The Impact of the Southern California Fires on the Real Estate Market

The Palisades, Eaton, and Hurst fires have ravaged the Los Angeles landscape for well over two weeks. Their final toll is yet to be confirmed, but according to most reports, over 40,300 acres and 10,000 structures have been destroyed. It may take months and even years to determine the long-term effects of this catastrophic event.

Immediate Aftermath and Safety Concerns

At the present time, most residents have yet to return to their neighborhoods as safety remains an issue. Some estimates project that clearing all the debris may take six months. This process has been prolonged as homeowners wait to sift through the rubble to find personal items.

Bureaucrats have been moving slowly, and residents are receiving police escorts to mitigate potential looting. Lingering effects may be hazardous residue left, which officials need time to remediate.

Short-Term Effects on Property Values  

The short-term effects of the fire will be felt right away. Damaged homes and neighborhoods will most likely see an immediate decrease in value. This will include neighborhoods where residents were “not” affected by fire damage.

If neighboring homes have been destroyed, the sense of community may be lost, and future buyers may be hesitant to purchase in a severely impacted area. Additionally, there is the perception of risk when will the next fire occur?

Insurance and Opportunistic Buyers

Recently, some insurance carriers stopped offering coverage, and some homeowners who did not have insurance have lost everything. As with all disasters, there will be plenty of opportunists looking to buy land or fire-damaged properties at a distressed price. This is an unfortunate circumstance for current owners.

Moving forward, homeowners in fire-prone areas may face higher insurance premiums. Additionally, mortgage lenders may be hesitant to lend in areas with frequent wildfire risks.

Impact on the Real Estate Market

Rental Market

All sectors of the real estate market have been impacted. The rental market in Los Angeles has recently shown large increases in asking rent. Officials have capped rental increases to 10% of previous asking rent, though news reports have shown some landlords calling for rents at 100% and even 200% of previous asking prices. The hotel market has spiked, with eight of the ten local markets seeing an increased demand for hotel occupancy.

Commercial Property

According to CoStar statistics, the estimates that the perimeter boundaries of the Palisades and Eaton fires contained a combined 4.5 million square feet of commercial property valued at more than $1.9 billion just prior to the disaster. Multifamily properties comprise the largest share of commercial stock. This includes nearly five dozen multifamily properties collateralizing $1.27 billion of CMBS debt.

More than 600,000 square feet of retail space was located within the Palisades fire perimeter. These properties include service-oriented retail such as salons, banks, and restaurants.

Long-Term Impacts and Rebuilding Challenges

It may take years to understand the long-term consequences of the fires. Those home and business owners looking to rebuild may face obstacles. The lack of available contractors may lead to increased construction costs. Coastal regulations and mandates are difficult to maneuver and will take time to resolve. California has strict zoning laws, which may impact new construction.

Will new fire codes restrict different types of construction materials and improvements? Will residents and business owners choose to relocate to urban areas which are less affected by wildfires? Will the potential of future events lead to increased demand in less fire-prone parts of Los Angeles? It may take years to answer these questions.

Disaster Recovery Resources to Help Real Estate Owners in Southern California

If you or someone you know has been affected by the recent Southern California fires, check out our curated resources that include information on advisory, business continuity, grant management, insurance claim assistance, and access to state and federal resources for recovery.