Some owners have already started the process of consulting with a structural engineer or an all-In-one construction company that will design the structural plans, formulate the tenant habitability plan and perform the construction. Although an all-In-one company may seem easier, it could end up costing you more money.
Iconic Investments attended the UCLA Anderson Forecast presentation on December 6, 2016. The main theme of the 2017 forecast was “Trumponomics” - how Donald Trump's fiscal policy will affect the US economy, and the elements of his plan. Post-Election, the financial markets have seen an immediate and sharp rise in the stock indices,
In today's capital markets banks are lending money, however, since the election we have seen interest rates increase over .75 bps. Below are some tips to help you navigate through the loan process. Fixed Rate Mortgages are a good choice right now as interest rates are expected to continue to rise over the next few years.
Iconic Investment’s Peter Strauss sold Casa Cabrillo Apartments, a 16-unit apartment building at 2731 W. 15th in Los Angeles for $2.2 Million. Our marketing efforts generated eight competitive offers ranging from $1.85 to $2.2 million. The property closed escrow $120,000 above the listing price, which set a new record
Peter Strauss of Iconic Investments chatted with Mark Weinstein founder and president of MJW Investments about the LA market and his future plans. Mark is leading his firm's expansion in the student housing market as the company, known for its value-add investment and development, continues to search for SoCal multifamily opportunities.
Iconic Investments’ Peter Strauss sold Habitat, a 23-unit apartment building at 3333 San Marino St. in Koreatown, for $5.35 million. The sale price equates to $232,608 per unit and $358 per square foot with a pro-forma cap rate of 5.25 percent post renovations. The buyer has the ability to renovate and remodel the entire building
Currently in Koreatown, there are more than 5,000 apartment units with 200,000 sq ft of retail either under construction or planned. Most of the projects are ground-up construction, while some developers are converting existing office buildings into apartments. Developers of the new projects expect a stabilized cap rate of 5.5%
Anyone who operates multi-family properties knows that tenant evictions are always an uphill legal battle. The burden of proof is squarely on the landlord, and the courts almost exclusively favor tenants - particularly when the apartment unit is under rent control.
In California, thanks to the recently passed AB2819, this uphill battle just got steeper.
In September, Governor Brown signed AB2819 into law, changing the civil code regarding eviction records.
Now, unless a landlord obtains a judgment against a tenant within 60 days from filing of the unlawful detainer, the results of the case will be permanently sealed.
As anyone who has ever dealt with a legal eviction before knows, it is almost impossible to obtain judgment in under 60-days. Tenant rights advocates and attorneys can easily request a jury trial or file frivolous court motions, tactics designed to extend the eviction case beyond 60 days and prevent a judgment.
AB2819 means that there will be no record of the unlawful detainer or eviction, making it more difficult for landlords to perform proper tenant screening.
There is nothing to prevent tenants from jumping from building to building, skirting the system, with free legal aid and laws to protect them.
BELOW IS OUR ADVICE TO LANDLORDS:
Relationship - The first step is to feel comfortable with the person you’re doing business with. Remember, you’re hiring someone to shepherd your investment through good and bad, and to strengthen the value of your assets. Make sure that their goals are aligned with yours. They should promote their ability to increase rents, lower expenses, and limit your headaches - especially compared to managing the property yourself.
Communication - As with any relationship, communication is key to success. Ask the candidates how they communication with their clients, and how you can communicate with their owner, staff, on-site managers, and staff. It’s very important that the management candidates are well organized, work well with people, and understand the needs of owners - your needs specifically. Confidentially “shop” other properties that the company manages to determine how quickly they respond to you and how well they are trained. Ask them: “How quickly does the management company respond to service requests?” “Does the management company work well with residents?” Be sure to speak with a variety of on-site managers, and not just the ones at their best buildings.
Geography - It’s important that the management company both specializes in and is located in the same general neighborhood as your property. When maintenance issues arise, the management company needs to respond quickly. If the firm is in the South Bay and your buildings are the Valley, it’s too far. Make sure the management company has other buildings in your area, and maintenance crews are in the area several times a week. I would confirm this by asking for a list of other properties they manage in the area, and then drive by to see the condition of those buildings.
Fees - Management companies are competitive, and compensation varies from building-to- building. Typically, you can expect to pay 5% as a starting fee. If income at your property is low, or your building is small (under 25 units), you can expect a fee of $35-40 per unit per month. Management companies charge additional fees for repairs, renovation of units, advertisement, signage, and preparing of paperwork. You can work with the management company to establish a budget and even give the company the right to initiate repairs below certain thresholds without asking every time. Final tip: be sure to ask if the management company charges a fee on top of vendors’ invoices.
