The Road Back Home

Oct. 1, 2009
While recovery has been slow, electrical distributors and reps are still optimistic that New Orleans will rebound.

While the pace of rebuilding in New Orleans is not what some manufacturers, distributors and reps in the region had expected in the post-Katrina era, it's still better than the construction climate in many U.S. cities.

According to Herm Isenstein, president of DISC Corp., Orange, Conn., New Orleans is forecast to have total electrical wholesale sales of $200 million in 2009 from distributors in the New Orleans metropolitan area, down about 16 percent from 2008. But New Orleans is doing much better than most other metropolitan areas, he says, as total industry sales in 2009 for the United States are expected to be down about 30 percent, according to his forecast.

You don't quite hear the distributors, reps and electrical contractors along Canal Street shouting “Laissez les bons temps rouler!” (an old Cajun expression loosely translated to “Let the good times roll!”), but after surviving Hurricanes Katrina and Rita, they can survive anything. Katrina struck the Gulf Coast on Aug. 29, 2005, killing more than 1,600 people in Louisiana and Mississippi and causing more than $40 billion in property damage. Hurricane Rita followed almost a month later, with billions of dollars in additional damage and at least 11 more deaths. Many New Orleans residents fled the area, flocking to cities like Baton Rouge and Houston. Kevin Kearney, agency principal, Gulf States Electrical Sales, a manufacturers' rep in Baton Rouge, La., doesn't expect people who fled the area to be coming back anytime soon. “I think we have seen the population shift, and I think that shift is permanent,” he says. “A lot of the people live north of the lake and even on the Gulf Coast in Mississippi. Once you lay down your roots, buy a house and your kids are in school, you're going to stay there for a while. I don't think people are going to move back just because they want an address in New Orleans. I just don't see that.”

The U.S. Census Department backs up his evaluation of the situation. According to U.S. Census data, the New Orleans metropolitan area's population was 1.3 million in July 2005, just before Hurricane Katrina struck. 2008 U.S. Census data pegged the area's population at 1.13 million in 2008, a decrease of an estimated 170,000 residents.

Damain Kerek, Summit Electric Supply's Louisiana area manager, says the area's residential construction market is not coming back the way many thought it would. “Road Home money (a federal program) and insurance have forced some folks to stay where the storm relocated them to,” he says. “There are some that believe up to 70 percent of people will not ultimately return, having found a better area for their families outside of New Orleans.”

But a few months after the fourth anniversary of Hurricane Katrina, New Orleans is showing signs of recovery, although it's slower than most had expected. Most of the distributors and reps that Electrical Wholesaling talked with said the bulk of the federally funded projects in the region are focusing on improving the infrastructure, which doesn't directly impact electrical distributors. Gary Corales, vice president, Nu-Lite Electrical Wholesalers, New Orleans, said most of the construction going on at this time is totally or partially federally funded.

The major economic development planned for the area includes a rejuvenated port, ambitious medical district, sports complex and theme park. Some of these projects have been approved, while others face shortfalls of money or political support. The port terminal would be located on about 260 acres of state-owned land at the lower end of the east bank of Southwest Pass in Plaquemines Parish. Work is expected to begin in 2010.

Jean Paul de la Houssaye of Elec.Tech LLC, Covington, La., a manufacturers' rep, says, “It (the region) is still in turmoil from Katrina. The politics in New Orleans are ridiculous. That is the biggest thing that is holding all this back,” he says.

Cleaning Up After Katrina

For the first couple of weeks after Katrina, it was impossible to even begin rebuilding the electrical infrastructure in New Orleans. Officials declared a state of emergency and concentrated on life-saving measures, fixing the levees and draining the city. The first priority for all distributors immediately after the storm was to contact all their employees to make sure they were safe, and to make arrangements for getting them back to work.

Much of the French Quarter recovered quickly after the storm and in a relatively short time most businesses were up and operating. The outlying areas were hit much worse. The leisure and hospitality industry, the city's largest nongovernment employer and revenue generator, was among the very first to come back after Hurricane Katrina, according to an Aug. 31 article in The New York Times. With the exception of the Hyatt Hotel attached to the Superdome, all the major hotels are back and running, says Scott Silvey, president of General Power & Control Corp., a manufacturers' rep in Harahan, La.

