LA/Palisades Fire Real Expert Panel discuss what's Next for our community

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: LA/Palisades Fire Real Expert Panel discuss what's Next for our community Panelists: Andrew Kirsh — Sklar Kirsh · Robert Rivani — Black Lion · David Berg — Founding Partner, Smith & Berg Partners · Shahrad Nahai — Nahai Insurance Services Host: David Chasin — Pegasus CRE (moderator) Recorded: January 24, 2025 Video: https://www.youtube.com/watch?v=zrEzz9UZdL0 Key topics: Palisades and Malibu rebuild timelines; California FAIR Plan $3 million cap and insolvency risk; Prop 103 and California insurance rate regulation; underinsurance and replacement cost; construction costs of $700 to $900 versus $1,200 to $1,400 a square foot; mass tort litigation, causation and government immunities; the Eaton fire and Southern California Edison transmission lines; HUD rent guidelines and price gouging law; additional living expense coverage at roughly 20% of policy limit; deferred mortgage payments and forbearance agreements; demand spike in Brentwood and Santa Monica 90402; architects, RTI plans, permitting and fast track programs; Steve Soboroff as rebuilding czar; Florida's Citizens Insurance and the National Flood Insurance Program; land trusts, conservancies and city density requirements Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— David Chasin: ...of all, you know, long term, what's going to happen with the Palisades, with Malibu, the directly impacted areas, then let's kind of go into the more outlying areas. This is a real estate focused panel. We'll get into some of the politics, we'll get into some of, sort of, like the insurance side of it, what got us here, how can we kind of prevent things in the future, both on a local and county and state level. Um, but is there any question about what the future of the Palisades is going to look at? What, you know, is it going to come back? Is it going to come back better? Is it going to come back not as good? Like, what? And feel free to pop in, I'm not going to call on you guys, I just want to hear what you guys have [to] say. David Berg [attribution inferred]: Sure, I'll go, I'll go first. Um, you know, it's interesting being on the front lines and talking to families who have lost everything. Um, you know, there seems to be a huge focus on getting back to what people knew. A lot of our clients are thinking about what the steps are that they're going to take in order to rebuild their home. They're thinking about where their temporary space is going to be and the proximity to the Palisades. Um, and on the other side there are people who are thinking about moving and leaving, but I would say the overwhelming majority of people that we're talking to have intentions to return. I think that there's still a lot of questions that need to be answered in terms of what that path looks like, from a political standpoint, from a cleanup standpoint. Um, and certainly, you know, I'm sure those questions are going to be answered in the near future here. Um, but to reiterate, the overwhelming majority of people we're talking to, they plan a return. I mean, this is their home, this is what they know, this is what they love. David Chasin [attribution inferred]: I mean, Andrew, are you gonna go back? Andrew Kirsh: Let me answer it this way. Um, so on that Tuesday night, January 7th, um, we were at the Sofitel hotel. Uh, I was in a room with my 8-year-old son, my wife was in a room with our 10-year-old daughter, and throughout the night I could not sleep, seeing images, coming to the realization that our community was destroyed. And I hadn't cried that much, um, probably in my life. I don't think I cried that much at my grandparents' funeral. And the reason why I was sobbing, and my son would wake up intermittently, said, "Dad, are you okay? Why are you crying?" It was not about the loss of the house, it was not about the loss of my personal possessions, it was the loss of the community. And the Palisades was, and hopefully will be, just that special, special community where it's hard to find in Los Angeles. Everyone went to school together, whether it was the community private or community public schools. We all played sports together, PPBA, Palisades Parks and Rec, or basketball, football, uh, dance, theater. It was all done within like a one to two block radius. And it was that community, that bond, that cohesiveness, that that night when I was sobbing I was thinking about my kids, who were 10 and 8, how they got cheated in not being able to have the full Palisades experience for their entire childhood. And we can debate how long it will take to get the Palisades back to what it was the day before the fire. Some say a couple years, some say 5 years, some say 10 years, some say never. But my kids' childhood will likely be gone by, or over, during that period of renovation. And so for the people who I'm, and just, I conclude, so I don't, uh... David Chasin: No, I have, I actually have a question about what you were saying, but please, please conclude. Andrew Kirsh: And so the decision for me and my family is, we want to have, we want to have uh our kids experience what the Palisades offered. Can we do that here? Can we do that in some neighboring towns? I sure hope so. Um, but I also want to be part of the rebuild process of the Palisades. So how to thread that needle, to allow my kids to be kids, experience that community, and still be part of the rebuild process, is really the challenge that I feel a lot of us in the Palisades are going through. David Chasin: Yeah, so my question was going to be, there's no question you and mostly everyone that lived there wants to return, right? It's really, will you return, right? Because there's want and then there's practicality, right? So I've been telling people that are unfamiliar, like, the Palisades is the least, it's, you don't just end up in the Palisades. Like, it's not convenient, it's not inexpensive. Like, you have to really, really, really want to be in the Palisades, um, to the point where you're somewhat on an island, right? And so there's no question, it's not surprising that everyone I've talked to wants to return. But you have young children, our children are similar in age. Like, practically, maybe you don't know the answer yet, but practically speaking, like, if it's going to take 3 to 5 years for you to rebuild, and then another 3 to 5 years after that for the actual community, for the ballet and dance studios and nail salons and Pearl Dragon to reopen and all these things, right? Um, by that time your children maybe have already crossed the bridge of where that actually matters to them anymore, and they're in high school, and they're sort of, you know, locked in their rooms, and they can be locked in their rooms anywhere on an iPad. So you probably don't know the answers yet, but, you know, I know everyone wants to return, but how many of them do you actually think will return? Andrew Kirsh: It's almost an unanswerable question. A lot of people, and myself included, are Palisades focused, Palisades committed, Palisades strong. But we also have to move on. We can't just live our lives with young kids in a major renovation project. We will all end up somewhere, whether it's a surrounding town of Santa Monica, Brentwood, a little further away of Manhattan Beach, Orange County. Some people have already left to go, if they have a second home they have left. Um, the short answer is I will rebuild, I will return, but I also need to set up home and community right now somewhere else so that my kids and my family can have that same experience. David Chasin: Robert, uh, and Robert and Shahrad, I mean, like, what are the big things on your mind right now? Like, what are the big questions, what are the big, I mean, I know we're angry, I know we're upset, I know we're sad. Like, what are the big things that you guys are thinking about right now? Robert