Ontario, CA Industrial Fire
Assuming you’ve seen this, how does the owner deal with this mess? Does insurance pay out the total insurable value of the property and the owner accounts for that value as its exit value? Or does asset management extend the investment timeline and they underwrite a redevelopment/hold or redevelopment/sell scenario? The building is a total loss and I’d imagine that insurance doesn’t pay what the fair market value would be of the property at sale, so any carry that was on paper is most likely a wash. Can the owner exclude this deal from the fund economics? I can also foresee months/years of litigation considering the circumstances around the fire.
you really are a hardo
Hey Hardo, I work in for a major industrial player. Unfortunately I'm going to have to answer your question with the dreaded, it depends... But I will give you a probable scenario please note I'm Canadian so I could be flat out wrong in some aspects.
The takeaway is that you shouldn't lease to a tenant that doesn't pay their employees a living wage.
Word is they had neither the proper insurance nor the proper fire suppression system.
Going to be one hell of an L on the portfolio.
The rumors on Instagram was that he started the fire, and when the FD came and turned off the fire suppression system to do their work he lit another one. Unsure how realistic that is (i.e. is that actually how the FD would respond to a warehouse fire?), though it's a pretty big warehouse and if the initial fire was small enough it would make sense he could be in a totally different part of the warehouse by the time the FD showed up.
It's interesting because there will be a lot of lawsuits (probably). The lease probably has a lot of language around casualty and what happens, and despite all that, it's probably ambiguous enough that it'll go to court. Usually there's language on tenant/LL right to termination if it cannot be rebuilt in a certain time but this is probably a little more unique. Fires as a result of tenant operations are not uncommon (see tire recycling operations), but I've personally not heard of one that was an arson from a very disgruntled contract worker.... I'm sure they'll fight about it. Just because the tenant didn't have insurance for the building doesn't mean they're not potentially liable. This is a pretty big company with a balance sheet, not some random 3PL.
If the LL chose not to insure (which if they had debt on it, there's got to be something), they're still going to sue each other over it.
With respect to them not having proper fire suppression system, I guess it's possible somehow it wasn't up to snuff? But if you aren't up to fire code, how does a tenant get CO? And there's also semi-regular inspections (though those can get delayed). From my understanding (which may be based on rumor and not fact), the initial fire suppression worked. Not sure exact details there.
On the insurance side, you're insuring the value of the improvements and business interruption. Land still has value (but it is california, so who knows when you would actually be able to reconstruct which may be required to receive the proceeds if they choose to rebuild).
IDK - Sounds like a big mess! Let's check back in 4 years to see what happens!
Clarion know what they are doing they are not dumb. They will probably make out better from insurance.
Paper products would have been classified as a Class I-IV commodity type that works under ESFR systems without in rack sprinkler requirements. Assuming they were racking per approved NFPA testing/guidelines. An ESFR sprinkler system IS NOT DESIGNED or calculated around arson situation events with multiple ignition points. This was a fairly modern logistics building. Now what I can see happening is - tenants getting crazy in between their annual fire inspections. The product is approved to be stored in a certain way. The lease will require they comply with it.
This kind of total loss event makes you think about risk mitigation in general. One trend I’ve been seeing more in industrial and logistics redevelopment is owners incorporating more resilient and sustainable power solutions into the rebuild — not just for cost savings, but also to lower insurance premiums and improve overall asset resilience.
On a somewhat related note, the marine/offshore side has been adopting high-quality solar much faster than people realize. Especially after seeing how vulnerable traditional power systems can be. Some of the best solar panels for boats right now are surprisingly durable and could give ideas for hardened, weather-resistant installations on ground or rooftops too.
Curious if anyone here has seen sponsors pushing solar + battery storage as part of the redevelopment plan after major losses like this.
Redevelopment/new development doesn't really matter. People will pursue solar when it economically makes sense to do so. There could be a variety of different things that make it viable, but the incentives often don't line up to make it work.
The issue and a large part of why it's not pursued as much as you would think:
This is just with respect to industrial CRE - I get solar power is becoming more popular where power may be more constrained.
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