One of the nation’s most jolting tragedies has changed the course of the real estate market in Biloxi, Miss.
On Aug. 29, 2005, Hurricane Katrina struck the Gulf coast of Mississippi, leaving a wide swath of wreckage in its path. When all was said and done, 238 people were dead, 67 missing, and the state’s entire 82 counties declared federal disaster areas.
According to the Biloxi Office of the Mayor, Katrina wreaked particular havoc on the city’s housing stock. Of the city’s 25,575 homes and businesses, 6,000 were destroyed by the storm or had to be torn down after Katrina.
“Replacing the homes lost to Katrina would take years judging from the past, but the storm presents a host of other issues, particularly in hard-hit areas such as Eagle Point in north Biloxi and especially on Point Cadet in east Biloxi, where blocks and blocks of generations-old homes were reduced to debris fields,” reads a Mayoral office report published a year after Katrina. “Many of the homes were built before regulations existed to guide construction in flood zones. In fact, many may have not been able to meet the city’s existing regulations, much less any post-Katrina regulations.”
The city’s famed casino business was poised for more rapid recovery and in fact, a year after Katrina, seven of the city’s nine pre-storm casino resorts had reopened. According to the mayoral report, 15,000 were employed in the gaming business before the storm, with as much as $500,000 daily state tax revenue and $50,000 daily city tax revenue. In addition, revenue from gaming comprised in excess of a third of the city’s annual operating revenue.
Today, the casinos continue to drive the Biloxi market. “Like other casinos throughout the country, revenues are down from last year. However, Biloxi’s drop in revenue is not quite as high as others,” Realtor Molly McKinnon of Keller Williams in Biloxi says. “People from all over the Southeast come to this area to visit the casinos.”
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According to McKinnon, the gaming industry is a top driver of post-Katrina redevelopment. “Biloxi is now experiencing tremendous growth while other parts of the country are in decline,” she says. “This is due to several reasons: tax incentives, damaged infrastructure has been repaired, local governments moving forward with new projects funded by the federal government, more people returning to the area, and the draw of the casinos. … Due to the number of people drawn to the casinos, rentals are still doing very well and investors are profiting.”
Since Biloxi did not see the condominium boom experienced in other parts of the country, McKinnon says, there is not an excess of inventory in that market. She also sees redevelopment efforts as a means for the creation of new jobs at a time when many in the country are unemployed: “Many residents who were hesitant to return (post-Katrina) because of lack of jobs have returned and are prospering,” she says.
The Gulf Opportunity Zone Act’s tax incentives are the area’s strongest advantage right now, according to McKinnon. These “GO Zone” incentives were put into effect by the state of Mississippi after Katrina in order to entice investors to return to the most hard-hit Gulf Coast areas, and allow buyers to take an accelerated tax depreciation of 50 percent off purchases of investment real estate.
“(That means) if you purchase a condo for $500,000, you can deduct up to $250,000 the first year you own the property,” McKinnon says. “If you don’t need the deduction this year, you can apply it to taxes paid for the previous five years or even carry it forward to future years.”
GO Zone investors can also take advantage of tax-exempt qualified private activity bonds that can be used for construction of retail and other non-residential properties.
Challenges of Redevelopment
The city’s hard-hit beach area poses the biggest challenge in terms of redevelopment. With new flood elevations and insurance hikes, rebuilding has proven difficult. Add in the global economic slowdown, and the going has been tough.
In 2008, a city review of condominium projects found that ten beach-area condo developments had let their building permits expire. That review cited claims by developers who said financing was growing more difficult to obtain.
However, McKinnon says things are easing up a bit. “Insurance rates have come down and new construction techniques have made a huge difference in developers’ confidence that their buildings will withstand any future disasters,” she says. Those more durable techniques include the use of concrete, steel, and higher wind-rated windows.
As to the long-term future, she offers an appropriate metaphor: “In my opinion, Biloxi is a sound investment for the future … not a gamble.”