Fear of an earthquake—or more specifically “the big one”—is starting to concern some investors. Some investors are actually trading out of the Southern California market or cashing out their portfolio out of fear that an impending earthquake will affect real estate values and cause costly damages. While this trend isn't enough to impact the investment market here in a significant way, it is a concern that investors are factoring into investment decisions.

Some people are afraid of an earthquake. Everything looks great now, and we have no crystal ball, but we all know that we are over due for an earthquake. Many sellers are cashing out and moving out of state or moving their money somewhere else,” Michael Koshet, off-market multifamily specialist at KW Commercial, tells GlobeSt.com. “The closer that we get to 2018, the more that I hear sellers actually bring up the work earthquake in the conversion, or the word retrofitting. I feel like those sellers are taking advantage of where we are in the cycle and the pricing and selling their properties. I find that smart.”

Southern California routinely has small earthquakes. Yesterday afternoon, Southern California saw a small 2.5 magnitude earthquake in Piru, CA. Koshet isn't concerned about these. He says his clients are more frequently mentioning an massive earthquake, like the 8.2 magnitude earthquake that many experts predict is capable in the SoCal region. “A 4.4 earthquake is nothing. Imagine if we got hit with an 8.2 magnitude,” he says. “We would have brick buildings falling and red tags across the region. That would mean that bank would get foreclosures and prices would be cut by one-third or even in half. It is a possibility and it is real. Just because we haven't had an earthquake in a long time doesn't mean that we won't. In fact, it means that we are up for one.”

Koshet recently completed a portfolio sale, and while the seller was motivated by several market characteristics, earthquake concern was a factor. “I just sold a seven-property multifamily portfolio for $51 million, and they mentioned earthquake concerns when I approached them,” says Koshet. “From their point of view, they cashed out. If we have an earthquake tomorrow, and they are going to be very happy because they are liquid. They won't need to worry about repairs and damage.”

Koshet says that they aren't the only owners concerned or thinking about getting out of the California market. “There is a hairline of fear that owners could lose a significant portion of their wealth by not taking advantage of the market right now,” he says. “There is a pretty strong argument for why sellers should take some money off the table.”

Instant Insights /

Is Earthquake Fear Driving Investors Out of SoCal?

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