By Patricia Kirk  Jan 27, 2025 8:00am

As Los Angeles County fires swept through local communities, hotels and restaurants cast a lifeline to rescue workers and residents displaced by towering infernos that have already resulted in 28 deaths and leveled large swaths of the Pacific Palisades, Altadena, Malibu, Brentwood and Topanga.

Local Hoteliers and Restaurateurs Offer Helping Hand

Many hotels are providing free stays or discounted rates for fire victims, and restaurants and food trucks throughout the region offer free meals for first responders and evacuees. (See lists in Los Angeles Times.)

“Everybody in this industry is trying to be helpful,” said Jackie Filla, president/CEO of the Hotel Association of Los Angeles. She noted, for instance, that Hilton Hotels and Airbnb are providing free temporary stays for fire victims through LA211, an online community service resource that connects local residents with needed services.  Hilton for example, is providing up to 20 free room stays or seven nights for individuals and families, she added, noting that hotels also are serving as collection sites for donated items, such as clothing and household items needed by people who lost everything to start over.

“Bridge programs like that are going to be really helpful as we move into transition, which we expect hotels to be a prominent part of,” Filla continued. “And to that end, we’re working closely with city, county and FEMA officials to integrate into their plans.

“The large corporate efforts are notable and really important, but even the small mom and pops are trying to figure out ways to make it easier for evacuees,” Filla said, noting that while they have less flexibility on pricing, smaller hotels are doing whatever they can to help, such as eliminating the hotel tax and destination fee, throwing in free parking and meals, and relaxing hotel policies. She cited examples of hoteliers’ flexibility, particularly in taking in people with pets, including a request to accommodate guests with three exotic birds and a large lizard.

Hotels Ready to Serve Both Fire Victims and Visitors

While the Eaton fire northeast of Los Angeles, which devasted Altadena, is largely contained, other fires and continued high winds threaten lives and homes in some communities, Filla stressed that the region is still welcoming tourists and visitors for planned events, such as conferences and sports and entertainment events.  She noted that initially event organizers and visitors contacted LAHA members concerned that booked reservations would interfere with the needs of fire victims.

Filla said that a few events were canceled in the first few days after the fires erupted, like a Lakers game, but everything is back to normal throughout unaffected areas—which is most of the region, including the city center, home to Los Angeles Conference Center and sports arena, and popular tourist destinations, such as Santa Monica, Venice Beach, Hollywood, Beverly Hills’ Rodeo Drive, the Museum District, the Inglewood SoFi sports and entertainment stadium, and Universal Studios and CityWalk.

What to Expect in Aftermath of Fires

Affected communities will rebuild to a higher standard of fire resistance, as cities like Los Angeles has already implemented new construction codes with significantly higher fire-resistant requirements and construction methods designed to better withstand wildfires

The $200-million Palisades Village, a relatively new mixed-use development by local developer Rick Caruso, for example, survived the Palisades fire with minor damage because it was built with fire-resistant materials.  Understanding the Palisades’ propensity to fire, Caruso also proactively hired private firefighters to protect the property and brought in water tankers to ensure an adequate water supply.

Some homes also survived because they were built with fire-resistant materials, like concrete or stucco and had fire-resistant roofs and tempered, double-pane windows, which are more resistant to fire than single panes.

These fires, however, are likely to add another crippling blow to a property insurance market that is already suffering with high rates and limited availability and coverage, suggested Alan Reay, president of Atlas Hospitality Group, a hotel brokerage and advisory firm focused on California assets.  “Even before these fires, we had seen an incredible jump in insurance costs and combination of difficulty in getting insurance,” he said. “And for those hotels that were able to get it, there were increases of anywhere from 200 per cent to as high as 500 and 600 per cent, especially if you were up in the Napa wine country.

“I think these most recent fires are going to make it even more difficult, even more expensive,” Reay continued.  “I think what’s going to happen in California is that they’re going to, you know, tack those costs onto existing policies, which make it even more expensive.”

High Premiums Just Part of the Story

Many insurers licensed to do business in California, or “admitted insurers,” have cut their losses by pulling out of the state altogether, including State Farm, Allstate, Cincinnati Insurance, AmGUARD, Falls Lake, The Hartford, Tokio Marine Insurance Co, American National, and Trans Pacific Insurance.

Los Angeles-based Chip Stuart Practice Leader for the Real Estate Specialty practice at global insurance brokerage Hub International noted that insurers remaining are not renewing policies or writing new business.  Additionally, he said that deductibles have more than doubled over the past five years, going from $5,000 or $10,000 to $25,000 and insurers remaining in the state are limiting their liability by lowering the coverage ceiling to $2.5 to $5 million.

To secure sufficient coverage, commercial-property owners in high-risk California markets are utilizing firms like Hub, which put client insurance needs out for bid in the wholesale market.  Stuart explained that the wholesale-line or surplus market consists of “non-admitted” insurers—out-of-state companies not licensed to do business in California. These companies charge especially high premiums, because they must pay a 3 per cent tax to the state to sell insurance in California, which is passed on to clients.

Taxes collected, however, go into the state’s FAIR fund, an “insurance-of-last resort” program for homeowners and businesses unable to obtain private insurance. The FAIR program is managed by the state, but insurance coverage is provided by “admitted” insurers. California’s Fair Plan offers coverage of up to $3 million for homes and $20 million for commercial properties. According to reports, demand for the FAIR Plan increased by 164 per cent since 2019, accounting for roughly a half a million policyholders as of last June.

Wholesale-line insurers have treaties (contracts) with reinsurers but have restricted policy coverage ceilings to no more than $5 million, Stuart said. Therefore, insurance brokers like Hub must piece together multiple policies to provide commercial property owners adequate insurance coverage to meet lender requirements, including coverage of damages related to Climate-related events.

High Costs Now Affecting New Hotel Development

Reay also noted that high insurance costs, along with high construction and labor costs, access to and cost of financing, and an onerous entitlement process, are causing some hotel developers/investors to shy away from California markets. 

A year-end 2024 survey of hotel developers by Altas Hospitality reported that 35 hotels opened throughout California, down 34 per cent from 2023.  Meanwhile, 124 hotels are under construction with 16,468 rooms and 1,186 more hotels, with 153,560 rooms are planned.

The report noted that due to these factors lenders are pulling away from new hotel construction, which continues to apply downward pressure on new hotel development, as well. 

Barry LePatner, founder of the New York City-based law firm LePatner & Associates LLP and LePatner Project Solutions LLC noted that property insurance costs and coverage play a critical role the investment market. “Everybody in the real estate world understands that insurance is the basic underlying element of getting a loan,” he commented, noting that if you can’t get adequate coverage or are paying ridiculously high premiums for increased risk, then lenders aren’t willing to be a backstop for development in such a high-risk areas.

The survey also found an increase in the number hotels that have started then stopped construction and are now in default on their loans or in bankruptcy.  “We predict that in the near term the future for hotel construction will remain weak as investors focus on purchasing existing hotels at discounts to replacement cost,” wrote the authors.

(Photo courtesy of Pacific Southwest Forest Service, USDA/Flickr)