Buildings Are Vulnerable to Earthquakes

Hurricane’s Katrina, Rita and Wilma are painful reminders of the ruthless destruction that natural events can wreck on crucial infrastructure. Statistically, California is long overdue for another significant earthquake. The impact of a 1906-magnitude earthquake could have catastrophic ramifications for California’s buildings and civil infrastructure. (It is important to note that California is not alone in its vulnerability to earthquakes as there have been at least 26 American cities that experienced significant earthquakes and that are at risk for another earthquake.)

In connection with our Commercial Real Estate – Due Diligence Conference which will be held in Newport Beach, CA on January 22-23, 2007, we have undertaken quite extensive research into the impact of an earthquake in California on the Golden State’s building stock.

We had the opportunity to interview some of the preeminent authorities on California’s buildings’ vulnerability to earthquakes. These interviewees included Dr. Lucile M. Jones of the U.S. Geological Survey; Gordon Howe of Lowe Enterprises; John Kimal of Property Condition Assessments; Fred Turner of California’s Seismic Safety Commission; and two senior risk consultants with large engineering firms.

Among the insights elicited from these interviews are the following:

1. Because Southern Californiahas over 300 faults vulnerable to earthquakes, that region has about half of the nation's risk from earthquakes. The entire coast of California is really made up of a braid of earthquake faults, so there is risk all the way from San Diegoin the south to Crescent City in the north. Due to Southern California’s dense population, about half of the financial losses due to earthquakes will occur in that region.
   
2. California averages, at least, one magnitude 6.0 or greater earthquake every three years. So, the probability that California will have another significant earthquake within five years is between 80% or 90%. California is overdue for another major earthquake as it is rare that there is a five-year period without a magnitude 6.0 earthquake. The last one California had was a magnitude 7.1 in 1999.
3. A 1906-magnitude earthquake happens about once every 200 years on average. One can not say it's been 100 years, we still have 100 years to go. It is a long-term average. Silicon Valley could be paralyzed by such an earthquake.
4. Earthquake preparedness has taken a bit of a backseat because the same emergency managers that are needed to respond to earthquakes are also responding to the terrorism threats.
5. A repeat of the 1906 earthquake in San Francisco or Los Angeles could cause $1 trillion worth of damage. On top of this, earthquake insurance is only spottily used in California.
6. A repeat of a 1906 level earthquake is likely to result in 20% of the buildings in San Francisco sustaining at least moderate levels of damage.
7. Some building owners are being sued for deaths that occurred in their buildings during the San Simeon earthquake of 2003.
8. There are several technologies that will be increasingly used to mitigate the damage that buildings suffer during earthquakes. For instance, computers can control buildings to dynamically change the strength of the building in response to the shaking of the building. Second, damper systems, large shock absorbers for buildings, will be used in place of heavy steel braces or sheer walls. Dampers will absorb energy and minimize the amount of energy that the building itself must maintain. Dampers are a creative way to minimize the forces within the building. Third, base isolation is a way to prevent motions from getting into the building in the first place. You’re almost putting a building on rollers, with some other features to prevent the building from moving too far.
9. Multi-story concrete buildings built prior to the 1980s are believed to be especially vulnerable to earthquakes.

These are some of the issues that will be discussed at our Conducting Due Diligence in the Purchase and Sale of Commercial Real Estate Conference which will be held in Newport Beach, CA on January 22-23. Other issues to be addressed at the conference include Physical Evaluation; Environmental Considerations; Taxation Analysis; Legal Due Diligence; Condo Conversions; 1031 and Tenant-in-Common Transactions; Leasing Considerations; Sector Specific Due Diligence; and, Best Practices for Dispositions. More information about the conference can be obtained by contacting Neomi Barazani at 609-919-1895 ext. 100 or neomi@incrementadvantage.com.

To find out more on IncreMental Advantage's Commercial Real Estate Due Diligence Conferences on January 22-23, 2007 (Newport Beach, CA) and May 7-8, 2007 (Chicago, IL), visit www.incrementaladvantage.com/conferences or contact Neomi at neomi@incrementaladvantage.com or 609.919.1895 x100.