Friday, July 3, 2009
Chinese Drywall Impact 'Huge' On Florida Valuations
Eight months ago, hardly anyone knew or cared about Chinese drywall. And eight months later, the full impact of this imported building material that has been blamed for metal corrosion, electrical mishaps and health problems is still unknown.
Most agree, however, that Chinese drywall will have a huge negative impact on South Florida's already troubled real estate market and any home built with significant amounts of it may be worthless.
"It's a huge problem," said Randall Jimenez, owner of Under Pressure Home Services, a Fort Lauderdale company that cleans up and manages foreclosed homes for banks. "No one has real answers to this problem and no one wants to say anything yet."
The true number of homes constructed with Chinese drywall remains uncertain but estimates suggest that between 35,000 and 100,000 homes and commercial properties across the United States, Canada and the Bahamas were made from this material.
The adverse affects of Chinese drywall was first discovered in homes located within the Sunshine State in January 2009. Colson Hicks Eidson attorney Elvin Gonzalez, who has been representing hundreds of clients with drywall problems, suspects there may be 35,000 homes infected in Florida alone with large pockets in Miami-Dade, Broward and Palm Beach counties.
"Broward is very, very hard hit," Gonzalez said.
But Michael Y. Cannon, executive director of Integra Realty Resources-Miami, said it is irresponsible to say which areas have high concentrations of Chinese drywall infected residences. "
You have to go property by property," he said. Even in neighborhoods with identical houses constructed by the same builder, its been found that one house used American drywall material, while another used a more noxious imported material. "Some of them may have used a mixture, we just don't know," he said. "I don't think the homebuilder knows. Right now we are in the finding stage."
And while most of the buildings found with Chinese drywall are single-family homes, the material has been found in office buildings, retail centers and even condominiums.
Chinese drywall is believed to have been imported in the United States since 2000. When a building boom and a busy hurricane season caused a domestic drywall shortage between 2004 and 2008, Chinese drywall was imported into this country in greater quantities. Much of the Chinese drywall was also used to rebuild Louisiana homes damaged by Hurricane Rita and Chinese drywall has been discovered in Virginia, Alabama, Mississippi and California.
Domestic drywall is typically made from gypsum material obtained from mines and queries and is "chemically composed of calcium sulfate dehydrate, a fairly innocuous material," according to a May 4 article in Chemical and Engineering News (C&EN).
What makes up Chinese drywall is still a mystery; however, that material emits sulfurous gases like hydrogen sulfide, carbon disulfide and carbonyl sulfide. Those gasses, which has been described as smelling like rotten eggs, corrodes air handling units, electronics, appliances, jewelry and perhaps even people.
"Many homeowners have reported nosebleeds, sinus problems and respiratory infections," according to the C&EN article.
Chinese drywall also spews out more of these gasses in humid conditions, hence its early discovery in Florida.
Making matters more chaotic is that not all Chinese drywall was labeled as such, Jimenez said.
"It takes a trained eye" to spot Chinese drywall, Jimenez said.
Some U.S. distributors even placed their own label on imported drywall they purchased.
And once the drywall is in a home ejecting sulfur gas, it is hard to get rid of the problem.
"Some homes need to be completely torn down," he said. "Everything is porous. ... You have to take out the wood."
The electrical systems also will have to be replaced as well.
That makes calculating the value of a home made with Chinese drywall challenging, Cannon said.
"It creates an interesting appraisal problem," he said. "Obviously the home is inhabitable," Cannon said.
One method used to valuate real estate with Chinese drywall is the "cost to cure" approach.
"What is the extent cost to cure the problem?" Cannon asked. "How contaminated is the house?"
Jimenez said homes once marketed as luxury residences were placed on the market for as low as $60,000.
And as for bank owned properties found with Chinese drywall?
"Then all the house is worth is the dirt," Jimenez said.
"Right now the value is zero. Nobody wants to buy homes [found with Chinese drywall]," Gonzalez said. "Who wants to buy a home that will destroy wiring and [cause] sickness? This is going to be the largest construction related defectation in history."
When asked how much Chinese drywall will cost the U.S. economy, Gonzalez replied, "it is going to be in the billions."
Cannon insisted that the jury is still out on how harmful or widespread Chinese drywall is, but agreed this could not have come at a worse time.
"With all the problems we have in this country, it is a shame we have to have another," he said.
Erik Bojnansky is a special correspondent for CondoVultures.com. He is freelance journalist and former Editor of the Miami SunPost.
