Houston developers wrestle with complex regulatory issues in the 100- and 500-year floodplains.
By Kenneth Katz & Neal Wade of Baker Katz
The Houston metropolitan area was hit particularly hard by Hurricane Harvey, with a tropical deluge that led to severe and unprecedented flooding. Over the course of four devastating days in late August 2017, the Category 4 hurricane dropped more than 40 inches of rain on the Texas Gulf Coast region, with accumulations exceeding a staggering 60 inches in select areas. The storm ultimately caused an estimated $125 billion in damage to both commercial and residential properties.
Harvey literally and figuratively reshaped portions of the East Texas landscape. The impacts of the storm were not only dramatic and far-reach- ing, but also quite lasting. One of the areas in which the hurricane’s ripple effects are still being felt is in commercial real estate development. Regulatory changes to this eld in the wake of the storm have been significant to say the least.
Post-Harvey development ordinances being considered or actively being implemented are currently a hot topic of discussion and debate among commercial developers, builders and
brokers in Houston. The new ordinances and regulations will undoubtedly have major implications for both development of new commercial projects and improvements to exist- ing properties that were damaged by Harvey.
For owners, developers and investors with potential interest in Houston-area projects — both new builds and renovations/rehabs — understanding these new ordinances and how they could impact current and future developments and renovations of commercial properties should be a priority.
An Elevated Approach
There are two significant changes in the regulatory pipeline at present. And while some gray areas and uncertain- ties remain, the new regulations are beginning to bring some important issues into focus.
The first of these new regulatory changes involves new mandates regarding finished floor elevation (the height of a building’s floor slab). In flood-prone Houston, official Federal Emergency Management Agency (FEMA) flood maps show which areas in and around the city fall within a 100-year floodplain and which are in a 500-year floodplain. Those time periods are calculated by determining the annual chances of a flood occurring in a specified area. In other words, for a given location within the 100-year floodplain, there is a 1 percent chance of flooding in any given year.
The new regulations require floor slab heights for new construction to be two feet above the base flood elevation. This requirement essentially means that floor slab heights must be two feet above the high-water mark in both the 100- and 500-year flood plains.
While that number may seem like only a modest increase from the 18-inch mandate that existed prior to Harvey, the old rule only applied to properties within the 100-year floodplain.
To date, this regulatory change applies to both the City of Houston and to the surrounding unincorporated areas. While Harris County as a whole and its municipalities neighboring Houston have yet to adopt these new rules, that could change in the near future. Commercial real estate developers would be wise to pay close attention to this possibility when designing new projects.
The other major regulatory push that has emerged in the 12 months since Harvey struck involves stiffer detention requirements.
In many situations, property owners must temporarily hold storm water runoff in on-site ponds or under- ground tanks (before releasing it later at a time and place where civic drainage infrastructure can better handle it).
Without getting too deep into the regulatory details, the bottom line be- hind this requirement is that the most significant of the new detention rules eliminates the detention credit for existing impervious cover. This has the potential to add significant expense, as well as more design complexity, to both rebuilds and new construction.
To understand some of the motivation behind these new rules, it’s important to recognize that Harvey didn’t happen in a vacuum. The storm was preceded by Houston’s Memorial Day Flood in 2015 and the Tax Day Flood in 2016, not to mention tropical storm Allison, which also brought major flooding to the Texas Gulf Coast in the early 2000s.
While Harvey was the worst of these natural disasters, the simple fact is that there are pockets of residential areas in Houston where people have had their homes flooded three times in three years. Harvey’s floodwater inundated hundreds of thousands of Houston-area properties, displacing more than 30,000 people and impacting homes and business in lasting — sometimes permanent — ways.
Fair or not, these events have been the catalysts for local government to take steps to mitigate what is perceived by many to be a worsening problem.
The reality, however, is that flooding has always been a problem in Houston. While Harvey and the two previous floods have brought new attention to the issue, the long-term impacts and efficacy of a handful of regulatory changes remain to be seen.
Fingers have been pointed at everything from environmental factors to development strategies, but even civil engineers and hydrologists can’t agree on the most significant source of the problem.
Some such experts believe detention can actually exacerbate flooding. Others believe it makes sense to take more significant steps to address the issue through measures such as widening bayous or dredging drainage channels. Those same people see raising building heights as little more than an expensive Band-Aid that only scratches the surface of the problem.
On the ownership and development side, the nascent regulations have already prompted those who know the market to be more careful and strategic about site and project selection.
Ascertaining whether a specific property is in the 100- or 500-year flood zone now matters more than ever. With rehab and rebuilding projects, if the cost of repair is more than half the value of the building, you are required to scrape the building and rebuild up to the new standards.
In the case of a fast food restaurant, for example, adhering to that rule can quickly get complicated. Raising a building five-plus feet above its neighbors is expensive and presents issues with ramps and compliance with the Americans with Disabilities Act, as well as logistical problems with the drive-thru.
Inevitably, it simply won’t make logistical or economic sense to redevelop or initiate new construction at some properties. With some sites — and possibly whole neighborhoods — sitting vacant for a long time, the impact of this activity on property values will be significant.
To make things even more confusing, FEMA has gone back to square one to redraw those floodplain maps. In the near term, we are likely to see an uncertain and evolving regulatory environment lead to a slower pace of development, and ultimately a migration away from more flood-prone areas. In addition, the factors behind property valuation are bound to vary considerably from neighborhood to neighborhood.
Hurricane Harvey was a true natural disaster. But it’s clear that if Houston wants to avoid adding man-made difficulties to Mother Nature’s wrath, the city needs to ensure that proposed solutions are conceived and rolled out in a thoughtful and strategic manner. ◊
Co-authored by Kenneth Katz and Neal Wade of Baker Katz, a Houston-based full-service commercial real estate firm specializing in first-class tenant representation for some of the retail industry’s top national chains. The firm also provides project development and leasing. Kenneth can be reached at email@example.com and Neal can be reached at firstname.lastname@example.org.
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