Rivani: Look, I don't want to knock on what was just said, because I think it's wildly important, but to me there's a very big difference between the hope and the desire and the want to do something, and when reality actually sits in. Nobody now has a crystal ball to understand the amount of red tape you're gonna have to go through, whether that's permitting, whether that's going to be uh city mandates, new code upgrades to prevent fires in the future. And the biggest problem that no one's going to see, as probably seen yet, is the cost of construction. I can sit here and tell you how excited I am to build back Malibu and Palisades, but until you get contractors out there where everybody's going to be going after the same subs, the same electrical engineers, the same architects, you may look at the cost at the end of day and say, my, I only got $2 million from insurance but it's costing me $4 million to build. So while I, so... David Chasin: How much, how much was construction to build custom in a market like the Palisades pre-fire, and what do you guys think it's going to be post-fire? Robert Rivani: I think pre-fire you're probably $700 to $800, $900 a foot, depending upon how high end you go. And just because of price gouging and the limited constraint of supply and the amount of demand that's going to be there, you can be well over $1,200, $1,300, $1,400 a foot. Not because the materials cost that much, because people may be desperate to want to get back in a home and are willing to pay whatever it takes. And unfortunately that's America, it's a supply and demand issue. And I think until, let's say you even get over the hurdle where you can figure out the cost and you're able to build because you're flush with cash and insurance, you had a better insurance policy than your neighbor. Well, if you're the only home built on the entire block and 5 other homes are still burned down and those people can't figure out the situation that they need to get through, what kind of community do you actually have left? It has to almost be an all for one or nothing kind of situation, because I can't imagine someone's gonna say, I have a beautiful brand new shining house in the middle of the block and there's devastation all around me. And it's not because those people don't want to build, they may not be able to afford to build, the permitting may take too long. There's so many things that are factors in this that, um, the hope and dream of just saying we want to do it and come back, it sounds great, but there's a lot of problem that people haven't even started to begin understanding what's going to come about this. David Chasin: Yeah, Berg, you were shaking your head up and down like in agreement as far as construction costs are concerned. Shahrad, are people insured for a $1,200, $1,400 a square foot replacement? Shahrad Nahai: No, most, most are not. And if they are, it's those that are insured with the private insurers, the PUREs of the world, the Chubbs of the world. Regrettably, many of the market participants withdrew from the California market preceding, you know, the LA fires. So I'm afraid that we're going to run into, um, many, you know, underinsured, um, situations. Um, many residents, you know, were insured through the California FAIR Plan. I think we all know that policy really caps out at $3 million. Um, if you were to do the math, uh, you know, some of those homes in the Palisades, for instance, many of them are, you know, at, at say, you know, 5,000 square feet. $3 million only gives you about $600 a foot to rebuild, and that doesn't take into account any of the contents, any of the additional living expenses. Um, so my fear is the underinsurance. I will say that I have complete faith in the insurance industry at this time. By that I mean, I don't believe there's going to be any bad actors. Reason being is that there's all eyes on the insurance industry. The last thing they could afford is a PR nightmare, right, when they were already under significant scrutiny. So I will extend the— David Chasin: You're kind of, Robert, you're kind of rolling your eyes. Do you disagree with that? Robert Rivani: Yeah, I mean, look, PR only goes as so far as damages. If you have a $250 billion damage claim that you have to deal with, that's going to make you think twice about what the situation is. I mean, it's a situation never happened before. Where are they going to come up with $250 billion? David Chasin: So, hypothetically, so there's been a lot of talk that the California FAIR Plan has insufficient capital to pay for all these claims. Some are saying that they only have, you know, $350 million, $700 million on hand to pay for billions in losses. And uh, their reinsurance attachment point, right, only kicks in at a billion. Um, so what's going to happen is that there's going to be a government backstop? Shahrad Nahai: There will be, to pay for any unpaid claims, right. Hypothetically speaking, if the FAIR Plan goes insolvent, what's going to happen most likely is that they're going to poll every licensed insurer in the state of California to pick up the balance of the tab. David Chasin: But sure, but that's to make sure that the claims are funded. But what you indicated before is that even if the claims are fully funded, a homeowner will not have sufficient proceeds to rebuild. Shahrad Nahai: Yes. I'm not saying that they're going to provide anything in excess of their responsibility, right. These carriers are not going to pay out more than the limit that's stipulated in the policy. Robert Rivani: But Shahrad, to your point, I'm sorry to interrupt, sure, that if that is the case in the state, which is already a defunct state, that's already losing more money than God at this point, that can barely even afford firefighters, can afford police, they're going to have to raise taxes on every single individual in order to supplement that, and that's something that's going to take a while. So if there's an individual that literally needs the money because they need to pay rent for somewhere else, or they're still paying their mortgage like I am right now on my Malibu home, it puts people in a bind, and there's no absolute guarantee when these payouts are going to happen. So for good or for bad, we cannot hope and pray that A, the insurance companies are going to get their act together, and B, the government, which we already know has their head so far up there you know what, to jump in and be the saving grace in this situation, whenever we've seen that they're willing to cut the fire department budget by $17 million and it's going to cost them billions and billions of dollars now to fix the issue. But they'd rather go fund public libraries and say— Shahrad Nahai: I totally agree. And believe me, I think that there was gross negligence on, on part of our, you know, local politicians here, and there wasn't enough brush clearance, and there were budget cuts and all that. And believe me, there was also gross negligence in, um, in administering the California insurance market. For instance, there is a decades old proposition called Prop 103, and this is what got us here, right. Prop 103 was founded in 1988 and it was pioneered by a consumer advocacy group, and the uh, and the intent was to save consumers money, and the only thing that it did is that it decentralized and it completely destabilized the California insurance market. What I mean is, it prohibits insurance companies from passing on increases in reinsurance expense to their policy holders. Now, does that make sense? Of course it doesn't, when there's wildfire frequency and severity losses. Imagine you're running an insurance company and you can't charge your policy holder the appropriate premium for the risk, and anytime you want to increase your rates you're subjected to an intense regulatory process that stretches out several months to years. And if you even want to increase your rates in excess of 7%, you're