Return to Virginia Business - June 2004

When Hurricane Isabel roared into Hatteras last fall, Jeff Oden had to make a daring rescue. His 30-year-old daughter, Marci, was trapped in the attic of the family’s business, the Sea Gull Motel. Oden fought through high winds and chest-deep water to save her. “We were sure she was gone,” says Oden’s wife, Katie.

Oden and his daughter escaped, but their oceanfront 45-room motel — which had been in the family for 50 years — didn’t survive. The main building landed on top of the pool, while other units were swept across the street. Hatteras Island took the brunt of the storm’s fury: of the 4,894 buildings on the Outer Banks damaged by Isabel, nearly a quarter was in Hatteras.

Today, though, the Odens are rebuilding. Doing so, they realize, means swimming against the tide. For years the mom-and-pop motels and beach cottages all along the Outer Banks have been disappearing, replaced by huge beach houses used for summer rentals. Oceanfront lots on Hatteras can be sold for as much as $750,000, but the Odens resisted temptation. “We made the right decision for us,” Katie Oden says. “But we could have made more money if we bulldozed everything.”

In a way Isabel’s damage just gave the already-shifting market a big shove. The economy of the Outer Banks, almost wholly dependent on the money tourists bring in, is in the midst of a significant change. Beach house rentals are the hot real estate trend, driven by a growing tourism trade, and there is an emerging luxury-home market. While the changes bring new investment, they are hurting other long-time businesses that depend on motel and hotel guests. In 1997, there were 4,800 motel and hotel rooms in the Outer Banks. Today there are about 2,700. “That loss wasn’t due to Isabel,” says Carolyn McCormick, managing director of the Outer Banks Visitors Bureau. “It’s been going on for several years. Mom and Pop are selling out and the homes are coming in… land values are going up and the economy is staying strong.”

Hatteras Village, for example, had about 436 motel rooms before the storm. Today, about 148 remain. While some are expected to reopen, for many owners it makes no sense to rebuild, given the accelerating prices of real estate. “At a minimum, the storm reshaped the character of the village,” says longtime resident and real estate broker Tim Midgett. “Hatteras has been forever altered… It will have a whole different flavor.”

The loss of motel clientele has a ripple effect. “Statistics have proven, mom and pop and the kids and the in-laws rent one of those big houses for a week, and they’re less likely to go out dining and shopping. They’ve spent all the money on the house,” says Midgett. “There’s a hue and cry from retail and restaurants. They’re suffering. Occupancy numbers are up. Retail is down. One of these big beach houses has game rooms, pools, the beach. There’s a lot less reason to leave. To go to a restaurant, the party size is unwieldy. Grocery stores are doing great.”

So is tourism, as the Outer Banks gains a reputation as a premier vacation destination. In 1993, an estimated 100,000 tourists visited Dare County every week in high season. Last year, the county tallied 5 million visitors who spent about $600 million. In 2000, visitors spent more than $138 million on beach house rentals and by last year that total had climbed to nearly $188 million, or 31 percent of the total spent. What’s more, the visitors have money to spend. The average annual household income of visitor’s is $89,000.

The boom in tourism means national chains are trying to elbow out the local businesses in the more densely populated areas such as Nags Head and Kill Devil Hills. Who could have imagined a Hooters or Outback Steakhouse in the rustic Outer Banks known for its local fresh-fish eateries? Kill Devil Hills now has three chain pharmacies. A Mattress Discounters opened there in April.
“One of the things we’re battling,” McCormick says of the 160 local restaurants, “is sustaining what makes us great. We can’t keep commerce out and chain restaurants and show we’re strong economically. But that also affects our locally independently owned restaurants that are one of our top attractions.”

Meanwhile, more people are choosing to become permanent residents, with population growing at twice the rate of the rest of North Carolina. In 1990, 22,746 people lived in Dare County. Last year, the population hit 32,754 and is expected to exceed 36,000 by 2008.

Tom Hranicka, sales manager of Outer Beaches Realty, says government must put limits on growth. “We’re going to kill the goose that laid the golden egg. Nags Head, Kill Devil Hills and Kitty Hawk, they’ve already gone the way of Virginia Beach. If we’ve got six-lane highways and discount chains on every corner, they’re synonymous with life on the outside, not life on the unspoiled Outer Banks. People are sacrificing the quality of life, emphasizing short-term profit. That’s the mentality.”

Still, past leadership had the foresight to set aside large areas of land for preservation, says David Edgell, head of East Carolina University’s Center for Tourism. Sanctuaries provide a solid foundation for sustaining the region’s beauty, like the Pea Island National Wildlife Refuge, Jockey’s Ridge State Park, the Nags Head Woods Nature Preserve and the Cape Hatteras National Seashore with 31,263 acres of unspoiled terrain. “I’m very upbeat about the future,” Edgell says. Still, with all the building, “literally, it will be hard to walk to the beach,” Edgell says. The Outer Banks is reaching “a carrying capacity “where it can’t handle all the visitors in a quality way because there are simply “too many people in too small an area.”

Controlling growth is a challenge because there are three counties and multiple city governments. “We have different elected bodies,” McCormick says. “Each have different thoughts and opinions about how they want their towns to look. What I don’t want to see happen is massive suburban sprawl...We don’t want to take paradise and put up a parking lot.”

Hampering growth, though, is the challenge of finding workers and affordable places for them to stay. Tourists sustain 15,000 full-time year-round jobs and create an additional 10,000 seasonal jobs. During the summer unemployment rates drop below 2 percent.

But few of these seasonal workers make enough to buy a house. Workers earning the median income in Dare County of $56,000 could afford to buy a $170,000 house but “there are none at that price,” says Chuck Poe, of the Outer Banks Community Development Corporation, a nonprofit committed to affordable housing. In Dare County, the average cost of a new house rose from $112,095 in 1991 to $266,673 in 2002. Even empty lots are pricey. Between 1999 to 2003, the median cost of a residential lot rose 176 percent, from $50,000 to $138,000.

Instead of more affordable housing, there’s an emerging market for luxury homes. On Hatteras Island the average price for a house has climbed from about $200,000 in 2000 to $465,000 last year. By 1999, the million-dollar mark was crossed, and this year there are houses on the market for as much as $3 million. An example of one upscale offering: Summer Days. Five-level semi-oceanfront in Salvo. Panoramic view of ocean and sound. Six bedrooms, multiple decks, hot tub and heated pool, private boardwalk. Price: $857,500.

That is a far cry from what longtime residents remember about the Outer Banks. Hatteras Village used to pride itself on its cozy, affordable rooms. This summer, with limited supply, room rates will invariably escalate. Even the Odens can only do so much to buck the trends.

“I’m sure everybody thinks we’re crazy,” Katie Oden says. “They say, ‘The island’s too far gone to ever be like it was, so why not get your piece of the pie?’ Used to be there were no phones, no credit cards, people came for the simple life, the pristine beaches and the charm of the village… Now they want hot tubs.”

Return to Virginia Business - June 2004