New Orleans' history as a port city at the mouth of the Mississippi River is very apparent today, as much of the region's economy is still based on shipping on the Mississippi and the Gulf Coast, as well as the offshore oil and natural gas industries.

Michael de la Houssaye had his home destroyed by Katrina. He works with his father at Elec.Tech LLC and has since found another home in the New Orleans area. “We didn't see the major decrease in our market due to the fact that oil prices were so high still and we're still based on the marine/petrochemical market,” he says. “That's really the largest portion of this market here. But we do see the slowdown now for sure.”

Following Hurricane Katrina, most people expected to see a boom in the economy, says Silvey of General Power & Control Corp. His company, which serves the commercial, industrial, marine and residential markets, and other electrical manufacturers' reps serving the industrial and petrochemical markets were able to pick up a lot of business. But Silvey says they haven't seen the eagerly awaited spike in construction.

Kevin Kearney of Gulf States Electrical Sales says government funding has been slow to reach New Orleans. “We were hearing late last year that the funding was there, the money was hitting the ground, but we haven't seen any real evidence of it other than the schools,” he says. “But even school construction has been very disappointing as far as what is coming out of the ground. The Times Picayune said earlier this year that there was going to be 70 schools under construction by the end of the year. We have only seen five. That kind of gives us an indicator of how slow the wheels seem to be turning.”

Electrical distributors are beginning to see a shift in the types of projects going on. According to W. Parker Stewart, area manager, Crawford Electric Supply (CESCO)/Sonepar, which opened up a branch in New Orleans in February 2008, the majority of the electrical equipment in downtown New Orleans is located in the basement or first floor, so much of it needed to be completely replaced. “We are now seeing projects for new schools and hospitals that were totally destroyed,” he says. “This year marked the first year that the local universities have seen an increase in enrollment.”

Scott Armstrong, president, Armstrong's Supply Co. Inc., New Orleans, made national news in the aftermath of Hurricane Katrina when his company's experiences were chronicled in a gripping Wall Street Journal report. His company's headquarters was ruined by the flood, and when he was finally allowed back in the building three weeks after the storm, he found that everything below eye level in the building was ruined.

Today, Armstrong says most of the region's construction activity is going on in Orleans Parish (the city of New Orleans itself), and St. Tammany Parish, which is due north of New Orleans. The St. Bernard Parish, east of New Orleans right on the Gulf of Mexico, was almost completely destroyed by the hurricane and had to be rebuilt from scratch, he says. “There is a significant amount of educational or municipal projects in that area. There's another parish south of New Orleans — Plaquemines Parish — that was completely wiped out by the hurricane, and everything has to be rebuilt there. That's where we're seeing the most activity as far as a Katrina rebuild.”

The Scene in New Orleans

Armstrong says over the last four years, New Orleans had “an incredible wave of business” related to the commercial and residential repair and rehabilitation work necessary to get the infrastructure back up. “That wave died pretty dramatically in 2008,” he says. “I think when the housing bottom dropped out nationwide we probably still had enough projects on the repair side that it insulated some of it for a short period of time. But it certainly caught up.

“We're still seeing a fair amount of commercial projects — again primarily infrastructure repair for schools and institutions. As far as residential goes, there's absolutely nothing taking place, with the exception of multi-family, and that multi-family is in the affordable housing range. New construction in areas that were not directly affected by the flood waters stopped about the same time as it did nationwide. And the repair projects that were in the areas that were affected by the flood waters are just really sparse. People have to go through a lot of bureaucracy and regulations to rebuild. People are frustrated. Some people have lost confidence.”

As yet, electrical distributors and reps in New Orleans do not see a “new normal.” Many neighborhoods still seem barely touched since the flooding four years ago. Empty stores still stare out along commercial strips in Arabi, La., and New Orleans East. Much of the Lower Ninth Ward still looks like a ghost town with overgrown grass and vacant buildings.

Many residents are still waiting for money to rebuild their homes from the federally funded Road Home program, which is designed to provide compensation to Louisiana homeowners affected by Hurricanes Katrina or Rita for the damage to their homes. The Road Home program is said to be the largest single housing recovery program in U.S. history. “It is not defined as of this time,” says Damain Kerek of Summit Electric Supply. “Road Home is just reaching some people, and insurance companies in many cases are just now settling with some clients. The new normal is yet to be defined. The market is also taking a correction. Contractors that popped up right after the storm are making tough decisions to stay in the market or not.”

