Reparations for the BP Oil Spill

With BP Plc now allocating $20 billion for lost business in states bordering the Gulf Realtors are out looking for their piece of the pie.  In Washington Kenneth Feinberg, head of BP’s $20 billion claims fund, met with the National Association of Realtors and industry representatives from Texas, Louisiana, Mississippi, Alabama and Florida to discuss their request for reparations.  In this case Feinberg will have to scrutinize claims for lost sales and determine what losses are due to the general angst of the housing market and what losses can be attributed to the spill itself.

Thus far we’ve only seen the residential real estate market step up to test the waters in terms of recovering their losses, but this is merely the beginning.  Decreased travel to the region due to the public’s perception of the spill has has hurt commercial real estate as well.  Hotel sales are down and local businesses that rely on tourism are struggling to pay rent, so you can be sure commercial real estate owners will be riding the coat tails of the residential markets endeavors.

Oxford Economics conducted a landmark analysis based on 25 recent man made and natural disasters, and determined that the spill will continue to effect travel for the next three years and cost the region $22.7 billion.  Adam Sacks, Managing Director of Oxford Economics USA, believes a portion of these losses can be offset by aggressive marketing campaigns, which could reduce the impact by up to $7.5 billion.  He asserts that travel is a business based on perception making the impact of disasters such as the BP spill predictable. Hopefully he is right, because predicting the future losses will likely play a large roll in Feinberg’s allocation of the claims funds.

For commercial real estate owners the spill has not only affected land value but stream of income as well.  It sounds as though they will be compensated for their losses, but to what degree is the question.