Nick Giovacchini of San Francisco-based real estate investment firm AlphaFlow and Stuart Ryland of Sedgwick Claims Management discuss the impacts and coverage associated with earthquakes and how real estate professionals can better advise and assist clients before and after these disasters.
On November 30, the residents of Anchorage, Alaska experienced a 7.0 magnitude earthquake — the largest to hit the area in decades. The aftershocks, scientists say, could continue for years. Yet just days later, students were returning to school, and life (for the most part) seems to be returning to normal.
How is this possible?
According to Nick Giovacchini of San Francisco-based real estate investment firm AlphaFlow, the answer lies in a combination of factors, including learning from the past to design effective building requirements.
We also spoke with Stuart Ryland — senior vice president of the Pacific Region at Sedgwick Claims Management and expert in technology-enabled risk, benefits and integrated business solutions for insurance claims — to better understand the coverage associated with these types of events.
We reached out to both of these executives to find out what impact the earthquakes have had on the area, as well as how real estate professionals can better advise and assist clients before — and after — these disasters.
Tell us about the scope of the damage from the Alaska earthquakes and what the recovery looks like at this point.
Giovacchini: In terms of damage, it was really widespread; however, there were no fatalities and there was no catastrophic damage whatsoever. Buildings shook and roads were damaged, but the overall destruction could have been much worse.
The best estimates I’ve seen so far place costs somewhere from $100 million all the way up to $1 billion — they don’t have a good handle on damage estimates quite yet. In situations like this, government buildings are evaluated first, then commercial buildings, then residences — so it takes a while to get good numbers on overall damage.
Damage gets divided into two categories: structural and secondary. Structural includes foundations and walls, while secondary includes other elements, like burst or broken water pipes that results in flooding of a property, for example.
Ryland: This earthquake caused a fair amount of damage to the roadways and at least one or two bridges (that are still unavailable), but many infrastructure issues were resolved soon after the earthquake.
How does the remoteness of the area help or hinder recovery and reinvestment?
Giovacchini: Alaskans tend to be prepared for post-disaster conditions (due to the harsh winters) with stores of food and water and the ability to sustain long periods of time without replenishing supplies.
Some of the most obvious damage was to roads, which of course hinders the ability to get needed supplies for rebuilding, but the state got the roads back up and running relatively quickly. Since many areas are still in evaluation mode rather than rebuilding mode, the remoteness hasn’t been as much of a factor.
Is this something that was in any way expected? When we think of earthquakes, we normally think of California. Is Alaska part of that same fault line, and does it have a history of this type of seismic activity?
Giovacchini: One of the reasons that there was so little catastrophic damage here is because Anchorage has very strict building codes. This came in response to a massive earthquake here in 1964, the largest earthquake on record in the United States with a magnitude of 9.2. Anchorage was essentially destroyed, many lives were lost and it generated a massive tsunami that caused even more damage.
Since then, this area has had strict building codes (which many people grouse about), but it seems to have resulted in preventing the damage and devastation that would have been expected from this event. The area where Anchorage is lies along the same “ring of fire” fault line of the Pacific basin. They get small earthquakes pretty regularly, but a 7.0 is unusual.
They were about as well-prepared as possible, and that’s other cities should take away from that event. Be familiar with your climate and the natural disasters that tend to occur in your area, and create a plan ahead of time so the guesswork is removed from any post-disaster scenario.
Is separate insurance coverage available for people who live in earthquake-prone areas or is it just part of standard policies? Does having an earthquake change your coverage needs or the availability of coverage?
Giovacchini: Separate coverage is available but not required by lenders, so you will see many people having to reach out to the state and federal governments for grants to assist with recovery costs.
Earthquake coverage tends to be very expensive when compared to homeowners insurance policies, and it tends to have a very high deductible. To give you a sense of the numbers, earthquake coverage might run an additional $1,000 a month and have a $70,000 deductible.
Ryland: Earthquake coverage is not part of a typical policy anywhere. In the state of California, insurers are required to offer coverage, but homeowners are not required to purchase it. In many areas that are considered less prone to earthquakes, insurers are not even required to offer the coverage.
How can real estate investors assist in the aftermath of a disaster? While I’m sure people think of them as ‘bargain-hunting’ under these circumstances, how are they actually aiding in an area’s rebound?
Giovacchini: In the wake of disasters, investors can provide a source of liquidity for homeowners. Even though an investor might be buying at below-market value, for a homeowner with severe structural damage and no earthquake coverage, having someone come in and take the home off of their hands is a better outcome than having to stay in a damaged home.
Investors also bring in structural engineers to evaluate the conditions of properties they are interested in, so that is helpful to everyone since these experts are overextended in the aftermath of a natural disaster like this. They can also help reassure buyers of the condition of properties, which is good for the market as a whole.
With investors come non-traditional sources of financing, which can be valuable for homeowners who need to refinance or tap into home equity in order to make repairs or meet insurance deductibles. These can include private financiers and hard money lenders who can provide capital for rebuilding and reinvestment.
What else should our readers know about this particular incident, or post-disaster relief and recovery in general, from your perspective?
Giovacchini: Learning from the past and letting it inform zoning and building codes, and keeping them up to date over time, saves lives and prevents catastrophic damage. There are areas that are not putting the investment into infrastructure upgrades because, short term, the return is not there and it’s hard to get people to invest in long-term scenarios. But in the event of a disaster, those improvements can make all the difference.
As a real estate professional, reaching out to clients with information about state and federal grants that are available to help with recovery is a valuable way to ensure that people are getting what they need to recover and rebuild.
Ryland: For real estate agents, you should be aware of how close your market is to a fault line/zone as well as the history of the area — what the building codes and requirements are like and what the response has been to any prior incidents.
In terms of the individual homeowner, a good home inspection is a valuable resource for protecting the home. In most cases, homes that are built to code will be able to maintain their structural integrity. The problems that manifest in the aftermath of an earthquake will often be secondary damage.
For example, ruptured gas lines present a huge danger in the event of an earthquake, so strapping the water heater to the wall for additional stability can make a big difference in safety. That’s the kind of thing that a good home inspector can check for and recommend if needed.