subjected to a hearing. So believe me, I completely, completely agree with you. Why is it that California is the only state in the country, right, whose market is really struggling? It has little to do with the catastrophes, believe it or not. It has everything to do with the regulation. Robert Rivani: Well, from what I understand it's regulation, but in addition to that, look, the insurance companies want to stay in markets where they can make money. That's what they're in the business in, making money. And from my understanding, which I can't confirm 100%, was that a lot of these insurance companies gave notices to the local municipalities that weren't doing brush cleanup, that weren't taking preventive measures on an annual basis to not allow these disasters to keep occurring, and saying, guys, we're not going to come and insure if you keep being negligent. And they were, and that's why they pulled it. David Chasin: Actually, we've heard now the word gross negligence and negligence. Um, Andrew, you're an attorney. I don't know what you're doing, if anything. I mean, people are pissed off. People are pissed off, they've lost their homes, they've lost their nest egg. I mean, you know, people from the outside look at a place like the Palisades and they don't really shed a tear, because they, hey, these people... What's up, Robert? Robert Rivani: Let me say one thing on this because I think it's really important for everybody understand. We can all sit here in a panel and continue to say that we're going to rebuild, that we want our homes back, we want all that. But the problem is bigger than that. Until the government gets their together, until they fix what they need to fix, what's the point of building a new home in Palisades if they don't prevent fires in the future? It's just going to burn down again. And that's what's frustrating to me, and what the word I'm trying to spread is, it's a bigger problem than just insurance, it's a bigger problem than just rebuilding. The same stuff will continue to happen if we cannot fix the underlying cause. Why is California, and specifically the Southern California region, the only place that deals with consistent fires of this magnitude on an annual basis? David Chasin: So Robert, Robert, you, you left, you were born and raised here, you left, you moved to Miami, right? Robert Rivani: Correct. David Chasin: And I'm sure a lot, in large part, to some of the, you know, inefficiencies, inadequacies, you know, negligence that you're describing, right? Robert Rivani: Correct. For the same reason State Farm left and a number of other insurance companies left, right. Because it's just a completely screwed up system here. David Chasin: Andrew, you're an attorney. Robert, I know that, you know, you've been vocal online. I know that, you know, I think Grant Cardone, who's been very outspoken too, who also lost his home, I think he was a neighbor of yours in Carbon Beach, he's rallying people to do a class action suit against the state, against the city, against the county. Can you guys talk about, like, what are you guys hearing in terms of litigation, and is that gonna help, is it going to just add to, um, you know, gumming up the works, and until all this stuff gets settled you can't even start rebuilding infrastructure and so on and so forth? Can you just enlighten me? I have no idea how any of this is going to play out or impact anyone. Andrew Kirsh: Sure, let me, let me talk about the litigation. So lawsuits have already been filed. I feel that's premature. We need to develop a strategy, we need to develop legal theories, we need to develop the facts and understand the facts. So my law firm, Sklar Kirsh, we're partnering with Kevin Bo, Bo Law, who's a Palisadian. He lost his office, his office was right next to one of the gas stations on Via de la Paz and Sunset. He's a Village School dad, PPBA dad. He, um, uh, is one of the most well-known uh mass tort, uh, plaintiff's contingency lawyers. We have hundreds of residents who have been impacted, who have wanted to sign up, uh, just to get information at this point. Um, the lawsuit ultimately that will be filed has two components. One is causation and the other is a failure to mitigate. Causation is how did the fire start. And maybe there are multiple ways that the fire started. There's talk about this fireworks on New Year's Eve, New Year's morning, that may have started it. They put it out. Did they put it out good enough? Maybe, maybe not. Smoldering. That is one theory. Perhaps there are certain transmission lines that blew over because of the winds that could have started another portion of the fire. That's causation. The duty to mitigate is what people have been talking about, not having water in the reservoirs, uh, insufficient brush clearance, things of that nature. It's not going to be easy. The government has a lot of immunities, and so to get around those immunities there has to be, uh, not just negligence. I mean, negligence is one thing, gross negligence, recklessness, to get around those. Um, from my understanding, the Eaton fire is like, was likely to have been started by a transmission power line from Southern California Edison. That's a totally different situation than what we're dealing with in the Palisades. My hope is that the litigation that will be commenced will bring a result that will make everybody whole. So when we're talking about underinsured residents who don't have enough insurance proceeds to build their house, the litigation hopefully will be able to recover dollars to make them whole. David Chasin: Do you guys have anything to add on that? We have a bunch of topics that I want to cover. Shahrad Nahai: I don't have anything to add directly to what Andrew said, but I did want to say something about the insurance again, just for another minute, right. Let's take a look at Florida. Robert, you're there now, right? There's a saying in the uh insurance and risk management community that Florida is the most expensive piece of land to insure, right. It's an absolute fact. Why is it— Robert Rivani [attribution inferred]: Definitely is. Shahrad Nahai: Florida insurance market, right, has not buckled, right. The reason being, tell you many reasons. The reason, I know it's expensive, but it's sustainable, it's functional, right. You don't have every Tom, Dick and Harry exiting the market. The reason being is that there's a, they were prudent enough to implement, to implement a taxpayer funded insurance program for the biggest exposure being wind, and that program is called Citizens Insurance. And all it does is that it basically insures the riskiest piece of wind exposure, which is the first, first layer, let's say the first $500,000 or a million bucks, right, and then the private insurers get involved after that. This is what California is missing. California needs a taxpayer funded insurance program to basically cover wildfire prone areas, not for the entire exposure of wildfire, right, but at least for the first million, or that first tranche. The National Flood Insurance Program, AKA FEMA, it's run the same exact way, right. Taxpayer funded. FEMA provides up to $500,000 for flood insurance, right, and if you want anything in excess of that, it's readily available in the private insurance marketplace. What Florida has done, and I credit Governor DeSantis, what they've done is phenomenal, right, because they are incredibly catastrophe prone and stricken, and yet they have a fully functioning insurance market. And that's what California's missing. Robert Rivani: Yeah, and let me, let me add to that, because I agree with all that and there's more. There was a huge hurricane in the early 2000s that decimated parts of South Florida, and the city could have literally just told everybody, hey, go ahead, build back as normal, do what you need to do. But they didn't. They implemented certain codes. They said you cannot build on ground level. If you're