USA - Coastal States and the Covid-19 Pandemic
With the COVID-19 body count racking up -- we will surpass the US deaths in the Viet Nam War this coming week --and with all eyes on the reopening day, Dan Martin, host of ASPN's NextGen Waterfronts Podcast, takes a look down the road and what the pandemic means to coastal communities.
COVID-19 will impact economic sectors and assets unique to Coastal states.
These impacts will be further differentiated by new divisions within the United States. Of the fifty states, twenty-three appear to be allied with one of four new regional coalitions that intend to coordinate their post-coronavirus re-opening plans. They are located on the west coast, in the mid-west, in the northeast, and on the southeast. The remaining 27 states appear to be each making their own plans. Seven of these are coastal states including major ones like North Carolina, Louisiana, and Texas.
Although member states will collaborate within their regional coalition, the regional coalitions may take somewhat different paths. But all are likely to force some extraordinary state-to-state, state-to-private industry, and private industry collaboratives. These will be developed on the fly at breakneck speed in the coming months. These may lead to better approaches to public service administration and delivery, healthcare administration and delivery, new forms of acceptable business collaborations, and possibly more climate change coordination when a new normal arrives. New ways of collaboration may develop in the coastal states that are independently taking their own paths too.
The story will be different on each of the four US coastlines: West Coast, Great Lakes, East Coast, and Gulf Coast. Each has a different mix of states amongst regional coalitions and independent states as shown below.
- The 3 states along the West coast are all members of the west coast coalition,
- The 8 Great Lakes coastal states include 6 of the 7 states in the mid-west coalition and 2 northeast coalition member states,
- The 14 states along the East coast include 6 of the 7 northeast coalition member states, 3 of the 7 southeast coalition member states, and 5 independent states,
- The 5 Gulf coast states include 3 of the 7 southeast coalition member states and 2 independent states,
Coastal issues will be critical to all four regional coalitions. The three West coast coalition states comprise the entire West coast. Six of the seven mid-west coalition states are on the Great Lakes. All seven northeast coalition states are on the Great Lakes &/or the East coast. Five of the six southeast coalition states are on the Gulf coast or the East coast.
A majority (28) of the 50 US states are coastal states. This makes coastal issues a key part of the coronavirus recovery. Two of these states (New York and Florida) are on two coasts. Although five states have relatively short coastlines (Illinois, Pennsylvania, New Hampshire, Mississippi, Alabama), all consider that coast an essential part of their state identity. This is especially true in Illinois where as much as 40% of the state’s population gets their drinking water from Lake Michigan. (This is true for some percentage of the population in all of the Great Lakes states.)
States in some of the coalitions may be able offer the better safety assurances than others due to variability in their collective objectives. One seems to just be focusing on re-opening while the others seem to be focusing more on safety. Differentiation can be seen in their plans to keep social distancing policies, accelerate testing programs, and monitor and manage the infected population better.
Nationally, only about 5% of the population has had Covid-19. To get to a theoretical point of herd immunity of 60 to 70% without stressing our healthcare systems or having enough tested to reasonably monitor a population (assuming immunity comes with having had Covid-19) will be challenging.
Even today, in the Eastern coalition states, the percentage of the population tested is three times that of the southeastern states. Nationally only about 1% of the population is tested. Setting up testing at a scale that would enable a useful level of monitoring may take several months maybe up through the early summer months. Coastal destination communities in two to three of the coalitions may not be back in business as coastal destinations until the fall at the earliest. With another wave/relapse of Covid-19 projected by medical experts over the winter, possibly during regular flu season, these programs may need to be run for a year or more. It is not clear when that safe time might come.
Many coastal visitors come from within these coalition regions, but many do not. Testing visitors to the coalition regions will need to be a program within a program as 14-day quarantines upon entering a coalition area (for those that may require it) is simply too unwieldy. Visitors seeking testing will hope that they’re not asymptomatic. If they are, will they be sent back?
Some of the independent states are already opening, much to the consternation of many of their peer states in regional coalitions. Poll after poll in both Red and Blue states suggests that a majority of Americans don’t want states to pull back on social distancing until timing seems safer. At some point there may be a tipping point brought on by impatience with a prolonged shelter in place and or economic distress.
