Partner to be at SF’s Earthquake Retrofit Fair

Partner Engineering and Science, Inc. (Partner) will be attending and exhibiting at the upcoming Earthquake Retrofit Fair taking place January 28th from 3pm to 7pm at the Bill Graham Civic Auditorium in San Francisco.   This fair is being presented to help building owners navigate the requirements of San Francisco’s Mandatory Soft Story Retrofit Ordinance.  The fair is being organized to bring together design professionals, lenders, contractors, and property owners and is free to attend.

The fair seeks to provide a forum for building owners to get questions answered about complying with the Mandatory Soft Story Ordinance as well as provide the opportunity for building owners to meet with design engineers, contractors, and lenders.   They are expecting over 100 booths and it is being billed as the one-stop-shop for earthquake retrofit.

Please stop by our booth and introduce yourself.  We will be on hand to answer any and all questions.  Partner has extensive experience evaluating buildings in San Francisco and has already worked on designing retrofits as part of the city’s Mandatory Soft Story Ordinance.  Due to our extensive experience in building evaluations associated with the financing of commercial real estate, Partner is able to be nimble and service oriented, while seeking to ensure that the structural investigation is completed with integrity and the rehabilitation is designed and constructed appropriately and cost effectively.

Soft Story Ordinance – Real Estate Finance and Owner Issues

The Mandatory Soft Story Retrofit Ordinance is not San Francisco’s first attempt at improving the future seismic performance of the building inventory.  In the 1990’s the City passed and executed a similar ordinance for unreinforced masonry buildings.  The ordinance had mixed success but proved to be challenging for lenders, building owners and tenants.  The new San Francisco Seismic Ordinance  targets the multifamily housing inventory.  The City has a goal of improving the seismic resiliency of the multifamily apartment housing inventory to ensure the residents will have a home to shelter should a significant earthquake affect the Bay Area in the coming years.

Lenders and building owners (borrowers) can be classified into a few distinct categories.  It is important to note that prior real estate due diligence efforts on the property may not have revealed the soft story condition.  This may be due to the fact that the lender does not require a seismic risk assessment (known as a Seismic Probable Maximum Loss Report for new loans and refinance transactions and/or the prior seismic risk assessments did not properly address building stability and the potential for localized collapse due to the soft story. 
Soft Story Building

San Francisco’s mandatory Soft Story Retrofit Ordinance requires a seismic retrofit of existing buildings identified as having a soft-story hazard.

Here are some of the key issues and considerations for lenders and borrowers in these categories:

1. Lender has a current note (loan) on a property that is on the soft story list

  • The lender may choose to assist the owner with retrofit finance through a second or whole asset refinance
  • The borrower may not have sufficient equity for a second, which could put the lender at risk of loan default and foreclosure
  • The borrower has cash to pay for the retrofit, not impacting the first note

2. Lender is considering lending on a property that is on the soft story list and has not been retrofitted

  • Fund the loan and require the borrower to retrofit within specific time.  Hold back funds and pay out through construction
  • Fund the loan and require the borrower to obtain a second to pay for retrofit
  • Require the borrower to perform retrofit before loan funds.  Proceeds of loan not used for retrofit work
  • Require earthquake insurance until retrofit is complete (not a good means to mitigate the threat to life safety the soft story condition presents

3. The owner wishes to retain the asset and perform the retrofit

  • Owner has sufficient cash to perform retrofit work
  • Owner requires financing for retrofit work in the form of commercial bank second, refinance of the first with holdback, private financing
  • Owner has insufficient cash and equity to perform retrofit, possibly impacting obligation to pay on first note
  • Owner has illegal units or potential ADA upgrade requirements due to the ordinance, increasing the cost and scope of the project

4. Owner wishes to dispose of the asset, in part due to the burden of the retrofit ordinance

  • The cost of retrofit, impact of ADA and zoning are too prohibitive to continue ownership
  • Buyer needs to perform retrofit or be subject to the terms of lender until completed
  • Property subject to the ordinance, and not previously retrofitted, may impact value
Partner has worked with a number of different lenders and building owners and learned that the process is confusing for both parties.  In a following blog we will discuss the suggested sequence of events to ensure the structural investigation and rehabilitation is designed and constructed appropriately and cost-effectively.

