, would be less able to afford the capital improvements, leaving them open to premium increases.

The prescribed retrofits could run up against state housing regulations and trigger unintended consequences. More than half of Sandy’s victims were low-income renters, many of them in rent-regulated units below flood elevations now considered unsafe.

“Often in rent-stabilized buildings, for example, you can’t legally get rid of a unit or convert it to storage space,” said Mark Ginsberg of Manhattan-based Curtis+Ginsberg Architects.

If landlords spend enough money improving their buildings, they might pass along that cost to renters and eventually could exit rent stabilization altogether, the Furman Center noted.

On the other hand, if owners of grandfathered buildings spend enough on retrofits, it could trigger yet another FEMA rule that would require them to bring everything up to the current building and fire codes—leaving owners with an incentive to do nothing.

Losing apartments

For attached homes and row houses, an added question of character comes into play. Physically lifting those buildings is unrealistic. Instead, property owners would have to vacate inhabited floors below the flood elevation. Often that means using the bottom floors for storage or garage space, taking away ground-floor rental apartments that help homeowners pay their mortgages, though new zoning rules would allow some owners to replace that lost square footage on top of their homes.

“Not going to happen,” said Chris Alvarez, a New York City schoolteacher who lives along a street of attached homes in Coney Island’s flood zone.

It would seem like homeowners in the Harding Park section of the Bronx, a sleepy community of bungalows and semidetached buildings on a peninsula off the East River, would have the easiest time adhering to FEMA’s suggestions for lowering premiums. After all, houses there most closely resemble the types of buildings the agency is used to dealing with.

But Elbin Mena, president of the Harding Park Environmental Center, said much of the neighborhood had to be grandfathered into the building and zoning codes. The lots are so narrow that there would be nowhere to stage construction equipment. Many of the bungalows sit on foundations made out of scrap wood, according to Mr. Mena, and are insulated with newspaper.

“Raising these homes would be physically impossible,” he said.

It would also be costly. The nonprofit Center for NYC Neighborhoods estimates that raising a single-family home would generally cost between $80,000 and $100,000. Harding Park’s median household income is $37,000, according to the U.S. Census.

Homeowner Miguel Rodriguez said he can’t afford retrofits or insurance, which could rise to about $10,000 from $1,000 for an average home, according to the center. And because he doesn’t have a mortgage, he doesn’t have to do either. He’s simply hoping for the best when the next storm hits.

All or nothing

In May, the mayor’s office contracted two studies to look at how changes to the National Flood Insurance Program would affect the affordability of coastal neighborhoods. The results aren’t due for months, but many advocates believe the situation is dire.

“If we don’t do anything, these neighborhoods are going to change dramatically and become very hard places for working- and middle-class New Yorkers to live,” said Matthew Hassett, director of policy and communications for the center.

The city and a handful of nonprofits have suggested other ways FEMA could tailor the program to urban communities. For instance, the owners of commercial and mixed-use buildings with ground-floor retail can currently score lower premiums by erecting flood barriers, rather than simply abandoning the first floor. FEMA is being asked to give large multifamily buildings the same flexibility.

Housing experts have also suggested FEMA take into account partial mitigation measures such as raising mechanicals instead of an entire home, which lower risk but do not significantly lower premiums, and are not allowed when a home has to be substantially improved.

There are signs the agency is taking heed.

Congress has required it to explore the viability of partial mitigation, and, according to several sources, FEMA has hired a consultant to do so. But many are wondering whether any potential changes will come before 2017, when the flood-insurance program is up for renewal, or a year later, when premium increases will ratchet up to full throttle.

“Unfortunately, we are probably going to need all of that time to figure it out,” said Bomee Jung, deputy director of Enterprise Community Partners’ Manhattan office. “And that makes this an urgent problem.”

A version of this article appears in the October 20, 2014, print issue of Crain’s New York Business.


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