building a brand new construction home you have to build 4 feet, 5 feet up, so if a flood does come or hurricane comes, the damage is not as great. You have to put in hurricane impact windows whenever you're building a new home, so that way the devastation isn't as bad. The government got involved and implemented certain things to limit the extent of damage. I am not seeing that in California. I am not seeing that when you're building a brand new home in the Palisades you should have a fire sprinkler suppression system on the interior and the exterior to stop a fire. I'm not seeing Coastal Commission getting off their you know what and saying you can build it in a concrete box and we will proceed it faster and not make you go through 4 years of permitting and deter people from doing that. And that's why I keep going back to the point that if we, as well, not me anymore, and thank God I left, the people in California, Los Angeles, don't stand up and say I've had enough of this, I want change, we want different, the same thing is going to continue to happen. It's just not going to change. David Chasin: By the way, do you guys know, this is a pretty technical question but I'm kind of flipping through some of the Q&A questions because we're getting a lot of really good questions in the sidebar, um, do you know if, if you join this class action suit and you have a California FAIR Plan policy, does that impact your eligibility, because you're suing the state but also you're waiting for money from the state? Andrew Kirsh: No, no, no, no, no. And, um, by the way, let's be very clear, this is not a class action, it is a mass tort. Each individual has to be their own plaintiff. It's just different, but we can get into that legal— David Chasin: Yeah, we could probably spend a whole hour plus just on the legal side of it. David, you've been, you've been really quiet, but um, you know, we want to hear from you. Um, can you talk a little bit about sort of like what the state of the real estate market on the luxury residential side was pre-fire, how the insurance, or the, the kind of lack of insurance markets, impacted people's ability to purchase and mortgages for homes, um, on the west side, specifically in the Palisades, in Brentwood? Um, and then post fire, um, I want to hear sort of like what you're hearing in terms of, um, how you are going to get construction loans to rebuild when you can't even get insurance to cover the replacement cost. David Berg: Sure. So prior to the fire we were already dealing with a low inventory market. So Santa Monica, Brentwood, Palisades, very limited options. Um, you had, uh, just for perspective, in the alphabet streets, you know, less than 15 homes available at varying price points. In the Bluffs, probably less than 4 or 5 homes available in varying price points. When you get up into the higher end markets and you get north of Sunset, you have options out there, but you have a lot of people fishing, not real transactable deals that are priced appropriately. So you had limited inventory, you also had limited buyers, because you haven't brought up where rates are at today. And so you've been in a situation where since COVID, in some of these markets prices have actually risen, and in a rising rate environment. So it's been a hard place to transact in general. And when you bring in the insurance component, and we happen to do a lot of insurance, our insurance with Shahrad, uh, particularly on high value homes in high fire zones, it's something that they specialize in, and so he can uh, he can wax poetic on this as well, but it really factored into a lot of people's decision making on whether or not they were going to be in a high fire zone or not. Because not only do they have the cost of carrying the property, but the cost of insurance becomes prohibitive, and their carrying costs are significantly higher than, let's say, going and buying a home in the flats somewhere where they don't have that same issue. So it's definitely, the challenges existed for a while. And to the second part of your question, I don't have an answer on uh, on construction loans, but here's what I can tell you about what's happening in the marketplace. In the surrounding areas in Brentwood, Palisades, and let's call it like kind neighborhoods, uh, demand has spiked, um, there, because we were already in a low uh inventory environment. There are, in some cases, dozens and dozens of people going after the same home. So a lot of the inventory that was stale is all of a sudden become very attractive. Um, there are, uh, there are homes, you know, we have listings right now where we're in multiple offers, and you know, you could have considered the prices prior to uh, to the fire to be aggressive to begin with. They're trading now over the asking price in many cases, particularly at 90402 in Santa Monica north of Montana. And the reason why we're seeing that is because, and Andrew alluded to this earlier, is that people are trying to recreate in a sense the community that they have. So when they're looking at like kind neighborhoods, and again I'm just going to focus on Brentwood and Santa Monica for the purpose of this conversation, they're really trying to find not just a neighborhood that they could see themselves living in, that had some of the same features like walkability. That's something that we're consistently talking about with people that lived in the Bluffs or the alphabet streets. They want to be able to walk to get a cup of coffee or to shop or whatever it may be. So you have all these people flocking there, and it's really creating uh an interesting marketplace, because the demand is just more than I think the market can handle. And the same thing is true with the— David Chasin: Sorry, are these people able to get insurance on these new homes they're buying? Can you write new policy? David Berg: They will be. So they will be, and I'll allow Shahrad to chime in on the details of this, but uh, as soon as the fire is considered to be contained completely, the insurance market's going to open back up. So I mean, presumably if you had a 15-day or 30-day escrow, you should be able, God forbid, you know, there's another fire that happens, you know, you should be able to bind insurance. Uh, and so that's really a issue unless you're trying to move into a home tomorrow. But it's very surprising the amount of cash that's in the marketplace, and irrespective of people's insurance settlements, you know, there are people who are looking to establish themselves and create normalcy, and so that's what's driving the demand. Um, if you're looking for a rental, because we haven't talked about this, is, you know, next question, I'm sure that there's been lots of conversation uh amongst people who've lost their homes around price gouging. You know, I think there were a lot of naive people in the marketplace in the first week, week and a half of this, you know, up until basically the end of last week, middle, middle end of last week. People didn't really understand price gouging laws. Price gouging occurs based upon, uh, you know, the government order, when you have an established rental price and the price that you're offering that property at exceeds 10% of the established rental price. And then if you don't have a, and if you don't have a baseline for your home, then you have to go and look on the HUD website, and uh, I don't have time to go through the HUD, HUD website now, but you go through HUD and then you multiply that number by no more than 160%. Unfortunately those numbers are not uh reflective of the environment that we live in and the carrying cost associated with a lot of the homes that need to be available for rent. So you have homeowners who are stuck in this scenario, who would be willing to, or have a home that they'd like to rent out, but they can't even rent it at a market value because of the guidelines. So there's been, I've heard some rumors