To Rebuild Or Not To Rebuild: That Is The Question For SoCal Multifamily Owners
It is early days for owners whose properties were damaged or destroyed in the historic Palisades and Eaton fires that tore through the Los Angeles area last month. Those who have been allowed to return are still sorting through the wreckage and debris.
Roughly 400 apartment properties were located in the fire zones, and 75% of those have fewer than 15 units and are more than 70 years old, according to CoStar. They are also primarily owned by smaller, independent investors rather than large, deep-pocketed firms. The age and size of these properties pose a difficult question for owners: Do I rebuild?

While those who lost their personal residences have emotional and sentimental reasons to rebuild, commercial owners are likely lacking that piece of the puzzle, Colliers Senior Executive Vice President Kitty Wallace said.
“[Commercial real estate] is less emotional — it's cash flow,” Wallace said.
Many long-term mom-and-pop owners will be more likely to sell and less likely to want to undertake the arduous process of clearing debris and remediating a damaged property or rebuilding a destroyed one, Wallace said.
The Palisades in particular is mostly smaller properties with private owners, she said, and while many owners are passionate about the area, it’s unclear whether that passion will translate into them holding on to properties and choosing to rebuild for themselves.
Wallace, who is a specialist in multifamily investment sales, also owns apartment buildings. While her buildings weren't in areas touched by the fires, as an owner, she wouldn't want to undertake the task of rebuilding if she were in that position.
For one thing, she and other individual owners like her aren't in the business of building.
“I own [apartment] buildings. I'm not a developer,” Wallace said. “I wouldn’t want to go through the process. I’d be much more likely to sell to an expert.”
Wallace said she expects to see sales of properties that involve a developer buying the land and the insurance payout, when it comes, being included in the deal. The developer would use the proceeds to help kick-start the redevelopment process.
Many if not all of these projects are going to require some additional financing, and the question remains whether lenders — which, like the rest of the country, watched these neighborhoods burn with terrifying completeness and speed — will be quick to put up money to fund the replacements of these properties.
Some lenders have demonstrated a willingness to not only put up money but also help out as the wave of demand grows.
ALC Commercial Capital’s Leonard Manriquez has seen at least one lender, a bank that is a traditional portfolio lender, create a product that allowed it to offer lower interest rates by as much as 90 basis points to multifamily projects.
Manriquez declined to name the bank.

The bank wasn’t traditionally doing a lot of multifamily, Manriquez said, but it wanted to become more aggressive on this property type “because they're thinking this asset type is going to be in big demand, because there's gonna be a lot of people that just need places to live.”
The fires displaced an estimated 22,300 households, 7,300 of those from multifamily units and 15,000 from single-family homes, according to CoStar. With only about 6,000 units projected to come online in 2025, CoStar predicted that vacancy could fall below 4% and put upward pressure on rents.
Meanwhile, the older, smaller properties that burned are examples of naturally occurring affordable housing that has now been removed from a market suffering from a yearslong affordability crisis.
Manriquez’s firm, which originates commercial loans, has sent a few multifamily deals to the bank already because of the favorable rates, though none of these projects were in fire areas.
For about two decades, ALB Commercial Capital’s offices have been on North Lake Avenue just south of Altadena Drive, a main commercial corridor for Altadena. The Eaton fire swept through Lake Avenue, decimating many properties.
Although the ALB offices are still standing, commercial buildings across the street to the north and west, including a coffee shop, longtime bar and apartment building, burned to the ground, as did several single-family homes to the east of his building.
Manriquez said the Lake Avenue that rises from the ashes will be dramatically different from the one it replaces.
He pointed to the large single-family lots behind his building, many of which were owned by older people who might not be up to the task of rebuilding. New construction that replaces the older apartment buildings may be required to offer right of first refusal to returning tenants, but with a timeline to clear debris, remediate soil and then build, tenants may have moved on by then, meaning new tenants paying higher rents.
“We think there's going to be a big change there in the community,” Manriquez said.