Transcription
Study Session:Seismic Safety Retrofit Program-Tenant Protections and CostConsiderations
BackgroundMarch 2017 – City Council adopted a comprehensiveseismic retrofit ordinance to increase safety of earthquakevulnerable buildings. 2,000 commercial and multifamily residential buildings to be evaluatedfor possible structural improvement.August 2017 – August 2018 – Building and Safety Divisionwill notify affected property owners of: Retrofitting requirements; Compliance deadlines; Appeal procedures.November 13, 2017 – Building and Safety will hold the firstof four seismic retrofit information sessions for owners andtenants of impacted properties.
Rent-Controlled Properties Subject to EvaluationBuilding TypeSoft Story 2 StoriesSoft Story 16 or more unitsSoft Story - 7 to 15 unitsSoft Story - 7 unitsTotal Soft StoryUnreinforced MasonryNon-Ductile ConcreteSteel Moment FrameTotal Other TypesNotice/Evaluation zed according to the Noticing Schedule established by the Building and SafetyDivision.Soft Story Building: Ground floor includes parking orother similar open floor space below one or more storiesof apartments.
City Council-EnactedTenant ProtectionsChapter 8.100—TenantProtection During ConstructionChapter 4.36—TenantRelocation Assistance Required Means & Methods Planfor occupied buildings If tenant is displaced due toseismic retrofit, they will beentitled to temporary relocationbenefits. Description and timeframe ofwork Potential impacts on tenants Mitigation plan to limit eachimpact Temporary relocation plan, ifnecessary Special requirements to ensurehazardous materials are properlyhandled Owner to provide monthlynotices to tenants for projects ofmore than 30 days Building Official to determinelength of relocation based oncondition If estimated time is exceeded,investigation conducted todetermine reason for delay Enforcement actions forunreasonable delays
Issues Presented to Rent Control Boardfor Consideration Will required retrofitting interfere with tenants’occupancy of controlled rental units? To what degree, if any, should owners bepermitted to offset their retrofitting costs bypassing along a portion of those costs to tenantsin the form of increased rents.
Rent Control Board-EnactedTenant ProtectionsRegulation 4200—RentDecrease Petitions Permanent loss of amenitiesand/or housing services If parking spaces or housingservices are permanentlyremoved, tenant may petition fora rent reduction. Unlikely that retrofit work willresult in permanent loss ofparking -- Temporary loss of parking—Cityexploring possibility of freeparking permits for properties inpreferential parking zones.Regulation 4400—RentDecreases for ConstructionImpacts Court of Appeal decisionlimits Board’s ability to grantrent reductions for necessary(mandated) constructionwork. Exceptions: Work is not performed in areasonable manner Work is not completed in areasonable time.
Cost of Seismic Retrofit Work City has estimated cost for a non-complex, two-story softstory retrofit to range from 5,000 - 10,000 per unit. Preliminary data from Los Angeles and San Francisco forcompleted retrofit work including: Structural evaluation reportBuilding plansPermit feesConstruction costs Los Angeles approximately 6,000 per unit San Francisco approximately 13,000 per unit
Other Financial Considerations Retrofitting a property can reduce earthquake insurancepremiums by up to 20%. Unlikely that retrofitting would result in significant premiumreductions for multi-peril insurance policies. Researchers at Caltech performed a cost-benefit analysis andfound that for every dollar spent on retrofitting, owners couldexpect to save up to 7 in repairs following an earthquake. Effects on income taxes would vary from owner to owner.
Soft-Story Controlled Buildings Subject toSeismic Retrofit Program 1,272 buildings with 10,854 units Date tenancy started 29% -- Long-Term Tenants--moved in before 1999(3,118 units) 16% -- Mid-Term Tenants--moved in between 1999 and end of 2008(1,740 units) 54% -- Recent Tenants--moved in since beginning of 2009(5,863 units) 1% -- No registered rent (owner-occupied or non-rental)(133 units)
Median Maximum Allowable Rent (MAR)By Tenancy Start Date and Number of BedroomsLong-Term Tenants (Pre-1999)Soft StoryUnit Details# of0Bedrooms 123 Count of Units% of Total# of Units1661,3161,2383983,11828.73%Mid-Term Tenants (1999 -2008)Recent Tenants (2009 - Present)MedianMedianAboveMedian AboveAboveMAR# of UnitsMARPeriod 1 # of Units MARPeriod 1 Period 2 735144 1,101 366587 1,479 744 378 835829 1,613 7782,961 1,900 1,065 287 1,040640 2,133 1,0931,969 2,536 1,496 403 1,292127 2,668 1,376346 3,169 1,877 5011,7405,86316.03%54.02% Median MARs for long-term tenants between 735 - 1,292 Median MARs for mid-term tenants between 1,101 - 2,668 Median MARs for recent tenants between 1,479 - 3,169 Recent tenants are paying between 378 - 501 more than midterm tenants and between 744 - 1,877 more than long-termtenants.
Share of Building Tenancies by Time Period 3% of properties (43) have all units occupied by long-term tenants. 21% of properties (273) have no units occupied by long-term tenants. 62% of properties (793) have half or more units occupied by recenttenants. 11% of properties (134) have no units occupied by recent tenants.
Current Santa Monica Rent Control Processfor Necessary Capital ImprovementsNet Operating Income Increase Petition Current net operating income is compared to netoperating income in the year prior to passage of therent control law (1978 – 1979) If analysis finds owner is not making a fair return,relative to the 1978 reference, reasonable andnecessary improvement costs may be passed throughto tenants as permanent rent increases.
What Other Cities are DoingDirect Pass-Throughs Los Angeles 50% of costs 10 year amortizationperiod Interest at federal 10-yearsecurities rateapproximately 2.19% 1% Monthly cap of 38 Pass-through eliminatedfor unit upon re-rental No hardship provision forlow-income tenants 26 average pass-through San Francisco 100% of costs 20 year amortizationperiod Imputed interest of 3% oractual interest up to 10%for fixed rate loans Monthly cap of 30 or 10%of current rent, whicheveris greater Pass-through eliminatedfor unit upon re-rental Hardship waiver for lowincome tenants. 74 average pass-through
Factors to be Determined if PassThrough Program is Adopted Percentage of the retrofitting costs to be passed throughto tenants; Amortization period and pass-through duration for thecosts; The interest rate, if any, to be included in pass-throughcalculations; Maximum monthly pass-through or cap; Which tenancies should be subject to the pass-through; Whether there should be any type of incentives (i.e. forearly completion of retrofitting work).
Retrofitting a property can reduce earthquake insurance premiums by up to 20%. Unlikely that retrofitting would result in significant premium reductions for multi-peril insurance policies. Researchers at Caltech performed a cost-benefit analysis and found that for every dollar spent on retrofitting, owners could
