Bracing for Disaster

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The recent swarm of earthquakes felt throughout Los Angeles was warning shots across the bow for all of us, but perhaps most significantly for those who own real property in Southern California.

A closely guarded study conducted several years back by the University of California at Berkeley was recently released publicly indicating that of the 1,500 “nonductile” concrete structures in Los Angeles studied, approximately 75 have a high risk of collapse in a major earthquake. More concerning are the area’s so-called soft-story multifamily residences, which might be as many as 20,000 according to research done by Caltech in 2011. At that time, only an estimated 800 had been seismically strengthened.

Soft-story apartment buildings are generally three or more stories high located over ground-level expansive openings containing car ports, parking garages or retail stores with large glass windows. The Northridge Meadows apartment complex, which fell during the 1994 Northridge Earthquake killing 16 people, was one of 200 soft-story buildings to be damaged or destroyed in that disaster. Similarly, soft-story construction was responsible for nearly half of all the damaged homes in the 1989 Loma Prieta quake in the Bay Area.

While aware of the frightening statistics presented in these and other studies, our city leaders had not focused on the issue. This changed in November when the City Council, led by Councilmen Mitchell Englander and Tom LaBonge, authorized the development of an inventory to determine empirically the number of soft-story residential buildings in Los Angeles. LaBonge also raised the prospect of a city mandate that property owners undertake a required seismic retrofit.

Several California cities have experimented with ordinances promoting voluntary compliance in retrofitting earthquake-prone structures. Unfortunately, very few property owners stepped up to the plate because they saw no way to pay for the work. Subsequently, San Francisco changed its retrofit ordinance from voluntary to mandatory. Our experience with this change reveals that building owners are generally frustrated with the process.

One way to pay for this work would be to pass through the cost of seismic retrofitting to individual tenants. Since many of these properties were built before 1978, in Los Angeles they are rent controlled, limiting a property owner’s opportunity to raise rents. Under the current rent control ordinance, rehabilitation projects must be approved in advance by the Rent Adjustment Commission, which also authorizes a surcharge that can be passed along to the tenants. Unfortunately, there are significant limitations to this surcharge, which can be no more than 1/60 of the rehabilitation cost for each unit paid at a rate of $75 or 10 percent of the monthly rent, whichever is greater, and has a five-year term that can only be extended under limited circumstances. This makes it impossible for an owner to recover costs.

Sharing costs

We suggest that the pass-through of costs to retrofit soft-story multifamily properties be shared on a proportionate basis between owners and renters, with the latter’s portion amortized over a period as long as 20 years. Realizing that the tenants will change over the years, the surcharge will reside with each unit.

An alternate strategy might be to provide a property tax credit to apartment owners who retrofit their properties, incentivizing them to undertake the work. Voluntary compliance is generally preferable to governmental mandates.

Many multifamily property owners don’t know that there is help available in other places to finance the cost of earthquake rehabilitation. In San Francisco, for example, some owners will be able to utilize Mello Roos bonds to secure low-cost financing for periods as long as 20 years.

Retrofitting soft-story multifamily buildings is a critical economic issue for property owners. There is the issue of liability if a project has previously been identified as structurally risky and later collapses. Additionally, most lenders are reluctant to provide financing on these properties if they haven’t been properly retrofitted, thus precluding both sale and/or refinance. This is particularly true with the federal agencies such as Fannie Mae and Freddie Mac, which require retrofit or earthquake insurance on soft-story buildings. Insurance companies are increasingly reluctant to underwrite seismic coverage for such properties.

In summary, the retrofitting of soft-story multifamily properties is not only in the interest of owners and tenants, but is in the public interest. As such, the process needs to be driven in Los Angeles and elsewhere by governmental policies that provide a mechanism for owners of these properties to recoup their costs.

John R. Donaldson is president of JDC, a San Fernando Valley construction company specializing in the restoration and revitalization of multifamily properties. Joshua Marrow is Technical Director, Structural Engineering Group, of Partner Engineering & Science Inc., a Torrance engineering, environmental and energy consulting firm.

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