that there may be uh, there may be some changes to uh, to the price gouging moratorium, or law, whatever you want to call it, uh, to allow homeowners to open up their homes to the market and actually receive a market rent. Um, but it's created a lot of challenge. So there's a lot of shadow inventory out there that's just sitting, that's waiting for to be absorbed, but people don't want to get in trouble. David Chasin [attribution inferred]: This is what, this is what happens when, you know, regulations screw with the free market, right? You end up having housing shortages, right. The road to hell is paved with good intentions, right. So let's, let's talk about, is it fair to call it price— Huh? David Berg: I just wanted to mention one thing, because you mentioned free market. Free market does not exist in this environment. If you listed a home for $15,000 and somebody, and let's just say that's within the parameters of the price gouging laws, and somebody says, you know what David, I'll give you 30, I'll give you 35 for it, you're not allowed to take it. You're not, free market does not exist. David Chasin: So it's the price gouging isn't, it doesn't just tell you what you can ask, what you can ask but then let the free market bid it up. It actually caps what you can take? David Berg: Correct. Andrew Kirsh: And so David, I think we need to underscore in the issue of what David alluded to. These HUD guidelines are absurd. So for example, in Beverly Hills I think the guidelines was $5,500 a month for a four bedroom house was the cap. So then you go 1.6 times that, that about $7,500. The market is probably, what, David, for a Beverly Hills house, 50 to $100,000? David Berg: Depends where, but probably 25 to 75. David Chasin: Okay, fine, hold on, because we have a lot of people from around the country. $25,000 to $75,000 per month? I mean, just for a furnish— David Berg [attribution inferred]: For a furnish, higher. David Chasin: Understood, understood. David Berg [attribution inferred]: Like, like kind stuff for what people lost in the Palisades. If they want to just go sideways on their lifestyle, most people are looking in that price range generally. Andrew Kirsh: My insurance company, and I had a moderate 3,300 square foot house on a 5,300 foot lot, or 5,200 foot lot, in the alphabet streets, just a smaller house in the alphabet streets. My insurance company gave me guidelines of 40 to $70,000 a month in order to rent that house, or rent a house that's comparable, just a 3,300 foot house. But the issue that is unclear, David, is that um, if you were not uh marketing your dwelling for rent prior to the fire, it seems like you are capped to that 1.6 times the HUD amount. If you are marketing your house for rent prior to the fire, you can then get what you were charging, what you were asking for, plus the 10%. Is that— David Berg: I think that is what, and I still couldn't even understand it, right. That's my understanding. David Chasin: So, by the way, do you end up losing housing stock, right? Because I have people in my office that live in these tangential neighborhoods that were unaffected directly by the fire but are receiving this groundswell of demand, and they're saying, look, okay, well, you know, my PITI, right, you know, principal, interest, taxes, insurance, my carrying costs are 10 grand a month, right. Are you telling me there's a market where I can lease my house for 50 grand a month? Okay, for 40 grand a month profit, I'll go to the valley, right. Um, but they're being told, no, no, no, even though the market is 50, the local regulations, this price gouging law, will only cap you and allow you to get 14 grand a month. And therefore you say to yourself, well, you know what, never mind, I'm gonna stay. And now all of a sudden that one housing unit, just that could have been put on the market as supply, is now gone. Is that, is that accurate? Panelist [attribution inferred]: 100%. I had a client who wanted to lease their house in Calabasas, did not have it marketed prior to the fire. Shahrad Nahai [attribution inferred]: Companies are paying, the insured is roughly 20% of the policy limit, or whatever the replacement cost is of the structures, whatever that is, right. So if your policy limit was $3 million, right, then that means you have $600,000 of relocation, you know, expense. David Chasin: Uh, exactly. $600,000 feels like a lot of money, right? But when you're renting for $50,000 a month, that's one year, right, which is what we all just were told it's going to take just to finish the environmental cleanup, and then it's all the regulation, then it's all the red tape, then it's rebuilding. So are people going to start losing patience real fast when that starts to run dry? Shahrad Nahai: Absolutely, I think they will. And look, I don't think anybody really contemplated that this was going to happen, right. This is, you know, clearly a state catastrophe, and you know, needless to say the insurance industry is completely compromised at this time. And like I said earlier in the session, there's going to be many of these policies may not have sufficient coverage, be it to rebuild their home, be it to temporarily relocate. Because I don't believe the insurance companies are going to supersede or give anything beyond, right, what's stipulated in the policy. Because at the end of the day the insurance policy, it's a contract, right. It's a contract that outlines the expectations of both parties, and the contract is pretty clear and it says that we will not exceed our limit of liability, right. And that is just my greatest fear, right, is again just the insufficiency of coverage. It's going to take a lot of time to rebuild these homes, right, and there may not be adequate coverage for the loss of use or the temporary, you know, temporary relocation expense to accommodate for that delay. And that is a very plausible uh, uh concern. Robert Rivani [attribution inferred]: And Dave, one other thing I want to add that we haven't talked about is the pending mortgage crisis as well. David Chasin: Yeah, that's one of the questions in the— Robert Rivani [attribution inferred]: It's going to be a huge crisis whenever this many lenders that have deferred payments, which uh, hopefully they'll defer for a long time, is how are the lenders all going to get paid back in all this if the land is worth less than the loan? You're gonna have a huge crisis on your hands again. David Chasin: Um, so let's talk about the value, because that's a, in the question section it's been pretty common. Like, you're a homeowner in the Palisades. There's 4,000, I think they said 5,000 or 6,000 structures in the Palisades were lost. Very few of them were commercial. They're calling structures, if you had an ADU or a separate garage on a property, that constitutes a structure. But let's say 4,000 homes in the Palisades, these are homeowners, right. I've already talked to several of them that have called and asked my advice. I say, call Berg. Um, what if you made the decision that you want to sell, that you don't want to rebuild, when would you do that? Is now a good time? Is a year a good time? Like, what as real estate investors, Andrew, I know that you deal and represent a lot of them, Shahrad, I know that you represent a lot of real estate investors and developers, Robert, you're a prolific investor and developer, David Berg, not only do you represent a ton of homeowners and end users, but you represent some of the largest home builders on the west side that are looking at this as a profit thing. If you own a lot, when is the right time to sell it? David Berg: Well, it's a question that's very difficult to answer. Here's what we are telling homeowners, because we've had hundreds of calls of people who are asking the same questions. They're not hundreds of people looking to sell, but there are certainly people who are considering. And what I think the prudent thing to do if you