Accounting & Reports - Professional management companies typically use Yardi Voyager or AppFolio, both have powerful bookkeeping and accounting software package designed specifically for property management. Yardi Voyager or AppFolio allows you to go online and instantly access current rent rolls, income statements, profit and loss statements, and a variety of other reports. Depending on how the software is utilized, management companies can be very specific on reporting costs. Expenses can be broken down to specific categories, and shown on a gross, per-unit, or per-square foot basis. Before hiring a management company, make sure their reports are approved by your accountant who will be preparing your taxes.
Vacant units - Make sure to ask what services the management company will provide when you have a vacancy. How will they market the property, screen prospective tenants, and most importantly, ensure that your unit gets filled quickly and at top dollar? Most property management companies rely on Westside Rentals, Craigslist, Hot Pads, Rad Pad and management company websites, and banners. Check out the properties the companies have listed on these sites. Is the listed unit well described? Does it have multiple pictures of both the interior and exterior of the property? Strong online presentation is very important - many prospective renters make up their mind based on the pictures they see online.
Initial meeting - In your initial meeting, you should have prepared notes on your expectations and needs, and make sure that the candidates can satisfy them. Make sure to cover staff, field supervisors, maintenance crew, bookkeepers and on-site managers. Make sure to outline what level of involvement, if any, you want in the management of the property.Tip: During the walk-through of your property, a good property manager should notice things that are wrong with your building, and be quick to give advice and answers on how to resolve the issues, including estimated costs
In October 2015 the Los Angeles City Council unanimously approved one of the nation’s toughest retrofitting ordinances, mandating seismic upgrades aimed at improving earthquake safety in over 14,000 buildings throughout the city.
This guide is designed to help property owners understand and navigate the complex process of compliance with the Tenant Habitability Plan, which is a core requirement that must be fulfilled prior to retrofitting work being approved or permitted. We believe every property owner should be informed.
The Tenant Habitability Plan is a new requirement that has been imposed jointly between the Los Angeles Housing & Community Investment Department and the Department of Building & Safety to ensure property owner compliance with all housing regulations when conducting construction and upgrades. Most property owners are unaware of this new requirement, which can be lengthy and complicated.
The Tenant Habitability Plan was originally adopted by the City of Los Angeles to encourage owners of apartment properties to renovate and update their properties. A key benefit of the Plan was that property owners could perform improvements and pass through a portion of the associated costs to the tenants. The Tenant Habitability Plan is of great value for multifamily property owners who elect to update and refurbish properties at their own discretion, but not necessarily for owners under the burden of mandatory compliance with ordinances such as the soft-story retrofitting requirements.
Property owners must provide every tenant with:
Property owners must provide an individual plan for every unit in their building.
Key Items to Consider:
Owners of properties built prior to 1979 must obtain a comprehensive lead-based paint and asbestos report from a licensed contractor. Testing generally includes interior walls, doorways, windows, and ceilings. In addition, all exterior stucco and roofing is also tested. All asbestos and lead based paint must be properly treated and abated prior to commencement of retrofitting.
The Notice of Work must be served to all tenants 60 Days prior to commencement of retrofit work.
Tenants do not have to agree to the owner’s plan and may appeal the Tenant Habitability Plan with the Los Angeles Housing Department.
Application package must:
The Department of Building and Safety will not issue permits for retrofitting work prior to receiving approval from the Housing Department that the Tenant Habitability Plan has been submitted and approved.
In October 2015 the Los Angeles City Council unanimously approved one of the nation’s toughest retrofitting ordinances, mandating seismic upgrades aimed at improving earthquake safety in over 14,000 buildings throughout the city. This ordinance directly affects owners and tenants of apartment buildings built prior to 1978 with soft, open, or weak wall lines. This typically corresponds to building sections supported by slender columns with larger tuck-under parking at the ground level. These properties have been deemed to be most at risk in an earthquake event.
In this guide, we’ll help you to understand if and how this ordinance may affect you and your tenants, and how to navigate the complex process of compliance. We believe every owner should be informed.
Moderate to severe earthquakes are common in Los Angeles and throughout California. The 1994 Northridge earthquake killed 57 people, many resulting from collapses of soft-story apartment buildings, and caused approximately $20 billion in damage. At the time it was considered to be one of the deadliest and most expensive natural disasters in US history.
The likelihood of another major earthquake occurring in Los Angeles is high, and city officials want to minimize both the potential for loss of life and economic impact. City officials acknowledge it is not a question of if, but when.