If states in at least some of the regional coalitions can achieve their testing and tracking goals in a few months, they may keep their populations on board with advice from the medical experts. If the predicted second wave hits a coalition that is not focused on safety or an independent state, they may either have to retreat to social distancing measures or forge ahead, threatening a new wave of deaths as acceptable losses. If a state like Florida takes the acceptable losses approach, they may lose their reputation as a retirement hotspot. Of course, it’s not clear who could replace them and this may be less of a concern as the next generation of retirees, Gen X, is relatively small and won’t have the same assets to spend on retirement that Boomers had.
One thread that runs through many of the coastal asset classes is the simple reality that, while many operating asset proformas are seasonal, few have contingency plans for a closure of 4 to 6 months, as may be the case during the COVID-19 pandemic.
Especially problematic for northern coastline assets is that, from Maine to Washington, the currently-threatened summer months are the heart of their revenue-generating seasons. After some good post-recession years, many coastal assets from ports to tourism assets like resorts, attractions, restaurants and other amenities are currently in the midst of expansion programs. In the private sector, many of these expansions have been financed by leveraging the existing property. Even if the expansions open this summer, it’s doubtful that they’ll hit their expected revenues. The result may be that many substantial assets will be at the mercy of their ownership’s broader financial sustainability.
This will certainly be a year when we’ll see who’s covered when the tide goes out.
Another key consideration will be when these assets can re-open, when (if or whether) the crowds will come, and how much promotion/pre-bookings they will be able to line up in advance to prepare stock and staff. Some destinations may be in better shape than others. For example, the rental cycle for the thousands of condos in North Carolina’s Outer Banks began last year. Most of the weeks this summer have already been fully paid. They may be saved if they can reopen later in the summer, but refunds for weeks that can’t be used will be in legal contention – especially as many of the families and groups who reserved weeks have themselves fallen on hard times financially and will really want the money back.
North Carolina’s Outer Banks resident leadership had a bad public relations moment a month ago when roadblocks were set up to keep owners of the more than 16,000 condos there from running off to their beach house to ride out the coronavirus. There also was a similar attempt in some Maine communities. Rhode Island briefly stopped cars from New York heading to summer homes there and on Cape Cod (in Massachusetts) locals there were less than happy to see summertime residents.
Internationally, the Outer Hebrides in Scotland stopped transporting people in ferries/planes unless they could show why it was a truly necessary trip. Locals there (and in many of the US coastal second home areas) are vulnerable with limited medical facilities and personnel, putting tremendous stress on a medical system that cannot handle the additional COVID-19 patients. Evacuations in the Outer Hebrides are weather and tide dependent, and you'll need to get to the island where one can land.
Whether good or bad public health policy-in Maine, Rhode Island for North Carolina, denying people the use of their owned property wasn’t a good look and could impact property values that may already be challenged in some coastal properties due to climate change. It may also mean less local spending by second home households when they visit (likely won’t impact the less tuned-in condo and house renters).
Nationally, tens of thousands of people have fled cities to their second homes and condos during the crisis without any or minimal local intervention in the Pacific northwest and on all five of the Great Lakes across the Midwest into the northeast. Local spending by these snowbirds has been a financial windfall for these communities whose normal tourism season is threatened.
On the following table there’s a breakdown by state for many types of coastal assets. A discussion of each asset class follows.
The Coastal Assets
Significant Natural Habitat
Just about every coastal state has more than one significant coastal habitat. Most are interpreted with visitor facilities and offered as part of the local tourism package. Ownership/management varies but is typically one of three types: federal, state, or a regional/national land conservation org.
When planning re-openings, state facilities will generally be treated similarly to the state’s other parks. Since they’re generally seen as places where visitors can easily abide by social distancing, this has been an easy yes for governors in several of the independent states. Texas State Parks, for example, re-opened this week. Federal facilities owned by the Departments of the Interior or Agriculture, will re-open and be staffed as determined by their national agencies. They won’t all open or close at the same time. In the independent states, state governors may request their re-opening sooner rather than later. For states in a coalition, the decision will likely be deferential to state governments and re-open with that state’s parks. Social distancing at some properties is easier than others. For example, trails that require returning on the same trail would require people passing one another – something artfully done these days. Closing off parts of parking lots are a proposed way of limiting people on a site. Having good on-site management may prove critical.
Privately-owned conservation lands may open with a state’s parks, but in independent states, they may open later if the owning organization is more disposed to align with a more cautious coalition approach.