A Closer Look at San Francisco’s Mandatory Seismic Retrofit Ordinance

I recently attended the Soft Story Workshop on October 28th hosted by the City of San Francisco to help building owners understand the requirements of the Mandatory Seismic Retrofit Ordinance (66-13).  Notices were sent out on September 15, 2013 to owners with buildings that may potentially met the screening criteria:

  • wood-frame structure (Type V combustible),
  • containing five or more residential units,
  • having three or more stories, or two stories over a basement or under-floor area that extends above grade, and
  • permitted for construction prior to January 1, 1978

Owners are then required to fill out a screening form to confirm whether their building does in fact have these characteristics.  Assuming all four items are present the structure is subject to the ordinance.  The form allows the owner to “opt out” based on voluntary retrofits already completed in compliance with AB-094 Voluntary Seismic Upgrade Administrative Bulletin.  All screening forms are required to be returned to the City by September 15, 2014, so building owners have a full year to complete the screening process.

Even so, many building owners were on hand at the October 28th meeting in hopes of finding answers. Although there were some questions regarding financing, timelines, and pass-thru costs, most individuals had questions about the process of choosing qualified contractors and/or engineers.

Some of the participants I spoke with already had a contractor or engineer out to the site to either complete the forms or provide an estimate, and understandably the process only got more confusing, not less so.   Building owners should be weary of the information they receive if they are getting quotes directly from contractors before an engineer evaluates the building in order to avoid hidden fees.    Building owners are understandably uncertain as to whether they are getting sound and trusted advice when reaching out to professionals and are anxious to make sure that they are getting the best possible advice.

The City has not been clear on the suggested process for this seismic retrofit Ordinance and it is clear that the owners are confused by the lack of guidance.  There are many qualified engineers and contractors in the City, capable of executing a soft/weak story retrofit project.  The key issue I have identified is the engineer needs to be involved early before any firm construction bids are provided.  The retrofit solution is based on the engineer’s analysis and the identified seismic retrofit scope.  No matter what level of experience a contractor may have they cannot fully capture the required retrofit scope and cost of construction based on “past experience with similar projects.”  Only after a properly-designed retrofit solution is presented can a contractor provide a qualified and cost-effective bid.  Otherwise the uncertainty in the final design may likely be built into the cost.

The process is important and Partner will provide guidance on the suggested method to navigate this new ordinance, while providing a cost-effective retrofit solution that meets the life safety performance objective of the City’s mandatory seismic retrofit ordinance.

Partner Engineering & Science, Inc. is a transactional based due diligence firm that specializes in providing environmental engineering solutions for commercial real estate.  Our structural engineering and seismic risk (or Probable Maximum Loss) team has performed thousands of structural investigation and rehabilitation projects on wood frame residential buildings throughout the Bay Area and within San Francisco.  We have experience working for a diverse client base, representing lenders, brokers, and building owners, all of whom trust us to deliver results.  Due to nature of our business, we remain flexible, with your goals in mind, while problem solving to develop a solution that meets our client’s expectations.

Welcome to the Partner San Francisco Seismic Blog

Welcome!  Partner Engineering & Science (Partner) is excited to introduce this blog focusing on earthquakes and seismic risk issues in the San Francisco Bay Area.

Partner is a full service, national real estate due diligence and design engineering firm with our structural engineering practice headquartered in San Francisco and is directed by Joshua Marrow, P.E.  Joshua has over 16 years of experience in earthquake engineering and seismic risk assessments.  Our structural engineering clients include but are not limited to building owners, lenders, insurance companies, real estate finance brokers, borrowers, institutional investors, developers, architects and contractors.

Our engineering teams assess thousands of properties for physical condition and seismic risk every year, throughout the seismically active regions of the United States.  This blog is an outlet for our teams to share their knowledge and guidance of all things related to seismic risk and the challenges of living and doing business in earthquake country.  The topics can be broad, but with a specific focus on building construction and seismic risk in Northern California, with a particular focus on the San Francisco metro region.

Our contributors will provide industry insight and share noteworthy topics for discussion.  We invite participation from our readers and are available to discuss these topics over the phone or in person.  Of particular interest as of the date we started this blog is the San Francisco Soft Story Retrofit Ordinance.  Our engineers will provide  fundamental guidance for building owners and lenders to successfully navigate this new law.

We recently presented a one hour webinar on soft-story buildings, just prior to the adoption of this Ordinance into law.  We invite you to view it and contact us with any questions:

Partner Webinar: Seismic Soft Story San Francisco Ordinance