have the patience, you don't want to go first. Somebody is going to set— David Chasin: Does everyone on the call agree with that? You don't want to go first, you don't want to sell right now? Panelist [attribution inferred]: I would definitely not sell. Panelist [attribution inferred]: Yeah, definitely not. Plus, most people, not most, a good number of people will have insurance proceeds that are less than their mortgage amount. Well, who do you think that those insurance proceeds are going to? Not the homeowner. They're going to the lender. You will end up with nothing. David Berg: Yeah, I think, I think the prudent thing to do if you can exhibit patience, you talk to your lender, you talk to a good attorney, you get a forbearance agreement, and you let somebody else die first. I mean, I'm sure there are people out there who are chomping at the bit to get rid of their lots. Uh, I just feel like somebody has to set the market, and um, and I'm already seeing brokers are sending me some opportunities out there, and I don't know how you can sell something if you can't access it. Um, and you don't know the state of the environmental quality of the dirt, you don't know how long it's going to take to clean up. Um, we're right now just focused on particularly people who had newer homes, um, connecting them with their architects, because a lot of people don't even know who built their house, connecting up with their architect and the people who um can help them put the wheels in motion, so that whether they build or they sell they have plans attached to their lot. And the reason behind that is that it's relatively inexpensive, uh, if you have recent plans, to go get uh, to get them RTI, ready to issue, and then it will increase the value of your lot if you're selling your lot with a set of plans for a good home. Uh, and it will also allow whoever buys your home to expeditiously execute. I'm sure there will be many, many lots that are traded. I think that you know we can have this conversation even just a month or two from now and it will be very different, but uh, but somebody's going to set the market, and I'm sure it will be a little bit of a wild ride. David Chasin: Robert, your Malibu home was covered in the Wall Street Journal. Um, can you just give everyone a little bit of background on what you were building, what happened, and what are you gonna do? I mean, I think that was an investment for you. Robert Rivani: Yeah, it was an investment. I was three weeks away from completing it. I'm into the home for $27 million between the land and the improvements, and um, my insurance has only covered me for $3 million, so I'm taking a haircut, to say the least. So I think for me, compared to other folks, is while I agree with what mostly everybody said, I have one disagreement, which is nobody knows, nobody has a crystal ball two, three years from now of where the market's going to be or what home values are going to be. If you had a good insurance coverage, if you have no interest in building in the future, if you say, hey look, I can't get a great number now but it's decent and I can move on with my life, I recommend some people to do that, depending upon where they're on in life. The unfortunate situation is, and I know I'm a controversial developer when it comes to this, is there's a time value to money, your health and your happiness. If your interest rate 6, 7%, your property tax is a percent and a quarter, you have uh insurance expense, you have to assume that that home will appreciate more than 10% a year for the next two, three years before you even build it. Because like I said before, when you get construction cost at that point you may say, oh my God, the construction costs are so expensive and it doesn't make sense. But even if you do build it, no one here has a crystal ball of what it's going to be worth when it's done, because if you don't have your restaurants back up, you don't have your schools back up, your church, your synagogues, your city, what's a house actually worth? And I think that's the scariest thing, is if you go through all the pain, if you go through all the suffering, at the end of the day what do you actually have on your hands? And there's not me or a single person on this panel that can say for sure prices will be back to where they were before and you're going to be made whole. So I think everyone's individual situation of their personal finances, their income, what insurance proceeds, they should take a real hard look and, do I really want to go through this disaster. I personally am planning on suing um everybody that I can, because I feel like this negligence was uh, was crazy here. But I don't think I'm gonna have the heart and the patience to deal with the municipalities and go through the building process again. Uh, there's still a chance a fire can come next year and burn down the house again. What is the point of, it's like you'd have to be really bored to want to continue the same catastrophe year after year. And I'm not be a pessimist, but there's sometimes we have to be a realist and just say it's better to take a hit now than pray for the future and hope the best. David Chasin: Um, uh, Berg, we got a rent or sell question. If you're someone that owns a, you know, a home on the west side or somewhere that there's now much higher demand than there was three weeks ago, and you were planning on selling or leaving eventually, whether it's the next six months or 12 months, would you say you should be a renter, you should become a landlord right now, would you be a seller right now? Like, what's the market stipulating? Are you seeing spikes more on the rental side or on the purchase price side? And I'm talking about just percentages relative to the pre-fire valuations. David Berg: Sure. It's both, it's both, you're seeing a spike in both markets. It really just depends on where your home is located and what the demand for that specific home is. If it's something that is turnkey, bring your toothbrush, it's, you know, let's say uh similar housing stock to what many people lost in the Palisades, there's a huge attraction to that. And there are thousands of people that are now in the market to buy that weren't there two weeks ago, and that's what's driving them. Again, like to reiterate what I said early on, many of our homes have multiple offers on them, and many homes that have been sitting on the market for extended periods of time that might have been viewed as overpriced or uh, or unattractive for whatever reason, um, are now getting action. And so that's just, there's a lack of housing across the board. David Chasin: Does, uh, Steve Soboroff, um, you can just give me a thumbs up, thumbs down, or a thumbs sideways if it's we'll see, too early to tell. Um, do we think he's a good, a good choice to be this uh rebuilding czar? Panelist [attribution inferred]: Yes. David Chasin: You're muted, you gotta do a thumb thing. Andrew Kirsh [attribution inferred]: I'll go, I'll go thumbs up. Can I just say one concern though? The Palisades was a, um, it was not a dense community, right? You, in fact, you would argue, uh, for developers it was a very inefficient use of land. You would have Gelson's uh on a couple a lot with what, 50 parking spaces? The city would never approve that today. They would require four stories of apartments over a Gelson, put the parking subterranean. Will the Palisades be that charming little town that it was before the fire, or will the city require density, affordable housing, everything that it requires today, when you are uh building uh lots as the size of these commercial spaces? David Chasin: You know, it's an interesting question, right? Because you know, one of the, the city, the Democratic Socialists of America, DSA, city council members actually sponsored and um proposed a legislation that's going to put in, you know, COVID like Draconian rent control, uh, vacancy control, all these types of