Competition Intensifies

The anticipation of a reconstruction boom brought an invasion of electrical contractors and electrical distributors chasing the “big one” right after Katrina, says Gary Corales of Nu-Lite Electrical Wholesalers. “Now four years later, the market is smaller than pre-Katrina and getting smaller. Yet competition is higher than ever due to the new players.”

Armstrong of Armstrong's Supply Co. says competition has increased, with dozens of contractors often bidding the same job. “Competition is much greater,” he says. “We had additional competition move into town post-Katrina who opened up branches or expanded existing branches. Some have come and gone. We've had a significant amount of out-of-state contractors getting local contracts. A project pre-Katrina would have had a half-dozen contractors bidding. Now it's not usual to see 35 or 40 general contractors bidding a single project. Competition is so severe.”

At the same time competition intensified, reps found it extremely difficult to get the attention of their electrical distributors. Everyone was very busy after the hurricane, says Michael de la Houssaye of Elec.Tech. “For two years after Katrina, if you weren't already trading with the electrical distributors on a certain product line, then they didn't have time to look at making changes,” he says. “Everybody was so busy. One of the advantages of the slowdown in the economy is that it's been easier to gain margin and pick up distributors' lines. Elec.Tech will be in a good position when the economy turns around.”

Despite the downturn in the economy this year, electrical distributors' businesses have done well in New Orleans since Katrina. Crawford Electric Supply's new branch in Metairie, La. has almost doubled its sales in just its second year of business, says Parker Stewart. “We anticipate on growing another 60 percent in 2010 with our expansion into the industrial and residential markets,” he says.

Other electrical distributors have had similar experiences. “The suburbs are growing,” says Kerek of Summit Electric Supply. “There is still not a determination by government as to what downtown will be. This has caused a slowing of building. Many zoning changes are happening and building requirements have changed to accommodate FEMA. This has caused a slowdown with building, as owners have to review budgets and building expenses.”

The biggest project on the drawing board is a proposed teaching hospital in lower Mid-City, which recently received unanimous approval from the boards of Tulane University and Louisiana State University, clearing a long-standing obstruction in the state's effort to build a replacement for Charity Hospital in New Orleans. Scheduled to open in 2013, the new hospital would serve as a primary training ground for medical students, post-graduate residents and other medical professionals from LSU, Tulane and other schools in the state. The hospital contract is supposed to be awarded soon and is expected to be a major stimulus to the area's economy.

Another big project is the renovation of the Dominion Towers by Tom Benson, owner of the National Football League's New Orleans Saints. The Times Picayune recently reported that Louisiana's State Bond Commission gave its blessing in September to the issuance of as much as $60 million in bonds to the Benson family to purchase, finance, and renovate this building, which is next to the Superdome. The article said the project is expected to create about 1,000 temporary construction jobs, 550 permanent jobs and retain another 1,850 jobs.

Tragedy Brings Change

Drawing on the lessons of Katrina, electrical distributors and reps say the region is better prepared to handle another storm. “The U.S. Army Corps of Engineers is slowly making its way through the bureaucracy and taking on numerous coastal restoration and levee projects to make the region better able to handle storms in the long haul,” says Corales of Nu-Lite Electrical Wholesalers. “For the short term, the main drainage canals (the type that failed during Katrina) that run into New Orleans from Lake Pontchartrain have had gates constructed where they enter the lake. If these operate as designed, the city should not fill up again in the future as it did after Katrina. We learned a lot from our experience with Katrina. Since the storm, we are conducting business as we did before. However, we now have a comprehensive plan in place for disaster readiness, responses and recovery.”

Other electrical distributors and reps in the region also are confident they are better prepared for another storm. “We have made a number of different preparations,” says CESCO's Parker Stewart. “We have purchased a generator that will allow us to operate if we lose power. This is critical since we are the number-one supplier to a number of hospitals and other government agencies. We have passes to get back into the city in case we have to evacuate. We also have a call list for all employees to contact us in case they have to evacuate.”

Scott Armstrong believes the only fool-proof way of finding out if New Orleans is ready for another storm is to have another storm. “We cross our fingers and hold our breath during hurricane season, hoping that we don't have that test,” he says.

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