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No Power? Then Say Goodbye To Security, NorCal CRE Says

In the throes of PG&E's unprecedented Public Safety Power Shut-Off, office and multifamily experts say security was their primary concern until power could be restored.

The silver lining of this kind of outage, which commercial real estate fears may be the region's new normal, compared to a natural disaster is the modicum of forewarning the bankrupt company can provide a few days ahead of time, but constantly changing weather forecasts rendered part of that seeming advantage useless.

"It seems really haphazard," Transwestern Northern California Vice President of Asset Services Blake Peterson said of PG&E's notifications and plans. 

As of Friday afternoon, PG&E restored power to 94% of Santa Clara County customers affected by its PSPS.

Indeed, PG&E CEO Bill Johnson admitted as much Thursday night during a press conference.  

“Our website crashed several times. Our maps are inconsistent and maybe incorrect. Our call centers were overloaded,” Johnson said. “To put it simply, we were not adequately prepared to support the operational event.”

The result, according to multiple property management sources, was a scramble to provide darkened buildings the bare-essential services, like security and elevator power. Fortunately for tenants and owners, most property managers had protocol ready. 

"We're used to anything," Institute of Real Estate Management San Francisco President Vanessa Honey told Bisnow. "We never know what's going to happen in a business day. At least IREM as a whole, especially in the Bay Area, is used to emergencies. We have evacuation plans and are generally well-equipped."

By the weekend, more than a few such plans had to be activated across the Bay Area and Northern California. As of Friday afternoon, PG&E had restored power to 543,000 customers, or 74%, of the total 738,000 affected, but over a million residents and thousands of businesses still endured long hours without power. By Saturday night, the utility company had restored the power to all shut-off-impacted customers

The greater Bay Area includes 18,641 office buildings, according to Transwestern Research Analyst Jerry Milenbach. Comparing PG&E's shut-off map with office inventory that falls within outage zones, Milenbach found that more than 5,200 office buildings comprising 73.5M SF were likely affected.

That makes 28.5% of total Bay Area office buildings, approximately 16% of total office square footage, much of which isn't covered by a backup generator, essentially disabled, Honey and Peterson said.

And a commercial generator in itself burns fuel at about $6 per gallon with a 250-gallon tank that can run for about two days, depending on a building's needs, according to Peterson. That comes out to $1,500 — a relatively small price to pay compared to older buildings without the backup power.

In addition to a tenant's missed productivity for the duration of the shut-off, money is lost on an owner's need to provide 24/7 emergency services.

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"Buildings that don’t have backup power do risk elevator entrapments and need to hire trained 'fire watch' personnel to rove the building 24/7 until the fire life safety system is back online," Peterson said. 

Honey said security costs skyrocketed and risk increased for unpowered buildings, which often rely on power for access control. Instead, more staff provides security. "We have people working longer shifts," she said. 

All this results in sky-high costs to the commercial real estate industry and the broader economy. Judging by the inflation-adjusted costs to businesses of outages from the Loma Prieta earthquake in 1989, the two days or so of outages by Friday could have resulted in over $10B in lost business throughout the region, Bisnow reported on Wednesday

On Wednesday, a Stanford Woods Institute energy expert predicted up to $2.5B of losses, even excluding large commercial customers from his calculation, the San Francisco Chronicle reported.

In addition, occupancy growth likely slowed to a grinding halt starting Wednesday morning, Honey said. 

"It's going to slow things down on the leasing end of things," she said. "Folks are going to be less interested, in the multifamily side at least, in taking that time while the power is out unless they're hard-pressed to do so."

Looking ahead, where PG&E's Johnson said it is "very likely" more PSPS's occur, the region's CRE industry sees a grim future many employers may try to avoid or escape. A positive for the Bay Area is its proclivity for remote work, but Peterson says that far from makes up for the lost productivity of being locked out of your office building. 

“Fortunately most of [the Bay Area’s] tenants and employers are pretty technologically savvy, and most of us can deal with not physically being in the workplace for a couple days," Peterson said. "Beyond that, this doesn’t work.”