Funds Flow in LA Wildfire Zones, but Will It Be Enough?

Carolwood Estates agent Nichole Shanfeld’s sister lost her homes in the Pacific Palisades and Malibu during January’s fires.

Insurance will come up short for the property in Malibu — which saw about one-third of the city destroyed from the flames — when it comes to rebuilding the 100-year-old beach shack she once had. Shanfeld estimates it’ll be enough to cover installation of the caissons, the steel and concrete structures that support structures built on, for example, sand.

“A lot of these homes on the water were not up to code and were just grandfathered in,” Shanfeld said of coastal properties impacted by the fires. “The code now to rebuild is so much more expensive and detailed.”

While insurance claims money is flowing to those impacted by the Eaton and Palisades fires, the answer of whether homeowners are getting enough to rebuild is nuanced. That’s because costs hinge on a variety of factors ranging from whether the land is part of California Coastal Commission territory to what some might call the luxury of deciding whether a homeowner wants to replace a Sub-Zero fridge with something fancier.

Los Angeles’ residential markets across the Palisades, Altadena and Malibu will be tested as agents and developers try to move in lockstep with clients as they move from rental costs to rebuild budgets. Looming large is the question of financing the massive rebuild, which weather service AccuWeather estimated in January would cost between $250 billion and $275 billion.

Shanfeld described instances of clients whose insurance is covering the costs necessary for rebuilding with anything extra coming out of pocket. In another case she pointed to clients with a $10 million home, who put in $1 million of upgrades preost-fires, only to now find they’ll get around $2 million from their insurance.

“A lot of people never thought this would happen, so it ranges, but most of the people I’m working with right now will use the money they’re getting from insurance to rebuild,” she said.

Some homeowners are just beginning to get a sense of what the costs may look like, but it’s early days.

“They are starting to meet with architects, starting to meet with engineers and go through the process of deciding whether it makes sense to rebuild,” Amalfi Estates owner Anthony Marguleas said of what he’s seeing.

Cash is king

Those with cash are in the catbird seat and can bypass the losses that come with borrowing at high interest rates, Revel Real Estate’s Ben Bacal said.

“The problem is your note [on a property],” Bacal said. “If I’ve got to get a new construction loan, [loan-to-value] is different and the cost to build is higher today than it was 10, 20 years ago or even five years ago. So now my mortgage payment is double or triple and I’m not even living in my house. The state needs to look at that. You’ve got to bring down the basis of the land.”

Bacal was one of nearly 50 agents who signed a letter addressed to California Gov. Gavin Newsom and Los Angeles city Mayor Karen Bass pointing to building code and regulatory changes that could expedite rebuilding. The group also pledged to not help landlords who were inflating rents.

On that last point, government leaders may want to take into account other potential inflationary setbacks, Bacal said.

“If [homeowners] need to get their own loan and a construction loan, you’re turning all these owner-users into developers and they’re not developers,” he said. “If they’re not developers, they’re also paying through the nose for development costs. Talk about price gouging.”

Bacal suggested there be a price gouging task force to vet and create an approved vendors list for base costs such as lumber, framing, mechanical engineering, plumbing and electric to help homeowners unfamiliar with building.

Ticking clock

Ramtin Ray Nosrati is a long-time developer in the Pacific Palisades who cut his teeth in Inland Empire residential with builders such as KB Home and Greystar. Twenty years ago, he segued into the high-end residential space, opening Huntington Estate Properties in the Palisades.

His background with mega homebuilders adept at building housing tracts may now come in handy as neighborhoods pick up the pieces.

Huntington Estate has developed nearly 30 homes in the Palisades over the years. Nineteen of those homes burned to the ground in the Palisades Fire.

Nosrati is now advising his clients that rebuilding makes more sense financially than selling an empty lot.

Huntington Estate put together a joint venture program to fund rebuilding in which the JV will handle permitting, design, building, finishing and marketing. The funding, Nosrati said, is coming from a private equity fund.

He estimated his company has spoken with 25 to 30 owners about the JV. That’s about the maximum he can take on as he now closesphases out the financing program to additional homeowners.

The developer knows his limits. He’s already in the midst of building a couple of homes in Los Angeles’ Beverly Hills Post Office neighborhood. He understands the delays coming from everything like waiting for feedback on development plans and time spent standing by for a utilities inspection.

Many city services, already strained pre-fires, are now being diverted to the Palisades causing further delays for anything from permits to power in other Los Angeles neighborhoods, Nosrati pointed out.

“The most difficult part is the many different departments you have to go and deal with,” he said.

It’s a long-standing complaint from developers that’s only gotten worse over time. Like some, Nosrati doesn’t have much faith in the efficiency of the permitting and building approvals process for when homeowners are ready to actually begin turning dirt.

“Whoever is running this show,” Nosrati said, “they need to come up with a different plan because it’s not working.”