Last month I wrote what I thought was a great recipe for starting the rebuilding of Altadena, and Pacific Palisades.  I suggested state and local officials strike a deal in principle with the locally represented national home builders to develop a pseudo-tract home proposal to expedite rebuilding, leaving plenty of time to work out the details.  Striking that deal would have given those people affected hope, and while this would be just one option, it was a way forward towards rebuilding their lives.  No such deal has been made or announced.  So, what has happened in the past month?

Lots are starting to be cleared.  While a very slow and painful process, it is nonetheless the first step to rebuilding.   Lots have also been put up for sale.  Some have sold, especially in more affordable Altadena where lots are typically selling for $500,000-600,000.  Whether the Altadena families will find a way to retain the character of their community remains to be seen.  As I write this, there are 32 active fire lots, 31 in contract, and 17 have closed.  If you figure total sold and under contract is 48 homes and that’s 2 months activity, you can safely conclude that’s 24 homes sold on average per month and that there is 1.33 months inventory.  A seller’s market by any measure.  That’s good because while 48 is a big number, consider that 5,500 homes burned down and that is not a big number, that is a massive number.  Should every lot sell and no one rebuilds, which we hope doesn’t happen, it would take at present rate 229 months approximately to sell all the lots at current pace.  That’s 19 years.  As staggering as that might sound, Palisades is in far worse shape.

Pacific Palisades was arguably one of the nicest places to live anywhere in the world.  Close to the beach with amazing views.  Close to West Los Angeles, Beverly Hills, Century City and the Studios.  Homes before the fire pretty much started in the $3,000,000’s and went up significantly from there.  Unlike Altadena, The Palisades Fire destroyed critical infrastructure.  The electrical lines melted.  The potable water was compromised.  Nothing survived the heat, I heard even the roots of plants continued to burn long after the main fires were out (Contact Tim here).  So, rebuilding requires intense infrastructure building, before home construction can commence.  That said, lots are being cleared.  Some wealthy property owners are paying for private services to complete this task while most wait for The Army Corp of Engineers and Federal agencies.  A friend of mine told me, “My boyfriend got $4M in insurance money and he’ll sell his lot for $4.5M and he’ll come out whole.”  “Hmmm…” said I.  Now let me preface by saying, I’m fairly certain off market sales are happening that I am not privy to, thus all the data I have is from the Multiple Listing Service but let me share what I see from my seat.

At this moment there are 6 fire lots in escrow and 10 have closed.  Using the same math as before, that’s approximately 16 sold in the past 2 months or 8 selling per month.  But… there are 88 fire lots for sale in Pacific Palisades.  This means there are 11 months of unsold inventory.  Unquestionably a buyer’s market.  Why so different from Altadena?  Price naturally.  Just how many builders are there, that can put $3-4M down on a lot, wait several years to build and sell?  Even though the Palisades is one of the greatest places on earth, it’s too expensive for most people to even participate in this process including many of the property owners themselves.  The magnitude of these fires is truly difficult to comprehend but to try and put it in perspective, looking at Altadena, if every lot came up for sale, at current pace there, there are 29 years’ worth of inventory.  In Palisades, using a similar approximate number of 5,500 homes (I believe it’s actually higher but that may include Malibu), if all the lots had to sell, there is currently 57 years’ worth of inventory.   I know this sounds crazy, but according to County Assessor records of the 488 homes destroyed in Malibu from the Woolsey Fire, just 39% have been rebuilt while 29% or 140 lots have been sold with the balance of roughly 43%, presumably in some process of being sold or rebuilt.  By the way for context, the Woolsey Fire was 7 years ago.  Similarly, 8 years ago in Ventura, the Thomas Fire burned 500 homes and to date 299 have been rebuilt with roughly 20% sold off as vacant lots.  The difference, you guessed it, price… that and the Coastal Commission one would presume.  If the Palisades or Altadena follow these trends, we could expect roughly 1,500 lots to come up for sale, but I believe the base land cost for Pacific Palisades is going to drive that number higher.

So, what do you suppose will happen in either of those community scenarios when just a fraction of those lots come on the market in the same quarter, let alone same month?  What do you think will happen to property prices when that eventuality happens?  I can safely say, prices will come down.  What happens to the people whose value drop below the mortgage?  I’ll tell you, those sellers walk away with their insurance money, which includes a largely by then exhausted housing expense.  That’s right, they walk.  So who takes back the property?  The lien holder.  Now I can’t verify this, but I have heard from more than one source, that hedge fund @Blackrock has been collecting the debt or notes, on land in the Palisades for years and would stand to take back large swaths of Pacific Palisades.   And then who the heck knows what they do with it.  Could be “great” for LA by massively increasing density via cobbling together contiguous lots or they could build large high end subdivisions. Regardless, it will likely change the cityscape of Los Angeles forever.

How this gets prevented of course, is that current property owners need to rebuild, which brings me back to my previous blog.  In that post not only did I encourage the engagement of national home builders in the process, but I said real leadership is essential.  @RickCaruso has been at the forefront of efforts to streamline the permit process.  His @SteadfastLA announced last month a partnership with California based @Samara, a factory built modular home builder.  They’ve pledged to rebuild as a nonprofit in an effort to help those who’ve lost their homes.  While this is a start, I can’t help but wonder what @TheIrvineCompany or @TollBrothers could do if only the Mayor asked.