Future Los Angeles Multifamily Sales Onslaught/LA Retrofit Law

[Jason Insalaco]

 Owners of thousands of Los Angeles wooden apartment buildings at risk of collapse in a major earthquake will begin receiving retrofit orders as early as February 2016, according to the Los Angeles Times. 

The LA City Council recently enacted the strictest seismic regulations in the nation that will impact an estimated 13,000 "soft-story" wood frame buildings. Seismic retrofits are estimated to cost between $60K to $250K for wood structures. Soft-story wood-framed buildings have large openings where parking is tucked underneath. 

Orders to comply are expected to be released in the next year or two. Those compliance orders will require the owners to submit a plan with permits within two years. Folks, this is going to be costly. 

I suspect this will lead to a large inventory of soft-story hitting the market within the next 2-3 years. Owners struggling with cash-flow or lacking financial reserves could be especially susceptible to selling soon.  Apartment brokers will surely be stepping up their aggressive calls to apartment owners to amp up this new ordinance to boost their commissions and listing inventory. 

It looks like there will be opportunity for investors to find lower cost multifamily properties in the next few years, albeit, with the inevitability of significant future repair costs for soft-story buildings. This new City council ordinance might be the catalyst that raises cap rates in the city of Los Angeles. It will be interesting to see if neighboring cities like Glendale, Burbank, Culver City, Pasadena and Santa Monica enact similar ordinances. 

I am wondering if other BP'ers sense opportunity in the market? How do you think it will change Cap rates? Will this lead to the exodus of mom and pop owners lack the resources to comply with these retrofit orders?

More on the LA Times story here:

http://www.latimes.com/local/lanow/la-me-ln-la-bui...