Palisades, Eaton Fires Hit $1.9B in Multifamily, Retail, Commercial

The Palisades and Eaton fires damaged 4.5 MSF of multifamily, retail, and CRE in LA, causing $1.9B in damage.

Han-Gwon Lung & Jordan B.
January 24, 2025

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Good morning. The Palisades and Eaton fires damaged 4.5 MSF of multifamily, retail, and CRE in Los Angeles, causing $1.9B in damage. Affluent areas face long redevelopments amid rising costs and stricter regulations.

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Market Snapshot

S&P 500

GSPC

6,086.37

Pct Chg:
+0.61%

FTSE NAREIT

FNER

767.24

Pct Chg:
-1.84%

10Y Treasury

TNX

4.629%

Pct Chg:
+0.03

SOFR

30-DAY AVERAGE

4.608

Pct Chg:
0.0%

*Data as of 01/22/2024 market close.

WHAT’S THE DAMAGE?

Palisades & Eaton Fires Hit $1.9B in Multifamily, Retail, and CRE

The Palisades and Eaton fires in Los Angeles damaged 4.5 MSF of CRE valued at $1.9B, with multifamily and retail hit hardest. An additional 23.6 MSF worth $7.8B lies in evacuation zones.

What burned in the Palisades: Upscale properties along Sunset Boulevard and Pacific Palisades Village Green bore the brunt of the damage. Over 30 multifamily buildings, primarily luxury apartments near Pacific Coast Highway, were impacted. Another 600 KSF of high-end retail, including boutiques, salons, and banks, was destroyed. One notable loss was a historic Spanish Colonial Revival property.

What burned in Eaton: In Altadena, the Eaton fire zone encompassed smaller-scale properties along Lake and Fair Oaks Avenues. Damage included 12 multifamily buildings, many of which were older structures with limited amenities, and 270 KSF of retail housing essential services like grocers and pharmacies. Surrounding evacuation zones in both areas mean another 23.6 MSF of CRE is at risk.

➥ THE TAKEAWAY

After the fires died down: With rising risks all around, including from black swan events like natural disasters, CRE investors must reconsider premiums on urban properties. Recovery will likely require tougher regulations amid redevelopment challenges. Affluent neighborhoods like Pacific Palisades face long rebuilding processes, compounded by stricter building codes and higher costs.

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✍️ Editor’s Picks

CRE MBA: Learn syndication underwriting essentials, such as mastering rent rolls, operating statements, advanced models, and scenario planning, to analyze and execute real estate deals confidently.
Investor optimism: A CBRE survey revealed that 70% of CRE investors plan to buy more CRE in 2025, driven by market recovery and favorable pricing despite challenges from high interest rates.
Inflation risks: BlackRock warns high inflation is the world’s biggest risk, highlighting the need for private sector investment in AI infrastructure and energy-conscious data centers.
Investor fraud: Colliers (CIGI) was sued over an alleged $10M investor fraud with inflated values, bankrupt tenants, and misleading marketing tied to medical office deals in Utah and Texas.
Federal overhaul: President Trump appoints tech entrepreneur Stephen Ehikian to lead the GSA and oversee its 360 MSF real estate portfolio, intending to cut government property footprints.
What happens in Vegas: Starwood Property Trust (STWD) bought 151 single-family homes in Las Vegas for $58M, raising concerns over institutional investors driving up local housing costs.

🏘️ MULTIFAMILY

Rent slowdown: US rent growth fell sharply in 2024 to just 0.8%, with high vacancy rates and regional disparities driving market shifts, while affordability challenges persist in coastal markets.
Market test: Noah Properties has listed its 237-unit North Oak Lofts in Northwest Chicago, testing the multifamily market amid high interest rates and softening property valuations in urban areas.
Historic conversion: Sunlight Development and NuVerse secured a $99M loan to transform the landmarked 95 Madison Avenue in NoMad into 65 luxury condos, with demolition already underway.
Olympics outlook: Waterton purchased the 347-unit G12 apartment complex in downtown Los Angeles for $122M, capitalizing on the area’s growth ahead of the 2028 Olympics.

🏭 Industrial

Industrial boom: Savannah's industrial market doubled in size over 4 years, fueled by Hyundai's massive EV plant and supplier growth, with the Port of Savannah's $4.5B expansion solidifying the city’s status as a top US logistics hub.
Gambling slowdown: The Las Vegas industrial vacancy rate surged from 3.4–9.2% in 2024, the sharpest rise since the Great Recession and cooling both rent growth and investment momentum.
Sorry, workers: Amazon (AMZN) will close 7 Quebec warehouses and lay off 1.7K workers, shifting to third-party logistics providers to handle deliveries in the province.

🏬 RETAIL

Retail retreat: Bloomingdale’s (M) will close its 339 KSF store at San Francisco Centre in March, as the struggling mall faces a foreclosure auction and broader downtown retail decline.
Retail expansion: Cohen & Steers and Phillips Edison acquired Oak Grove Shoppes, a 142 KSF grocery-anchored retail center in Orlando, marking their second purchase in a $300M joint venture.

🏢 OFFICE

Strategic stake: Paramount Group (PGRE) sold a 45% stake in its 36-story Midtown office tower, 900 Third Ave, for $210M, highlighting the demand for Class A properties in particular.
Office revival: Return-to-office mandates and corporate relocations are driving demand for North Texas Class A office space, while older Class B and C buildings continue to face high vacancy rates.
In it for the long haul: IBM (IBM) signed a 15-year lease to add 93 KSF at SL Green’s (SLG) One Madison Avenue, bringing its total footprint in the tower to 362 KSF, with asking rents at $110 PSF.

🏨 HOSPITALITY

Football asdf: Super Bowl LIX in New Orleans is projected to drive record hotel revenues, with ADR and RevPAR expected to climb 35% and 43%, respectively.
Historic charm: The Wetenhalls, owners of Palm Beach's Colony Hotel, bought East Hampton's Hedges Inn, vowing to preserve its historic charm while adding a restaurant, trivia nights, and more.

📈 CHART OF THE DAY

The last 120 days have focused on rising Treasury rates. According to Apollo, "Long-term rates have diverged from Fed expectations and are now 40 basis points higher than predicted. This increase aligns with the rise in the New York and San Francisco Fed’s term premiums. Markets are concerned that higher long-term rates stem from fears over fiscal sustainability." One expert says higher for longer rates will likely depress transaction volume and compel lenders to assess difficult decisions on underwater CRE loans.