If anything, these natural habitats will have improved during the Covid-19 crisis – although they may need be tended for invasive species. The media is replete with stories of nature taking over with the absence of our human species from goats roaming picturesque hamlets in Wales to Mountain lions lounging in trees over houses in Boulder to clear skies over Beijing and LA. While leaving them alone can improve these habitats, neglect of the facilities for humans can lead to deterioration. This may need to be addressed to make/keep them appealing when tourism returns to an area.
Ship Building – 21 of the 28 Coastal states have some level of a ship building industry. With some declines in shipping likely, the facilities may be slow to re-open completely, especially if focused on the passenger cruise ship trade which is an industry likely to downsize, at least in the short term.
A likely slowdown in orders for new ships may put the focus on facilities known for repair, maintenance and overhaul. Ship owners will want to stretch the useful life of ships they own. It’s similar to how the used car and auto repair businesses prospers during recessions.
On a state-by-state basis, the activity can be more important to some states more than others. While there are fewer than ten truly major shipbuilding communities, some smaller states with small shipbuilding operations may value them more. They may have short coasts and small ship building operations but small state operations can be more significant to their economies than a large operation is to a large state. Larger states have more diverse economies and shipbuilding is not likely to be a top industry and thus be less protected.
The result is that there will be states who will give more support to the return of their shipbuilding operations, regardless of demand. As there has been a consolidation in the industry over the last decades, resulting in companies owning operations in multiple states, those companies may play states against each other for tax and employment benefits.
International Shipping – A slowdown is expected until we’re out of the recession. Ports simply won’t be as busy. This is a good time to make improvements that might be funded with long-term financing as it’s likely shipping will come back to recent levels at some point in the next few years. The largest US ports include those principally on the Gulf Coast with several in California and the on the east coast. These include Houston, New Orleans/South Louisiana, New York/New Jersey, Beaumont, Long Beach Hampton Roads, Baton Rouge, St Charles, Los Angeles, Port Arthur, Corpus Christi, Mobile, Baltimore, Duluth and Superior, St Louis and East St Louis. Houston has been impacted by a roiling petrochemical industry.
Cruise Ships – The path of this industry is difficult to predict at this point. The cruise companies, all fairly leveraged, have lost reputation, revenue and their stock prices have tanked, reducing their ability to borrow. Carnival recently had an infusion of capital by selling shares at $8.
The ones that will make a comeback are those with sharp marketing that responds to people’s issues and/or companies able to ride through this storm and makes cruises especially alluring again. The cruise market includes many repeat users. Good deals will help draw these regulars back as will vouchers that many cruise companies have distributed in the last month. In a show of faith, many people who were leaving on cruises in the near term took vouchers for future trips instead of refunds.
From the port perspective, there are about a dozen cruise ship ports in the US, with a few really strong ones that were expanding. Florida has the top ones. Miami and Port Canaveral were the top two, each welcoming over 4 million passengers a year. Port Everglades, Ft. Lauderdale, is third with close to 4 million. Weighting in between 1.5 and 2 million are Galveston, St. Thomas/St John, and New York/New Jersey. New Orleans, Juneau, Tampa, and Seattle are all around a million passengers a year. Rounding out the list are LA and Palm Beach round out the major US ports with 400,000 to 600,000 passengers a year.
For most cruise companies, only a few, like Disney have related tourism businesses. Disney is in a special position. They may find ways to use their mass of leisure assets to bundle deals for cruise buyers or use a cruise as the bonus for other experience purchases. Outside of their media properties (ABC, cable networks, and Disney+ streaming), all of their properties are beleaguered and will need to reboot.
Some cruise companies may jockey to get some local or state economic development money in support but, with every industry underwater and all of these companies foreign-owned and staffed with mostly foreign workers, they will look appealing to local areas only if they promote their value to local tourist community economic impacts – hotel and restaurants industries and others.
Unfortunately, like casinos, the cruise business model has been to try and capture every dollar spent in the tent and may not have good local tourism industry connections or as much local appreciation as they might really deserve.
Coastal Tourism Assets
Resorts – At least 26 of the 28 states have resorts making this asset category widespread along coastal states. The more fortunate resorts are in drive-to locations. Catching a plane to a destination is complicated with travel passage issues that drive-to destinations do not involve. Most drive-to resorts are in the northeast, the Pacific northwest and Midwest with few open at this time as we aren’t in the summer season yet. The opening and investment issues for resorts are generally addressed above.
