Wild Fires Fuel Loan Risk Exposure

The wild fires raging through California are fueling commercial loan risk exposure. According to credit rating agency DBRS, there are approximately 10 properties with a total loan balance of $300 million of risk exposure as a result of the Hill and Woosley fires in the Los Angeles area. These properties are located in areas where the fires have occurred. FEMA, however, has designated the entire county of Los Angeles a disaster impact area, which inflates the loan risk exposure numbers significantly.

Tracking loan exposure during natural disasters is part of DBRS’ standard oversight. “We look for areas of potential exposure so that we can send questions to the servicer, and the servicer does that once the event happens,” Gwen Roush, VP of North American CMBS at DBRS, tells GlobeSt.com. “Once the event happens, we can get a firm county of the number of properties and that is really where the work to get our arms around the potential exposure begins.”

Because the fires are ongoing and could potentially spread, it is more difficult to get a handle on the potential risk exposure than in other types of natural disaster. “Our process was different with the fires,” says Roush. “With a hurricane, for example, usually within hours of the event, FEMA will designate counties, and we will use those county designations to identify where the potential exposure is. We have even gone so far as to take projected impact maps and then widdle that down once the event actually happens. The initial list that FEMA put out essentially designated the whole of L.A. County.”