SAN FRANCISCO—According to the California Department of Conservation, two to three earthquakes occur each year within the state that are large enough to cause moderate damage to building structures. In the aftermath of this year's hurricane season, the topic of earthquake risk is on the minds of a number of CMBS investors, according to Kroll Bond Rating Agency.
The concerns focus on the potential impact of an event, whether large or small, and on assets that may not be adequately insured, if at all. While insurance is generally required for properties in seismic zones 3 or 4 with a probable maximum loss/PML greater than 20%, properties that are close to this threshold could still suffer moderate to significant damage in an earthquake, but fall under the insurance threshold, says Kroll. This could meaningfully impact the collateral securing a loan, and the potential for losses if uninsured borrowers choose to forgo repairs and surrender the asset to the lender.
Seismic zones were established by the Uniform Building Code/UBC, which was intended to promote standardized requirements for safe construction. The UBC, which was succeeded by the international building code, established that all of California is classified as a seismic zone 3 or 4, GlobeSt.com learns.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
