Commercial Property Owners Face Decisions About Costs, Timing of Rebuilding
Article By: CoStar
California officials are carefully scrutinizing wildfire mitigation plans by utilities and other businesses as preparations get underway for this year’s fire season, which begins this month, following last fall’s devastating wildfires that killed nearly 90 people and caused about $18 billion in damage to more than 19,000 structures including hundreds of commercial properties.
A California state agency concluded electric transmission lines owned by Pacific Gas & Electric, which serves thousands of commercial utility customers in Northern California, were responsible for the state's deadliest fire in history, last year's Camp Fire in Northern California. The utility company told California regulators that it could spend as much as $2.3 billion this year for mitigation moves including selective blackouts, tree clearings and other actions, though some critics have said those moves are insufficient, especially in remote rural areas that are prone to wildfires but are being increasingly developed.
Because malfunctioning utility products are known to spark fires, Southern California’s San Diego Gas & Electric, owned by Sempra Energy, earlier this year announced preventive measures including "fire hardening" projects, such as upgrading wood utility poles to fire resistant steel poles; aggressively managing vegetation around poles and lines; and contracting with private firms for full-year use of a firefighting "helitanker" able to drop 2,650 gallons of water at once, to be made available to firefighting agencies in San Diego and Orange Counties.
But even as insurance claims are filed, federal aid is approved and rebuilding goes on, full recovery is likely to remain slow for commercial and residential property owners impacted by Camp Fire in Northern California and Woolsey fire in Southern California, that took out 1,600 structures and much of Los Angeles' hillside that includes Malibu. Los Angles County has sued Southern California Edison, a unit of utility provider Edison International, over the costs of fighting the Woolsey fire but the investigation into the cause of that fire remains under investigation.
Michael Tachovsky, a real estate damage consultant with Landmark Research in Dana Point, California, told CoStar News that complete recovery from such events can typically take up to three years, and in reality most communities experiencing major wildfires have historically achieved around 30% recovery in that span.
Towns like the devastated Butte County's Paradise, which was almost completely destroyed by the Camp Fire, saw commercial properties like drugstores and coffee shops survive the fires, but that was not the case for many businesses like auto dealerships and gas stations. In addition to rising costs for stretched supplies of materials and labor needed for rebuilding in these areas, commercial owners face the question of when to rebuild, especially if many of their local customers and employees remain homeless or otherwise displaced.
"If you’re a business and your customers might not be fully recovered for a while, you also have to decide when it’s really the best time to reopen yourself," Tachovsky said. He added businesses that find temporary quarters after fires can create heightened demand for an existing supply of space that can remain constrained for some time.
On a national basis, wildfires account for a relatively minor portion of fires impacting commercial properties. For instance, the National Fire Protection Association reported in 2013 that cooking equipment accounted for the bulk (29%) of office property fires in the U.S. between 2007 and 2011, followed by malfunctioning electrical distribution and lighting equipment (12%), with wildfires not among the top seven causes.
However, amid the state’s continued shortage of available housing that is affordable to most residents, many communities throughout California are debating development of large new residential projects – which often contain retail and other supportive commercial elements – in rural areas prone to high risk for wildfires. Utility companies serving these communities have also come under pressure to take more extensive preventive measures in avoiding wildfires.
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