Florida and many southeastern resorts operate year-round, though seasonally at lower levels. They have had to close in response to the virus.
The magnet attractions elements that draw visitors to a resort matter. Beach, resort pool, golf, boating and other activities have varying degrees of perceived safety in the COVID-19 era. Treated pool water reportedly kills this coronavirus, but railings and pool furniture will likely be assigned and cleaned frequently. Golf courses themselves may be okay, but digital reservations and transactions, 15-minute tee times, and one person per cart (if not walking) will become the new norm. Beaches are perceived of as self-cleaning due to tidal activity and the sun as a disinfectant but social distancing will be critical. Boats will need to be cleaned between users and commercial fishing trips will be very complicated. This week, governors in Illinois and Michigan said they will allow motorized boating and golfing (without golf carts).
Second Homes – For many, getting to their second home in a few hours will be easy if they can drive to it, not so easy if you can’t. In fact, many people, especially in the mid-west and the northeast, are hiding-out in their second home during the COVID-19 crisis. But those who own the tens of thousands of homes along the southeast or Gulf coast, will either fly or make the drive this year or skip going. Lower levels of seasonal residents will inevitably impact local restaurants, shops and grocers in many destination communities which depend on their spending.
VRBO/AirBnB – If you depend on these groups to help fund your second home (or in many cases multiple investment properties), this may be a challenging year as the rental services re-boot with stronger cleaning and other management controls but smaller cash-flows (likely discounted rental rates) in fly-to locations and likely lower occupancy. The services may take this opportunity to cull their inventory to keep the properties that are most profitable for them.
National Park Properties – Almost two dozen National Park properties dot the US coastline from Olympic National Park in Washington State to Redwood, Muir Woods and others in California to the Apostle Islands in Wisconsin, Indiana Dunes National Park, Sleeping Bear Dunes National Lakeshore in Michigan, Acadia in Maine, the Dry Tortugas in Florida and National seashores in California, Massachusetts, New York, Maryland, Virginia, North Carolina, Georgia, Florida, Mississippi, and Texas. Technically, the national seashores and lakeshores (in the Great Lakes) are not National Parks, but for coastal tourists, they’re made for pristine complete coastal living experience.
All are now closed and, like the natural areas discussed above, they are federal facilities owned by the US Department of the Interior. It is likely that they will be allowed to reopen and be staffed as determined by their national agencies. They won’t all open or close at the same time and likely only with consultation with that state’s governor. Independent and southeastern coalition state governors are likely to seek to have their National Park properties open first. Ones in the states in the other three coalitions may stay closed for longer. Most have beaches and most have high capacity beaches. We expect that there will be National Park Service guidance on the safe use of those beaches.
Beaches – Beaches in South Carolina and Florida opened last weekend. As noted, in the resort comments, beaches can be seen as self-cleaning to some extent. The catch is that they’re also generally self-policing and they can draw playful rambunctious people, who may not be as careful as needed for people in the at-risk categories for COVID-19. As a result, beaches that are managed are likely to be more appealing. Recent video of behavior on beaches may keep many states holding back on opening their beaches, or at least delaying opening until they can be well-managed.
Destination Communities – Similar to resorts, destination communities in the northeast, Mid-Atlantic, Midwest and west are close to many of their markets and can be driven to. This could be true for some southeastern destination communities if they refocus their marketing on cities in the southeast and for Florida destinations if they refocus on Florida’s cities. What’s likely is that these drive-to destination communities may be more day-visitor trips to the beach or waterfront this year than in the past. This likelihood is a disadvantage to the destination communities to far to be day trips north along the Maine coast and the far northern ones in Wisconsin and Michigan. In the Midwest it is challenging to get back and forth to those communities in a day from the Detroit, Grand Rapids, Chicago, Milwaukee or Madison metros.
Many destination communities between the metro areas on the west coast will be in a similar situation – just too far to be a day trip.
Helping drive this trend will be lower gas prices which are expected to extend at least a year (possibly derailing some electric vehicle launches). Another driver will be our likely reduced incomes. The cost of overnight lodging is often the highest cost of a weekend or weeklong trip.