The Los Angeles City Council and Mayor Garcetti’s office recently approved a mandatory seismic strengthening ordinance that affects two groups of buildings known to be vulnerable to earthquake damage. These are:
The “soft story” or soft line/weak line building configuration is common to apartment buildings in Los Angeles, and is known to be especially vulnerable to earthquake damage and potential collapse. The proposed ordinance will require landlords to reinforce and strengthen these properties. The Los Angeles Department of Building and Safety has so far pre-identified approximately 13,000 buildings within the city limits that have a condition.
The ordinance, which is now law, requires owners of vulnerable buildings to complete seismic upgrades within 7 years once they are notified that their buildings must be strengthened. Within 2-years after service of the order the Building Owner must submit to the Building Department a structural analysis and/or plans that demonstrate compliance or include the proposed structural alteration to meet the requirements of Division 93. Within 31⁄2-years after service of the order, property owners must obtain all necessary permits for rehabilitation or demolition.
The ordinance, in it’s current form, has designated priorities to help in the implementation and enforcement. These priorities focus on buildings presenting greatest risk to loss of life first. The priorities are as follows:
Priority I: Buildings with 16 or more units;
Priority II: Buildings with 3 or more stories, and 16 or less units;
Priority III: Buildings not falling under the definitions of Priority I or II.
It is important to note that, once an owner is given notification of retrofit requirements on their property, a notice of work required is recorded on title.
A SWOF (Soft, Weak or Open Front) retrofit will typically include the addition of steel moment frames along the open parking areas and are designed to not obstruct the existing parking. Walls surrounding the parking areas may require strengthening with plywood structural panels before new finishes or stucco is re-applied.
The cost of such retrofits vary widely and will likely range between $30,000 to $250,000 for wood-frame buildings, and likely over $1 million for concrete structures.
Costs are totally dependent on the specific building configuration and scope of work. Construction durations for soft-line strengthening are often 60-days (+/-) and must be carefully planned to avoid tenant relocation or habitability disruptions.
The design, acquisition of building permits, tenant notifications, and construction coordination can be compressed into 6-months but often take longer due to variables.
The building codes currently in force 2014 LABC and 2013 CBC do not provide perfect guidance to Engineers on how to address SWOF conditions. Additionally, there are a variety of methodologies in existance to improve building strength and stability. This has been a source of confusion among practicing structural engineers and building officials.
The ordinance draws from model codes but is expected to only target localized SWOF deficiencies and not the entire building (except in rare cases) - thereby limiting the scope and the costs. The performance outcome is to create a more earthquake resilient Los Angeles.
New funding and financing options are developing such as:
A proposal is currently before the City Council that would allow owners of rent controlled properties subject to the ordinance to pass a portion of the costs to tenants through a rental increase. The exact dollar amount and time-frames have not yet been finalized, but the Council is debating a rate of between $38 and $50 per month for five or seven years. At best, this option will allow owners to recapture some of the actual costs associated with retrofit.
Property owners may also elect to pursue creative financing solutions - essentially secondary loans - available through lending programs that include the AllianceNRG PACE.
Governor Brown recently vetoed AB428, a bill which would have provided owners with a 30% tax break on the costs of retrofit. New legislation may arise to fill this gap.
In March & April of 2016, Peter Strauss of Iconic Investments listed and sold five multi-family apartment buildings in Los Angeles. The apartment buildings were located in Koreatown, Los Feliz, Pico-Union, Highland Park and Hollywood. Iconic Investments' market efforts generated great interest from a large number of buyers, resulting in multiple offers on each of the five properties. If you're looking to sell any of your apartment buildings, call Iconic Investments! Our marketing program has proven to net sellers the most amount of money.
Los Angeles Mayor Eric Garcetti on Friday signed the nation's strongest earthquake safety laws, requiring that the owners of an estimated 15,000 buildings most at risk of collapse during a major quake make the structures stronger.
Garcetti's move came after the Los Angeles City Council voted 12-0 in favor of the plan, which caps decades of debate over whether the city -- located in the heart of California earthquake country -- should force building owners to retrofit structures that could fail.
Studies estimate that a massive earthquake in the Los Angeles area could kill 3,000 to 18,000 people and cause up to $250 billion in damage.
The ordinance targets two of the most dangerous types of buildings: brittle concrete buildings and wood apartment complexes with weak first stories, which have killed more than 65 people in Los Angeles’ last two major earthquakes.
The mandatory upgrades will be costly. Many wood apartment retrofits can cost $60,000 to $130,000, and taller concrete buildings can cost millions of dollars to strengthen.
Owner groups now say they agree that fixing the buildings is essential.
“We want the buildings to be safe,” said Martha Cox-Nitikman, vice president of the Building Owners and Managers Assn. of Greater Los Angeles. “But we need to figure out how we get people there without ruining businesses.”
Wood apartment buildings will be given seven years to complete construction once an owner is ordered by the Department of Building and Safety to retrofit the building. Owners of brittle concrete buildings will have 25 years to do the work.
