Preview: Soft Story = Hard Times

Many apartment owners in the San Fernando Valley are now feeling the tremors from a law passed by the Los Angeles City Council requiring costly retrofits so buildings can better withstand earthquakes. Notices recently started going out telling owners whether they are affected. That means many owners are facing construction jobs that could cost tens and possibly hundreds of thousands of dollars. Up to half the cost eventually can be passed on to renters, but owners say that in the meantime it’s a hardship for them to pay the upfront costs entirely by themselves. They are being squeezed, they say, because with most of the targeted buildings under rent control, what would be a normal way to pay for improvements – raising rent quickly – is not available to them. Insurance won’t cover the costs, and banks aren’t likely to make a loan because any repayment is limited by rent control. Cameron Eghbali owns two apartment buildings in the Valley – North Hills and Canoga Park – that require retrofits under the new law. Construction on the larger one is estimated to cost between $80,000 and $120,000, he said, and he will likely have to pay in cash upon completion. The city is limiting how much of the cost he can pass onto his tenants, he says, and in how much he can raise rents to help pay for the project because about half the units – about 15 of them – are rent-controlled. Getting a loan to pay for the project is also unlikely because the rental income falls short of lender requirements, Eghbali added. “This is a complete nightmare,” Eghbali said. “Where are we going to come up with so much cash? If they’re (the city) forcing us to come up with the cash to pay for such an expense, they should at least let us come up to market rate (for our rent-controlled units). Basically you’re under a squeeze from both sides.” Read the full story in the May 16 issue of the San Fernando Valley Business Journal.