What Commercial Property Owners Need to Know About Mandated Blackouts

October 29, 2019

Planned power outages may prove to be the new norm for West Coast cities plagued by wildfires.

Pacific Gas & Electric (PG&E) recently enacted widespread blackouts in northern and central California, while Southern California Edison issued smaller blackouts around the same time to reduce the risk of wildfires amid dry conditions and fierce Santa Ana winds. PG&E's CEO told regulators that such widespread blackouts could be the norm for the next decade, NPR reports.

Mandated blackouts to prevent wildfires – and ultimately protect the area's residents – can impact the multifamily sector by forcing apartment residents to face hours or days without lights, heat, air-conditioning, hot water, refrigeration and internet access, as well as forced evacuation. Bloomberg reported the economic impact of the recent PG&E blackout could reach $2.6 billion.

Are Blackouts Necessary?

Mandated blackouts to reduce wildfire risk don't come without debate. State officials and consumer advocates quickly criticized PG&E's October 2019 power outage, which affected about 730,000 residents, for being too widespread. Southern California Edison, meanwhile, faced criticism for not cutting power to the Saddle Ridge area in the northern San Fernando Valley, where in mid-October about 8,000 acres and over 100 structures burned after a fire started under a high-voltage transmission tower, according to the Los Angeles Times.

Wildfires have become an extremely sensitive issue for utility companies. California's deadliest and most destructive fire in the state's history was the 2018 Camp Fire, which scorched over 153,000 acres, killed 85 people and destroyed 14,000 residences. It was blamed on power lines, according to USA Today.

The United States experienced 11 weather and climate disaster events with losses exceeding $1 billion in 2018, according to the National Oceanic and Atmospheric Administration (NOAA). The federal agency said 11 western states had at least one wildfire that exceeded 50,000 burned acres in 2018. Most were in California and Oregon.

How to Prepare Your Multifamily Property for a Blackout

Multifamily property owners and managers should prepare for the next blackout by answering these questions:

Does the property have adequate backup power sources? What areas of the property are or will be covered by backup power generation?

How will the property handle security? If the property uses a building card access system, it may not function on emergency power, according to Bisnow, which interviewed commercial property owners and managers about what they should do in the case of a blackout. Will extra security guards be needed to check IDs or monitor darkened buildings?

Does an evacuation plan exist and how detailed is it? A wildfire can jump a freeway and race up to a property in minutes. Powering down transmission lines could prevent a wildfire, but multifamily property managers and owners need to prepare for such a scenario.

How will management communicate with residents about mandated blackouts and during blackouts, and how will they help residents prepare for them?

How Blackouts Could Impact CRE Investing

An Urban Land Institute report suggests there's a need for better understanding of investment risk posed by climate change. Since certain areas are historically prone to wildfires, it is in the best interests of real estate investors to stay informed of such risks while researching investment opportunities in wildfire-prone regions.

Areas deemed more prone to future blackouts could face adverse impacts such as higher insurance rates as environmental, weather and climate risk can impact insurance coverage, according to the National Apartment Association (NAA).

Just as real estate investors consider the risk of natural disasters such as flooding, hurricanes, and earthquakes, they'll also want to look at a property's risk for wildfires and power blackouts and respond accordingly.

“An eventual downward repricing of higher-risk assets will be the market's way of redirecting capital to locations and individual assets where it is expected to be better insulated from these particular risks," the NAA found in a report on the issue.

With hundreds of thousands of residents impacted by this latest wildfire risk, property owners should keep safety in mind first and foremost.

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