How the retrofits will be paid for is a work in progress.
The City Council has not decided how costs will be shared between tenants and owners of residential buildings. The law currently allows owners to increase rents up to $75 a month to pay for a required earthquake retrofit, but both sides say they do not think Los Angeles renters can afford such a hike.
The city’s housing department has suggested that renters and owners pay for the retrofit on a 50-50 basis, allowing owners to charge a monthly maximum surcharge of $38 to pay for the seismic retrofit. (Apartments in Los Angeles built before Oct. 1, 1978, are generally under rent control, which means the city restricts how much the rent can be increased annually.)
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Call me for additional information and to find out how this new regulation may affect you.
While most owners focus on creating income growth through rent increases and unit turnover, top-performing owners intensely focus on expense reduction and management of controllable items. Simply put, in today’s market a simple reduction of overall expenses by $4,000 per year = $100,000 of increased property value.
I always suggest that clients inspect their books and buildings at least twice a year looking for cost-cutting opportunities. Here are some good places to start:
Overcrowding is a common reason for high utility bills. Make sure the number of tenants in the unit is equal to the number of people on the lease.
Check all units for leaky showers, tubs, faucets, and running toilets.
Replace toilets to dual-flush or low-flush systems, minimizing the amount of water used - you can get significant rebates or even free toilets from the LADWP.
Install low-flow shower heads & faucet aerators.
Replace all common area lights with LED.
If your building is master metered, incorporate added fees for the use of wall/window air- conditioning units.
“Go Green” with your landscaping and use sustainable plants to limit water usage.
Top-performing owners shop their insurance yearly looking for the best rate possible. They combine multiple properties onto policies, and enure that their coverages match their needs. One client recently told me how he reduced his insurance from $4,800 to $2,600 on a $1.2 million property just by making a few calls to his insurance agents.
Trash removal is another source of potential savings. Last year’s financial review, I suggested a client shop his rubbish removal service. This suggestion lead to a 50% reduction in costs, from $1,400 per month to $750 per month, on a 24-unit building. It pays to shop around. A few minutes could save you hundreds and earn you thousands.
Most landlords don’t realize labor costs typically exceed material costs. The best way to reduce ongoing maintenance and repair costs is to use higher quality and more durable materials. Top performers will spend a little extra for the shower valves with solid brass fittings, kitchen faucets with metal spouts, durable porcelain tile or thicker 12mm laminate flooring. Spending a little more on materials up front could save you big in the long run. Here are afewmoresuggestions:
Take preventative measures to avoid roof leaks and issues by having a qualified roofer inspect your roof yearly and make minor repairs. This is especially important in this “El Niño” year.
Jet your sewer lines every 6-12 months to prevent messy back-ups and clogs. The jetting process removes built-up debris in the pipes and will greatly reduce your plumbing bills. Top-performing landlords also remove garbage disposals and add strainers to showers to help prevent clogs.
Regularly ensure that your water pressure regulator is at the correct PSI. If pressure is too high it can cause water heater and other leaks, lead to dripping faucets, and erode pipes. Using correct water pressure will also reduce your sewer bills as less water is passing through the system.
LA's apartment market is so hot, even a building that's 42% vacant with zero cash flow can find a buyer like Lion Real Estate Group, which snapped up the 60unit Sherman Apartments with plans to renovate the Koreatown property for urban professionals. The property traded at a 1.34% cap rate on inplace rents.
Both sides were represented by Iconic Investments' Peter Strauss, who tells us the biggest hurdle wasn't the building's vacancy but rather the extensive work required. The buyer needs to gut 23 units down to the studs and put in all new systems: plumbing, electrical, roofing. "This wasn't just an apartment building with a large number of vacancies. This was literally a construction project." Every major buyer in LA looked at the property, he says. "We had over 20 property tours that yielded seven offers, and led to a bestandfinal pool of three buyers." Lion, which owns and operates more than 600 units in LA, plans to spend $1.2M on improvements in order to reposition the property to appeal to young urban professionals. Rents average $650 to $750 for a studio unit, likely increasing to the $1,095 to $1,195 range after everything's done, but he expects it will be six to 12 months before the buyers see any cash flow.
Sherman Apartments' seller, a Commerce based private investor, owned the building for more than 40 years. The property was built in 1926 and is near three Metro stations in a gentrifying area of Koreatown, Peter says. He's seeing large numbers of people relocate to LA from New York and Boston for work, and these folks are accustomed to riding the subway. “To live in Koreatown just feels right, and they get these beautiful 1920s properties similar to what they had back east.” Peter's family includes wife Paula, son Ethan, and the newest addition: onemonthold daughter Ruby.
