For Valley Landlords, Seismic Deadline Looms

The million-dollar question right now is which will strike first — the year 2022, or the Big One? “The Big One,” of course, refers to the decades-anticipated major earthquake which threatens to devastate the state, while 2022 holds significance as the deadline L.A. Mayor Eric Garcetti has imposed on owners of soft-story apartment buildings to retrofit their structures in hopes of minimizing damage, injuries and loss of life when the big quake hits. With three years left to work, many Valley complexes haven’t even started to comply with the seismic regulations, experts tell the Business Journal. “Soft-story” refers to apartment structures also known as “dingbats” or “tuck-unders” that provide housing built above ground-level parking. During an earthquake, the bottom story is vulnerable to collapse. Soft story resonates with real estate professionals in San Fernando Valley in the aftermath of the Northridge Earthquake in 1994. At the Northridge Meadows Apartments, 16 people died when that complex fell. The quake claimed 57 lives citywide. Some building owners are acting responsibly: Encino-based Marcus & Millichap realtor Janette Monfared noted that her clients Nicholas and Peggy Davidovich retrofitted their $5.2-million asset at 18600 Burbank Blvd. in Tarzana with Alpha Structural construction, and she knows of many others who have complied with the ordinance. However, statistics show that not nearly enough multifamily landlords are stepping up. Many are hesitant to retrofit because they would have to couch the cost of retrofitting into the rent and tenants would balk at the idea of a rent hike. Owner denial Michael Koshet, a multifamily broker at KW Commercial in Encino, worries about the Big One. He has seen from the trenches how landlords avoid investing in making their buildings safe, and it troubles him. “Every day that goes by that they’re not doing this, they’re putting lives in danger,” Koshet said. “Every day they’re playing with fire.” Koshet, who follows earthquake reports closely, believes that landlords are facing a monumental case of denial. He added that scientists are saying California has been waiting for the shoe to drop for 25 years. “It’s the biggest gap that we haven’t had a real shaker, since 1994,” he said, adding that before the Northridge quake, “we went 160 years without a shaker.” “We have five major fault lines and one can trigger the other,” Koshet continued, ticking off fissures in Hollywood, San Jacinto and Loma Linda. “Oxnard has a huge fault line more dangerous than San Andreas right under the beach. … We have an invisible clock.” Garcetti has been proactive in his drive to minimize damage from an imminent major quake. The L.A. mayor championed one of the most stringent set of earthquake rules in the country, which the City Council passed in 2015. Managed by Los Angeles Department of Building and Safety, the rules require soft-story owners to reinforce the structures of their buildings within seven years. Yet the city’s multifamily real estate remains vastly underprepared. Out of 12,842 soft-story buildings in Los Angeles, 2,132 have met retrofit requirements and 4,215 buildings have had permits issued as of April 12. Additionally, 9,054 buildings have submitted plans to receive their permits for completing retrofits. Crunch the numbers and that leaves roughly 10,710 apartments vulnerable to being flattened if a quake struck today. Koshet believes that L.A. is too lax on enforcing Garcetti’s ordinance. “The city doesn’t want to apply pressure because they’re going to get hit by the landlords,” he said. Depending on the job’s complexity, a building retrofit may run between $200,000 or $300,000, Koshet estimates. The retrofit usually involves steel beams shaped like an upside “U” that go down into the ground. The retrofitters have to break the concrete below to make sure this supplemental beam, placed to offset a lot of motion, is bolted into the building. Unaddressed dingbats in jeopardy of collapsing pepper the Valley. They line major boulevards like Sherman Way from Warner Center to North Hollywood. A Tarzana building with three structural columns that Koshet recently transacted underwent a $50,000 retrofit. “Of these three poles, there are six units above that,” Koshet said. “Now let’s just say there were two people per unit, that’s 12 lives lost (in a collapse). Twelve lives that can be protected for $50,000.” For landlords and real estate investors, the retrofit makes sense from a liability and financial standpoint, Koshet believes. “You have people who have a portfolio with hundreds of buildings, and they borrow from one to buy the next. If they had an interest-only loan and minimal equity, they’re going to hand keys back to the bank. If 50 percent handed their buildings to bank, now banks are selling them 10 cents to the dollar to get them off their books and they’ve crashed the economy,” he said. Retrofit contractors Garcetti’s ordinance has spawned an industry of retrofitters racing to meet the 2022 deadline, including construction companies such as Retro Experts and Cal-Quake. Eli Fitlovitz, chief operating officer of Tarzana-based Retro Experts, had been a commercial broker since 1986 — working for the now defunct Re/Max Commercial branch in Woodland Hills and later Peak Century 21 in Woodland Hills — when he anticipated the retrofit demand. He founded Retro Experts in April 2016 “because being in the business, I knew this was becoming mandatory,” he said. Since then, business has been bustling. “It’s been extremely busy,” he said. “We have about 400 projects in the pipeline and, as of today, we have completely finished 180 projects.” Even though the Valley appears more suburban than L.A., Fitlovitz said there’s vulnerable multifamily structures on both sides of the hill. Valleyside, the communities of Van Nuys, North Hollywood, Canoga Park, Woodland Hills, Winnetka and Reseda have myriad older buildings. “A lot of people are totally behind (in retrofitting),” he said. “Only about 13 or 14 percent have complied so far. A lot of people are postponing it. It’s like an IRS letter you get and put in the drawer.” But the longer owners wait, the more costly it will get, Fitlovitz predicts. “Pricing is only going to go up because the city is increasing the requirements,” he noted. “The smart ones are doing it early.” While the construction takes about two months, the full process is about eight months to a year, from design, engineering and plan check to the tenant’s habitability program, Fitlovitz said. A lot of the process depends on city bureaucracy, which Fitlovitz warns will worsen as 2022 approaches. Cal-Quake is a retrofitter headquartered in West Hollywood, but founder John Taferner said the majority of its work is in the Valley. When this ordinance passed, he had nine soft-story jobs in places such as Long Beach and Hayward and Oakland in Northern California. He currently has 300 jobs on the books, with a thriving office in the Bay Area and he’s considering opening a third outpost in the South Bay. “They’re not going to finish in 2022,” Taferner said. “If they don’t make their dates, there are hefty fines.” Taferner has sped up his average retrofit job from 60 to 90 days to 40 days. “Instead of designing independently around the building, we’re using the existing framing,” he said. “We’re getting away from sheer walls, using gray beams and single columns.” Koshet feels banks and lenders should do more to encourage retrofits. After all, it’s in their interest because, in the wake of a disaster, the banks will be forced to eat the dead assets of owners who borrowed to purchase their buildings. “(Banks) should create incentives to do retrofitting almost interest-free,” he said. “If these buildings fall, there goes your equity.” Koshet’s message to soft-story owners is simple: fix it. “Take advantage of the healthy economy we’re in right now,” he said. “(If you don’t want to retrofit), sell it.”