Colliers forms new taskforce to advise apartment owners as city officials issue stern fix-it-or-else retrofit orders as fears rise in wake of deadly Mexico quakes
LOS ANGELES, October 31, 2017 – Rather than face costly city requirements to reinforce thousands of Los Angeles apartment buildings deemed likely to collapse during the next major earthquake, owners of so-called “soft-story” structures are increasingly opting to sell their properties as deadlines for compliance approach, according to a new taskforce formed by Colliers International to specifically address seismic retrofit issues.
In early 2016, city officials made public a list of about 13,500 apartment properties with open, weak or otherwise “soft” support structures at the ground level that would likely need to be reinforced to prevent collapse during a major seismic event like those recently experienced in Mexico. Colliers responded to the list by forming a taskforce that advises and counsels owners on options available to them.
The L.A. Dept. of Building and Safety began sending orders to comply to owners of these soft-story apartment buildings on a rolling basis. Those seen as the biggest risk were notified first, with less-risky properties notified later. On Nov. 6, 2017, the city will start sending out the last of these orders, the receipt of which jumpstarts a seven-year timeline that property owners must adhere to by law.
In reaction to city orders, there has been a spike in owners listing and selling their multifamily properties rather than pay what many consider onerous costs to correct the problem, or brave what promises to be a complicated back-and-forth process with city officials. Brokers at Colliers who specialize in multifamily properties have confirmed the surge in sales, especially among small investors who wish to divest themselves of properties they’ve owned for decades and effectively pass the work on to new ownership.
Reza Ghobadi, a senior vice president for Colliers who represents buyers and sellers of multifamily properties across the San Fernando Valley as well as in the Tri-Cities submarket of Pasadena, Glendale and Burbank, has negotiated the sale of five such apartment properties with a combined total value of more than $17 million so far this year, including three buildings that closed escrow in the past two months.
All had what’s commonly referred to as “tuck-under parking” in common, a popular feature for wood-frame apartment properties designed in the mid-20th century that allowed tenants to park underneath their second-story units. Proven dangerous in recent years, the unstable design first gained traction in the post-war years as the car became king in Los Angeles and Angelenos were increasingly moving north and west.
Recognizing a need for professional guidance in the face of city requirements to retrofit these vulnerable apartment buildings, Colliers’ Greater Los Angeles offices joined forces to form a team of subject matter experts who now offer a wide range of services for the thousands of owners who received an order to comply. Led by Senior Valuation Services Director William Drewes, the team offers services for owners who want to sell and enlist brokerage services, as well as for those who want to undertake the upgrade and may need assistance in the form of project management or financing.
One such owner who engaged Colliers’ specialized services was a man in his eighties who had owned a soft-story multifamily property for 18 years. After receiving the city’s order to comply, he called Ghobadi for advice.
“After I met with him, he decided to sell and exchange the property for something else,” Ghobadi said of the seller. “People just don’t want to deal with the retrofit. Landlords are getting back some of the cost by increasing rents, but they don’t want to spend tens or hundreds of thousands of dollars up front. It’s a hardship for many of them.”
So far, owners of nearly 2,000 of those buildings have responded to the order, including 335 who have completed the entire process, according to the Department of Building and Safety. That still leaves thousands in need of seismic upgrades. Rather than deal with the complications of updating their buildings, however, Ghobadi said many owners prefer to sell while demand remains strong.
“These owners are capitalizing on the market, and they get high prices for their buildings. At the same time, they get rid of the headache brought on by the soft-story retrofit requirements,” he said. “If the market were not so hot, it would be a different scenario.”
Just this year, Ghobadi has sold five properties on the city’s list for seismic retrofit. They include:
James Williams, another multifamily broker with Colliers whose geographic focus spans most of south and west Los Angeles, said he has also seen a rise in the number of owners who are looking to sell soft-story properties rather than make the upgrades themselves. Several thousands of the affected properties are located within his area of expertise.
“Many current owners are kicking the can down the road,” he said. “Those getting it done now are bigger, long-term or Type A owners who got on it right away. But most of these owners are smaller mom-and-pop investors, and cost is their biggest concern. They start to dig into it and realize, ‘Oh, this is a headache,’ so they sell.”
About Colliers International Group
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