Commentary –  The Northern California Fires and Real Estate

It has been a very tough week for all of those up in the Napa/Sonoma/Santa Rosa area.  I have been thinking about the area (like most of us) and what the future holds for them.  The article below from Realtor.com also brought up some thoughts along the same line.

Years ago, in 1991, Oakland went through some major fire damage.  I was back in the insurance industry at the time; so, I have that old perspective still fresh in my mind.  The difference this time seems to be the magnitude of the damage and chaos.  So much has been damaged this time around.  And this damage is occurring in a time where the housing available is in short supply.

I was chatting with a State Farm Agent about this; and he felt that the area would be able to be rebuilt in two years or so.  My fear is that it will take much longer.  With one disaster after another, I am concerned that building materials may be in short supply.  I am also concerned that labor will also be overtaxed.

I believe most of the home insurance policies allow for 24 months of expense reimbursement towards loss of the use of one’s home.  After 24 months, the insured is on their own.  There will also be cases where the coverage to replace the structure will be inadequate just due to coverage not being increased enough over time.  The potential for significant out of pocket expenses is quite high.

In addition, the folks displaced need to find somewhere to live while their home is being rebuilt.  Some will move out of the area.  Others will relocate to nearby communities that can handle the influx.  With a limited supply of housing, I believe the greater Sacramento area will receive many of these people.  This in turn will put upward pressure on rents and result in higher values for both residential and multifamily properties.

There will be opportunities for the more aggressive players.  I suspect we will see hedge funds trying to buy up burnt properties at major discounts.  These funds have the ability to wait until the communities come back; and then capitalize on the rebirths so to speak.  I also expect that modular homes will be utilized to speed up building.  There will also be many people (who relied on their relationships in these damaged areas) that will no longer be able to work in their field.  I am thinking about Realtors in this case.

The ripple effects of these fires is only beginning to be looked at.  It will take years until we better understand how all will be affected.  We all know friends or relatives in these areas.  As things calm down, I am hopeful that each of us (in our own way) can provide opportunities or help towards allowing these folks to rebuild their lives.

That is it for this week.  As always, I welcome any of your strategic financing questions.

Articles of Interest:

Forbes reported “Strip Malls: The Least Glamorous Segment In Retail Is Among The Sector’s Strongest Performers.”

The World Property Journal reported “Japanese Outbound Real Estate Investment Spikes 23 Percent in 2017.”

Realtor.com reported “California Wildfires: Housing Markets Will Likely Feel Devastating Effects for Years.”