things. Um, the city council ended up not voting on it. It didn't get voted down, they just didn't vote on it. So what I understand is that it's sort of like um in purgatory right now. But I know for sure that that's a concern that a lot of people have, which is, this is a red tape wet dream for the bureaucrats in the city of LA that have been licking their, you know, chops. They got their, they got their piece during COVID, but now everyone knows that's run out. A lot of these emergency ordinances are still in place, you know, so they can eminent domain certain people's properties for homeless hotels. Do we think that that is a path that we're going to see, or do you guys, yes or no, think that, hey, you know what, their constituents have had enough, they think that the government overreach during COVID, they don't want a repeat of COVID, and that we're going to have a much more responsible and more muted um response from, you know, city council? Panelist [attribution inferred]: I think, I think we're all hopeful that we have a more responsible response, uh, but uh, we've all seen what they've done in the past. So I'm sure, uh, I'm again, like I, I don't, I think we're just, we're just, this is all hyperbole. I think we just need, we need guidance. As soon as somebody can come and dictate the future of how this is going to go, we're going to have the answers to these questions. Until then I think you have to assume the worst. David Chasin: David, so if you got, so we're seeing a huge spike in sale prices and rent prices. Does it spike and then fall? Does it spike and then sort of stabilize and stay there? Does it spike, fall a little bit, and then come back? Like, what do we think the medium to long-term impact, when you don't have, I mean, there's 4,000 homes that destroyed, it's hard to wrap your head around, um, the supply demand dynamics here. David Berg: So what I think, if you look at, uh, and this is a great question and I can get statistics to back up my thoughts behind it, so, but I won't quote statistics, but if you look at, if you look at Santa Monica and Brentwood during COVID, okay, prices rose. Then we had a rising interest rate environment. Prices for the most part have held during that time, and rates, rates more than doubled. Prices held. So now we're in that same high rate environment and potentially with prices going up, not potentially, we're seeing prices go up on certain product. So it's very hard to say, because like kind housing, when you look at, if somebody goes and buys a house north, north of Montana to replace their house in the Via Bluffs, and then there's homes available in the Via Bluffs 5, 6 years from now, I don't know what that does to the market. I think there's so many factors out there that are, it's a real conundrum, because if we have, if we have an interest rate environment where rates go down back to even just to 3.5, 4%, I think you see prices go up as well, just across the board, uh, because it becomes more affordable for everybody. So uh, to answer your question, I think ultimately uh in good neighborhoods uh you will always have demand, and if you have a shortage of supply then prices go up. That's just how it's always been. Robert Rivani: Yeah, David, one thing to add to that. I think it's really important for every homeowner, if obviously your home is burned down, it obviously sucks for all of us to go through this, the most important value token you can have is to get a permit in hand. And find your architect, get the permit that's ready to build on, so that way you can get through all that. So if you do have to sell to developer or somebody that comes about, there's a permit ready to go, they know what they can build, they know what they can get through. Because if you don't have that in hand, you're really behind the eight ball and behind the time frame. So I think that's something I'm doing right now. I implore every person to do that, is go out, find the architect, find the original plans. Because there has been precedent set in the past where, as long as you building within 10% of the existing structure, you're not really trying change much, there's a fast track program that the cities are offering, have offered in the past, and I think that that will be implemented going forward as well. Shahrad Nahai: Yeah, you know what I find, you know, very uh frustrating, interesting about the dysfunction in the insurance market and the lack of the free market here? Technically speaking, the insurance premiums are subsidized, because we're not in free market, we're in a highly regulatory environment, right. And what do you think that's done to the cost of, to the value of real estate? It's artificially inflated it. It's artificially inflated it. And I have a, I have a very interesting statistic here, and if this doesn't speak to the dysfunction in the market, nothing will. I'm talking about the insurance market. Homeowners in the Pacific Palisades paid a median insurance premium in 2023 of $5,400. Nothing. Okay? Peanuts. Peanuts for a Palisades resident. That's less than $500 a month. Okay, that's less, that's less than residents paid in Glencoe, Illinois, which is a pretty rich or affluent suburb in Chicago, where homes are two-thirds cheaper and the risk of wildfire is zero. So clearly this is just a grossly dysfunctional insurance market, and there needs to be significant reform, right, because it's indirectly inflating the, it's artificially inflating the cost of real estate as well. David Chasin: So Shahrad, you mentioned to me that you think that the insurance market is actually being deregulated now. You said the insurance commissioner has taken steps to kind of roll back what Prop 103 created as far as messing with the free market, correct? You told me that you think the free insurance market is returning and will return to California. The big question is what are premiums going to look like. I can tell you, I was paying about nine, you, you guys handle my policy in Brentwood, I was, I was paying $9,000 a year with State Farm. My policy was canceled effective 12/31/2024. Okay, your company scoured the entire market and they found three quotes, one for 30, one for 50, and one for $75,000 a year. And I don't have a mansion, okay. Um, I obviously went with the one for 30, but that's more than triple what I was paying before, and that was with a subsidized market. What's gonna happen when the free market comes back? Shahrad Nahai: Well, obviously, you know, hopefully the market will be restored soon. When the free market comes back, you know, I anticipate, you know, just since they're infusing a lot more supply in the uh, in the overall, you know, uh market, premiums should be stabilized, they should be more palatable, they should be more affordable, there should be significant capacity in the market. And by virtue of that, you know, increase in supply, you know, rates should begin to, you know, come down to more palatable levels in those areas where again people are paying, you know, $30,000. I mean, Robert said that his homeowners insurance premium was $800,000. I have clients in the bird streets, wildfire areas, currently, preceding these fires, that were paying half a million in insurance premium, $500,000 in insurance premium. I have a client that lives on Sarbonne in a $60 million residence, and I know that that's the anomaly, but I'm just trying to really, you know, drive my point home, that this is obviously not sustainable. The market is not working, and I think these fires were just like the straw that broke the camel's back. So in a long-winded way, there will be significant reform, carriers will be incentivized to start operating in California again, and we'll have some semblance of a free market and normalcy. Normalcy, that's what I anticipate happening. David Chasin: Andrew, I don't know if you have something that you wanted to add, um, but uh, quick question. You know, you've seen some of