Regarding consequences, fewer overnights means that lower room tax revenues and summer jobs for coastal areas will impact these communities. The jobs pinch will be felt as much overseas as in the US. Special summer work visas have kept many workers from countries in Eastern Europe and other places returning to the US coast to work in hotels and other businesses for relatively low wages year after year (these workers staff theme parks and other attractions as well). Fewer will be back this year due to concern with the virus and possible restrictions placed on their visas - it won’t be none, because they will likely still remain cheaper to employ than Americans.
There may also be a shifting of the seasons. September has been rising as a vacation month in many markets. In fact, resort tax revenues in the Outer Banks of NC have been as good in September as any typical summer month. This year, many coastal destinations may re-market themselves as September/October destinations – and hope the October weather is good. This is actually possible because 70% of US households today do not include children and teens who, hopefully, will be returning to some form of school in late August/September.
All destination community restaurants and shops will need to make very clear to visitors their safety strategies and operating approaches (maybe timed reservations on a new community app.)
Secondary Tourism Attractions – Secondary tourism attractions in coastal communities are a key part of the attractiveness of a destination community but they do not, individually, draw visitors to a community. These attractions are instead, the places you visit when you’re staying in a tourist community.
The indoor attractions draw especially on rainy days but, for most destination communities, they are a mix of indoor and outdoor experiences. Included on this list of secondary attractions are: dozens of aquariums that dot our coastal communities, many museums – primarily history and art, family entertainment centers (go-carts, mini-golf, arcades etc.), small water and amusement parks, evening concerts, historic sites (like lighthouses), replica ships, entertainment piers, and the parasailing and other adventure sports vendors as well as a variety of others.
Each of these secondary attractions will fare differently by type, quality, cost and how they fit in the mix of offerings. Not all of these secondary locations will do poorly this summer, but many will.
When people come to town, especially on day trips, most older visitors will play it safe. They’ll walk the beach, walk the town and maybe have a meal. Depending on the party composition, they may pick one or more of the secondary attractions. Younger visitors will enjoy the fun and games, but not the groups that include more than one person over 55.
If it’s raining, and rain was forecasted, visitors may wait for another day; they’re heading to a destination community to spend time outdoors.
The benefit of fewer vacations will accrue to the metro areas where attractions like zoos and local state parks will market this summer as the year of a staycation.
Destination Attractions - Florida has some fabulous destination attractions including Disney, Universal and Sea World – but none are on the coast. It’s destination attractions on the coast are a fairly short list including the Kennedy Space center, the Florida Keys and cities like Miami and Ft. Lauderdale.
Similarly, New York City is especially chock-full of destinations, but the Statue of Liberty, Ellis Island, Coney Island are among the few destination ones actually located on the water/coast. Upstate, Niagara Falls on the Great Lakes coastline, may top them all.
In San Francisco, there are many coastal attractions on the Bay and of course there are Alcatraz and the Golden Gate Bridge. Nationally-marketed piers from Santa Monica to those located in the Seattle area, to Chicago’s Navy Pier, Mackinac Island in Michigan, most of the Oregon and Washington coastline, the California Coastline (Big Sur and Monterey Bay) are included in this group as well.
All may do well, as soon as, August to October, if the coalition states get their acts together by then. If that does not happen in a timely competent fashion, the ones in metro areas, like those in San Francisco, will rely on staycations by locals. The early summer will be difficult as the western, Great Lakes and eastern coalition states will still be getting their acts together.
Thus the four Ameican coasts, have a near and longer term as uncertain as the rest of the country but just all politics is said to be local, so too coastal areas will have different impacts and experiences. If you live in a major cruise or shipping port, it will be a tougher economic forecast than if you’re a drive-to destination community that doesn’t rely too much on visitors, but on people coming for use their own second homes. Similarly, fly-to tourism driven destinations, say in Florida, will have a tougher time than drive-too destinations like the Jersey Shore will. The difference is that the Jersey shore may take a few more months to open up.
Let us know how you are faring this year, and what works, doesn’t and why. Email Dan.Martin@MFALLC.com. We’ll be back with your stories and a recap in a month.
Dan Martin, Managing Principal
Market & Feasibility Advisors, LLC
One South Dearborn, Suite 2100 Chicago, IL 60603
100 South Congress, Suite 2000 Austin, TX 78701-2745