Not surprisingly, headlines like “The Worst Oil Spill in U.S. History” and “Sunbathers in Gas Masks” are doing substantial damage to the balance sheets of tourism dependent oceanfront resorts and small business real estate investors in the Gulf Coast.

As one oceanfront real estate developer states:

There is no real estate on the beach trading right now. There have been a few sales that have fallen through. I think it’s just human nature. If they [potential buyers] are under contract to buy a condo and there is a scare like this, that they’re going to put the brakes on and wait to see what happens.

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A quick financial breakdown: don’t expect for real estate values or occupancy rates in the Gulf Coast region to rise, or even stabilize, anytime soon.

In fact, it’s entirely plausible to suggest that a substantial number of real estate investors and developers could be hit fairly hard by the BP oil spill since a lack of tourists spending consumer dollars will ostensibly cause a short term cash flow crunch.

As any seasoned real estate investor knows very well, cash flow is king, so when you account for even a small loss of peak season rental income, and the fact that many REIs prefer to use leverage (e.g. obtain a mortgage on the property and use property as collateral) rather than use their own capital, you’ve got the recipe ingredients for a new wave of short sales/foreclosures in the Gulf Coast states. And perhaps even more disheartening is that these events could lead to a continued decline in the value of Gulf Coast real estate due to a fewer number of buyers wanting to buy oil spill affected real estate.

Of course, this is only forward thinking speculation and beaches can (theoretically) be cleaned up as good as new, but being that BP has stated the earliest the oil spill could be resolved is August 2010 after drilling relief wells, it’s plausible to suggest that the majority of peak season rental income could be lost. Which means that currently engaged real estate investors and oceanfront property owners without sufficient liquidity, and who can’t minimize vacancy rates, could be in for a stressful, and lonely, ride for the summer of 2010.

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