these unbelievable drone videos, right? Um, that, I mean, you can't even fathom. First of all, Andrew, have you been back to your, have you been to Ground Zero? Andrew Kirsh: I haven't. I've seen the videos, I've seen the pictures. I want to go maybe this weekend. Uh, I don't know personally, emotionally, what it will be like, but I also, you know, maybe there's something that you can pull from the wreckage. Um, but anyway, the short answer is no. David Chasin: Robert, have you been to Malibu? Robert Rivani: No. Uh, like, I don't know what purpose there is to go, and I've seen enough videos and photos that it's just burnt to the ground. David Chasin: So one of the things that to me was striking from these videos, and I'm a, you know, you guys know me, I'm a free market capitalist, I'm pro growth, I'm pro development, so it's going to sound a little out of character, but one of the things that struck me was, you know, you see these coastlines and they're almost like, wow, they're being restored back to what they once were. Panelist [attribution inferred]: Thanks, David. David Chasin: Huh? No, I'm not, I'm not even talk, by the way, yes. If you drive, if you drive from the Santa Monica incline up to, you know, north, right, there's a good portion where you've got cliff on your right and you've got homes on your left, and you don't really see the coastline until you get elevation or you are on a turn or anything like that. And then you see some of these videos, you're like, wow, this is kind of like what it was. Are there places that you think we shouldn't rebuild? Not, I'm not saying that the government should come in and say you can't rebuild, but there's been, you know, bond measures that have been recently passed that um, you know, have raised funds for land conservancies and land trusts to start buying private lots that they want to create some sort of conservancy. Is there a, is there room or a place for discussion in the rebuilding where, hey, maybe these houses hanging off the side of cliffs on stilts shouldn't really be there? Or am I just getting brainwashed? Robert Rivani [attribution inferred]: I think you're getting brainwashed. Sorry. I just, I don't know how you tell somebody, taking your home from you via eminent domain or whatever it is, and just— David Chasin: I'm not saying, I'm not saying eminent domain, I'm not— Robert Rivani [attribution inferred]: Then how else would you get someone's private residence that they put money into back? David Chasin: You have these land trusts that have been funded through bond measures that have been passed, and their entire goal and reason is to go out and acquire private property at free market prices if the seller is willing to sell, um, and then they basically just don't redevelop it, they turn it into green space. Robert Rivani: I never knew the government and all these free trusts had that much money, for billions and billions of dollars, to do that to individual. I just don't see it being realistic. I don't see it, it's too big of a loss. And that's the comment I keep pressing, is we're talking about hundreds of billions of dollars when California is running a deficit now, no longer a surplus. How can you afford to do it? When, and if that's the case, and I mean it's the most respectful way, David, if there's that kind of money, why don't we just 5 times the fire department and make sure this never happens again? David Chasin: I know, it's a great, it's a great point. I mean, we've got 5 minutes. Um, I want to go to each of you guys and give you, you don't have to, but is there anything that you guys want to add or say that hasn't been addressed, um, or anything that you guys want to sort of say in conclusion? Shahrad Nahai: Um, you know, one insurance, sorry, you weren't done? David Chasin: No, no, I, no, go ahead. Shahrad Nahai: One insurance related thing. I get questions about, should I continue to pay my insurance premium? You absolutely should. Your policy never cancelled, it's still active. David Chasin: You're saying you should— Shahrad Nahai: You absolutely should, 110%, without any question. You should continue to pay your homeowners insurance premium, even if you were, even if you were affected, particularly if you've had a claim. That policy is still active and you are still responsible for your insurance premium. David Chasin: Um, Andrew, any parting words? Andrew Kirsh: One, uh, talk with your lender. Somebody talked about that before. Uh, they will be giving deferrals on paying interest. Two, fill out that form for property taxes. Likely we are not going to have to pay property taxes for a year. The question is, is it abated or is it just deferred? That is a big question. Three, if anyone has questions concerning the lawsuit that we are preparing, the mass tort lawsuit, please reach out to me directly. And lastly, I'm an optimistic person. I do believe that um the Palisades will be rebuilt, it will, and it will be rebuilt uh as good and hopefully better than it was. It's going to take time, and like what I said before, it may not be filled with the same people that were living there prior to the fire, but it will be that great community that we all got to experience. David Chasin: David? David Berg: Um, you know, I just want to say, my firm and I are here as a resource to anybody who needs help, uh, whether it be uh post, you know, pre-fire valuations for rentals, uh, which is something a lot of people need in order to obtain their ALE money for their um, uh, for their rental money, uh, valuations on uh, on their home post fire, you know, which is something that we'll be working on in the coming months. Uh, and in addition to that, um, just any questions real estate related, uh, we're here to help. And uh, and we're local, uh, our families uh live in, love in, on the west side, so uh, we're here for you. And one last thing I just want to say, and I'm not an insurance specialist by any means, but a question, if anybody who's listening in has filed a claim or is considering filing a claim for smoke damage on a home that um, that they may have a low deductible and they're thinking about, well, I got to get the HEPA filters in there, I got to get some cleaning, talk to somebody like Shahrad about whether it's worth it or not. Because one of the big concerns that I have is getting, is getting reinsured in the future. If you have a blemish on your um, on your insurance record, that your insurability may be, may come into question, and it could be something as small as just filing a $25,000 or $50,000 smoke claim. Um, so just uh keep that in mind, and um, and that's something that can affect the desirability of your house in the future. David Chasin: Um, yeah, by the way, why don't you guys all, while Robert's giving the last word, um, if everyone, I don't know if you guys can see that Q&A, can you guys see that sidebar? Um, I think you could type answer. Um, can everyone see that as far as the are concerned? Okay. Um, Kevin S just asked, and uh, everyone, um, but why don't, oh, you guys can put it in the chat, I guess, are working boxers. Robert Rivani: And uh, I just, I want to say that everybody here equally has a voice. And for the longest time I never had a public social media account. I never thought my voice mattered, and because I thought things like this would never affect me or my family. But it's become more and more clear that disasters are happening, crime is on the uptick, and it's, I implore every single person to stand up and say their peace. Don't be quiet about it. Force the government and force people to hear your voice and demand change. Because if we don't do that we're going to continue having the same problems over and over again, and the only way we can change it is by using our voice. David Chasin: Thank you, Robert. Um, so in closing, um, I want to make one thing very clear, while you know we have a range of political voices, um, I think— — END OF TRANSCRIPT —