L.A. Has Big Plans To Rebuild After The Fires. Good Luck Getting Insurance.

“You’re dealing with homes that could go up to $30 million,” said Emile Haddad, founder of FivePoint Holdings, a California developer. “People have a different view of how things should be done.” 

The price tags matter. California’s FAIR plan, the state’s insurer of last resort, covers up to $3 million of a home’s value. After that, private insurance either covers it or the homeowner eats the loss. Maize’s client got a plan that would cover $2.25 million in rebuilding costs, less than half of the homes’ value. The client plans to seek additional coverage next year, according to a person familiar with the policy.

Plans to rebuild the Palisades have so far danced around the role of insurers. Even the FAIR plan’s fortunes are tied to private insurers, which by law must replenish the fund and can pass on some of the costs to California policyholders.

On Jan. 17, the mayor appointed Steve Soboroff, a real-estate developer and former police commissioner, Chief Recovery Officer. The job includes coordinating with federal officials, contractors and smoothing bureaucratic hurdles. It also made him the public punching bag for angry Palisades residents.

After Soboroff’s $500,000 compensation package for the three-month gig came to light, Bass shrank Soboroff’s role, and he agreed to work for free. He is now unlikely to remain on the job past April, according to a person briefed on his plans.

Soboroff’s role was challenged by Rick Caruso, billionaire developer who built a luxury mall in the Palisades that was saved by a private firefighting force. Caruso has started his own nonprofit group to rebuild the Palisades as close to how it looked before it burned down. He has been joined by executives from JPMorgan Chase and Palantir.  

Caruso has spoken on Joe Rogan’s podcast and other outlets to disparage plans to build affordable housing in the Palisades, though the city has made no official plans to do so. There is talk Caruso plans to run again for mayor after losing to Bass in the 2022 election. 

Cindy Ambeuhl, a luxury real-estate broker for Christie’s, supports Caruso’s plans and hopes to rebuild her own house. She recalled how the local schools, cafes, Fourth of July parades and bake sales gave the Palisades its air of neighborly, ocean-breeze Americana.

“We want what we lost,” she said. 

Prefab paradise

On Jan. 24, at a conference room at the University of California Los Angeles’ Anderson Center in Brentwood, the terms of a rebuilding plan were getting hashed out, according to people who were there. 

Among the 40 or so officials and executives were representatives from Brookfield, the $1 trillion asset manager; Gensler, the world’s largest architecture firm; and KB Home, the home-building company, the people said. 

The current version of the plan to rebuild the Palisades, which hasn’t been publicly released, would create a public-private partnership between the city and developers and contractors, the people said. 

These companies would design and build prefabricated homes—from starter homes to ultraluxury—that would keep costs around or below $500 a square foot—less than half of typical building costs for the neighborhood. An official said that early discussions included capping builders’ profit margins at about 15%. 

An infrastructure plan, funded by a municipal bond backed by property tax increases, would bury power lines and replace sewers that melted from the 1,700 degree Fahrenheit fires, people familiar with the plans said.

Some proposals would alter the Palisades’ character, a more elusive factor. New homes might use concrete in place of wood. Homeowners could be discouraged from planting eucalyptus trees or mesquite, which burn easily when dry. Planners also need to figure out how to speed exits for residents during emergencies.

The aim of the safety requirements is, to a large degree, about making homes insurable, according to officials, academics and executives. Insurers might still see the Palisades as still too hazardous. 

“It would be egregious and massively disappointing if somehow we built the same high-risk stuff in the same way, in the same places, and that we didn’t take this opportunity to digest and implement all the lessons of this catastrophic event,” said Gabriel, who also is working on the plan.

Exposed

Lara, the state insurance commissioner, sat at an elevated dais facing three tables at the Feb. 26 meeting in Oakland. At one table were executives from State Farm. At another, were representatives of Consumer Watchdog.

The fire would cost State Farm $7.9 billion, according to the insurer’s estimates. Although it had enough capital to pay for its policies from the fires, the outlook was looking worse. Inflation was straining its balance sheets, and natural disasters were becoming more frequent and severe. At least one ratings agency, Standard & Poor’s, had warned of a downgrade, which could lead mortgage lenders to not accept the insurer’s guarantees as collateral for home buyers. 

Last June, State Farm asked for a 30% policy increase for homeowners. But the request never got a public hearing, a requirement of Prop. 103. In the February meeting, the insurer requested a 22% premium hike.

“Bottom line, it’s time,” State Farm CFO Mark Schwamberger, said. “We simply can’t handle this much exposure.” 

Lara, a former state lawmaker who was elected commissioner in 2018, didn’t make a decision but said he would consider the request. A staff attorney said at the meeting that the state wasn’t convinced that State Farm had proven it was entitled to the 30% increase requested last June but might qualify for a 22% rate increase.

The California Dept. of Insurance didn’t respond to requests for comment. 

William Pletcher, the litigation director for Consumer Watchdog, said later that State Farm didn’t meet documentation requirements for a rate increase.

Lara also shouldered some responsibility for the problem, he said, by not taking up the company’s earlier rate requests. “This is a guy who’s been insurance commissioner for a while now,” Pletcher said. “He’s describing a situation that he has had a major role in for a long time.”

Arika-Paloma Urquidez, a Palisades-based architect, said her clients who are planning to rebuild are less preoccupied with the look of their house. “Their biggest concern is, ‘It has to be insured,’ ” she said.

Urquidez and her brother, a general contractor, grew up in the neighborhood. When the fires broke out, they were working on a house in the Palisades. Their mother texted she was evacuating. The siblings believed her house was far enough away from the fire to be safe. 

That night, they were relieved to see on the local TV news that the Gelson’s supermarket near their mother’s house was untouched. Then the wind changed direction, Urquidez said. The next day, a friend in the police department sent her photos showing the house had burned. 

Since then, the siblings have been trying to persuade residents to stay and rebuild. 

The financial burden of making mortgage payments on a destroyed house during an expected yearslong wait for construction will likely prove too much for many residents. One official involved in the recovery estimated that three of four Palisades residents won’t move back. 

On a bright morning in January, Urquidez and her brother stopped at a National Guard checkpoint and got out of the SUV. “I had my first kiss on that point right there,” she said, and gestured toward the bluff where her mother’s house stood before it turned to ash.

“I always thought that I would raise my children here,” she said. “I don’t see it ever being the same.”