Taken by maps

REVIEW SUMMARY
Issue. New flood maps
Industry. Real estate
Key. Owners of property that fall in newly drawn flood zones have an expense surprise.

Todd McGee knows all about floods.

The Fort Myers-based company McGee owns with four partners, D&D Machine & Hydraulics, manufactures giant pumps for flood control. Its pumps have been installed around New Orleans, for example.

So you can imagine McGee's surprise when he discovered his company's headquarters on Metro Parkway in Fort Myers is now located in a flood zone.

As it turns out, the Federal Emergency Management Agency lumped him and about 120 other property owners on the Metro Parkway industrial corridor into newly redrawn flood maps in August 2008.

Now, McGee's predicament is the subject of a peer-reviewed article in The Appraisal Journal, a trade publication for the 25,000-member Appraisal Institute. Its authors argue McGee's property suffered a 70% drop in value since it was included in the flood zone.

“I think there's no question that there's a taking,” says Shelton Weeks, the Lucas Professor of Real Estate at Florida Gulf Coast University in Fort Myers and one of the authors of the study. A “taking” means the government takes property without proper compensation.

Up and down the Gulf Coast and around the country, federal mapmakers have been busy redrawing flood zones that haven't been updated in decades. Armed with new mapping technology, properties that previously weren't in flood zones have been drawn into them. On the Gulf Coast, Collier, Pasco and Sarasota counties are currently undergoing map revisions while other counties have recently adopted them.

The implications of these changes affect more than just the property owner. “Imagine if you were a banker and had a loan on this property,” Weeks says.

In many areas, such as Lee County, it's difficult to get permission to rebuild a destroyed structure if it's in a flood zone. Owners of vacant land who now find their property in flood zones may be prohibited from rebuilding.

“I feel like I fell into the swamp,” says Mark Freeman, who owns industrial land on nearby Crystal Drive. His property was last appraised at $700,000, but he believes it's worthless because it was drawn into the flood zone.

Some areas that fall in the new flood zones are sparsely populated, but the Metro Parkway corridor of Fort Myers is a dense industrial spine that's home to numerous businesses. Warehouse and manufacturing businesses line the corridor and trucks rumble down its center.

The new flood maps added 18 square miles of floodways in Lee County, which include 8,000 property owners, according to the Lee County Department of Community Development. It's not clear how much commercial property this included, but they're now part of the 195 square miles and 76,000 parcels that fall in the flood zones of Lee County.

Before and after

McGee, 62, a Fort Myers native whose British-born great-grandfather was the first civilian surgeon in town, is also an accountant. He and three partners acquired D&D, a 40-year-old manufacturer of hydraulic pumps. “We understand water,” he deadpans.

But McGee says he never received a notice that the D&D property was moved into a flood zone and that Lee County commissioners had approved the flood maps in August 2008. “If that building goes down, we're out of business and 20 employees are out of a job,” he says.

That's because Lee County can't approve new buildings or substantial renovations in FEMA flood zones without jeopardizing its ability to secure federal flood insurance. Indeed, municipalities can be suspended from the federal flood-insurance program if they don't adopt FEMA's maps. Currently, Lee County has 92,109 flood policies in effect covering $19.8 billion worth of property.

“The county has no practical or reasonable alternative to saying no to FEMA,” says Joan LaGuardia, the communications manager for the Lee County Department of Community Development.

Owners of vacant commercial property, such as Freeman, fare the worst under these circumstances. “I've never had a piece just taken like this, with an attitude,” says Freeman, who is president of Turtle Development and has been developing properties in Lee County for 30 years.

In the first article of its kind in The Appraisal Journal, Weeks and FGCU colleague Howard Finch used data collected by Fort Myers appraisal firm Stephan, Cole & Associates to determine the economic consequences of the new flood maps using McGee's property as the subject.

Their work was complicated by the fact that the county adopted the new flood maps in August 2008, when the commercial real estate market collapsed and sales were virtually nonexistent. “From a geek standpoint it's what makes it interesting,” says Weeks.

Despite that challenge, the authors concluded that the market value for McGee's property was $2.65 million before the new flood maps were adopted in August 2008. The new flood maps slashed the building's value by $1.84 million, resulting in a 70% drop because of the adoption of the flood maps.

Paying for a fix

For some property owners, there is a possible but costly way out of the problem: Pay an engineer to challenge the flood maps or show that their building would not impact the floodway, which some property owners have done successfully.

Funded by Congress, the flood map modernization process used new technology to identify the impact of flooding from creeks and canals. In this case, the Ten Mile Canal runs parallel to Metro Parkway, the north-south road.

McGee says he was facing an $80,000 engineering bill to prove that the flood maps incorrectly included his property. “This whole thing's about money and who's going to pay for what,” he grouses.

So McGee canvassed 120 neighbors on Metro Parkway and persuaded 10 of them to split the cost of an engineering study they hope will remove the properties from the flood zone. “The consequences of this are incredible,” says Al Quattrone, the president of Quattrone & Associates, the engineering firm McGee and others hired to investigate the flood maps.

Quattrone says the new flood maps that cover that stretch of Metro Parkway incorrectly identify the amount of water that would flow in a big storm. He says the maps don't take into account existing water mitigation by the property owners.

McGee is more blunt: “In 30 years, we haven't been flooded.”

Lawsuits could result

In The Appraisal Journal, Weeks and co-authors Finch, William Cole, Bruce Stephan and Nathan Chouinard, argue that the evidence is clear that the government took away the value of McGee's property without compensation.

“Appraisers, property owners and regulatory officials should consider regulatory takings and the economic consequences associated with revising existing flood zone maps for coastal regions,” they write.

No government agency has analyzed the value of property pushed into the new flood zones, even though municipalities would suffer from the lost tax revenues. Indeed, McGee says the Lee County Property Appraiser lowered his property's value by the amount of the engineering study he commissioned. “It hasn't yet been taken, but there is damage,” McGee says.

In Florida, there's a legal remedy from a law called the Bert J. Harris Jr. Private Property Protection Act. The Bert Harris law, passed in 1995, provides compensation for property owners who suffer economic loss from a regulatory taking.

But McGee says he's holding off on a lawsuit, preferring to resolve the issue by challenging the maps.

Disaster driven

People who live on the West Bank of New Orleans can rest easy because of D&D Machine & Hydraulics of Fort Myers.

The company built and installed seven emergency backup pumps that together can slurp 364,000 gallons per minute of floodwater at the Harvey Street Canal in Jefferson Parish. Following Hurricane Katrina's devastation in 2005, it's a key lock system that now keeps New Orleans dry.

“We're somewhat disaster driven,” says Jack Harlan, president of D&D, which has been in Fort Myers for 40 years.

Ninety percent of D&D's business is the manufacturing and sale of large hydraulic pumps that run on diesel or electric power. These are enormous mobile emergency backup pumps that can each move up to 60,000 gallons per minute.

Engineering firms and municipalities are big customers, but lead times are so long that business can take years to develop. For example, Harlan points to two pumps in the company's yard that are to be installed at Dean Park in Fort Myers, a municipal project that has taken more than two years to complete. “It's just the nature of the business,” Harlan says.

D&D has developed international business too, particularly in Latin America. It has provided pumps for the Mexico City Grand Canal and to GuySuCo, the big sugar company in Guyana. As much as 50% of D&D's business is international, especially when the foreign exchange rates are as favorable as they are now.

Still, Harlan echoes many of the concerns that small U.S. manufacturers have, namely the cost of marketing overseas and finding skilled labor at home. D&D is a lean operation. “I don't have a team of salesmen,” Harlan says.