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May 29, 2014
Mission Bay Fire: Candid Talk Two Months Later
We got the scoop on repercussions of the fire that destroyed a 172-unit apartment structure in Mission Bay on a clear March day—as well as key pieces of insurance advice—straight from the developer's mouth.
Former BRE Properties EVP and general counsel Kerry Fanwick first found out about the fire via text message from his wife. Media was incorrectly stating a nine-story structure was in flames, so he thought surely it couldn't be BRE's six-story structure rising on Fourth Street. BRE was about to merge with Essex three weeks later, creating a monster headache for its brand new parent company. Kerry spoke last Thursday at the SF Real Estate Investment Forum co-hosted by First American Exchange and law firm Bryan Cave to open up about the disaster and distill suggestions to real estate businesses who could find themselves in the same boat.
1) The recap
Soon after Kerry realized the fire was BRE's project, the team gathered to watch in horror a streaming video of the blaze. There was no way to stop the fire from destroying the whole building, they thought, as it quickly raced around the top and through the central hallways. The interior created a perfect place for oxygen to be sucked in, and the wood with resin was highly flammable. (The fire department has since said the fire was accidental, sparked from construction work.) The next immediate step was dealing with the insurance company; here's what he's learned from the experience.
2) Deal with insurance before a casualty occurs.
Policies can be (intentionally) tricky in how they are written. Essex was worried about conditions that are sometimes included in policies; a fire hydrant within 150 feet of the construction project is one example. Fortunately for BRE that condition wasn't in there. Kerry stresses the importance of having knowledgeable advisors to explain what's covered. He suggests developing a relationship with both insurance companies and advisors. Sometimes giant developers and giant insurance companies don't take the time to forge relationships, but it's about human-to-human contact and getting together to figure out a resolution. (The claim is in the $40M to $60M range.) Affected projects like Strata across the street, pictured, had blown out windows that have been boarded up; their camp didn't respond to a request for an update.
3) Pick advisors wisely
Before the fire was even out, BRE had people coming out of the woodwork offering services. Starting with good brokers and legal advisors is a smart way to narrow down the process. (Be wary of insurance co experts; they work for the insurance company.) You need your own experts, he says, for forensic accounting, legal advising and cost estimating. BRE's situation was unique in that there was three weeks in between the fire and merger, and BRE didn't want to make a selection until the acquisition was complete because Essex needed to get on board with whomever they thought was appropriate.
4) Get an adjuster out ASAP.
Get the process started fast, since you're losing money every day no matter how much coverage you are going to get. The project delays mean the company's lost a year and a half of full rent. Essex has credit in place to get funds and can start the reconstruction process without having to wait for the insurance company. When it comes to fire coverage, insurance companies know they are going to make a big payment and he suggests trying to get some of that up front so the developer isn't carrying costs they shouldn't have to. Getting them to make an advance is an important process and goes back to having that relationship with the insurance company.
5) Next steps
Engineering testing is underway to find out if the podium that survived the fire has to come down. Some 200 trucks have hauled demo offsite. Before anything is cleared off, Kerry stresses taking as many pics as possible. You can't take too many, he says. The city wants the project restarted ASAP and is cooperating at an incredible speed. Kerry's been excited about Mission Bay from day one, and the only good thing to come out of the high-profile fire is that a lot of people who didn't know about the massive Mission Bay redevelopment now do. Essex's Block 11 is expected to open in Q4. Block 5—where the fire occurred—will start up again this year, with an 18-to-20 month construction time line, putting a delivery at 2016. (Contractor Suffolk Construction didn't respond to a request for comment for this piece.)
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Don't Miss Our Future of SoMa Event
Want to get a pulse on what's going on in one of the hottest submarkets on the planet? Then sign up for Bisnow's Annual Future of SoMa event at the Intercontinental in the heart of the neighborhood (where else?) June 4. Come for a rousing discussion amongst those holding the reins on cranes, leasing, development and all of the above in the bustling tech corridor. Expect to hear from SoMa heavyweights like Kilroy's Mike Sanford and TMG's Matt Field. Now put down that sandwich and get on the list!