By: Dilip Khatri, PhD, SE | Principal Khatri International Inc.

Los Angeles is on the “Ring of Fire”.  The Ring of Fire circles the perimeter of the Pacific Ocean refers to areas of the high seismic activity because of multiple tectonic plates that have been moving/grinding against each other for millions of years.  It’s no surprise that we are in the center of seismic activity with total unpredictability.  The Earthquake risk element affects every aspect of life in Southern California, most notably our buildings where we live, work, and entertain, because it poses a threat to our very existence.

The Soft Story Ordinance, passed by the City of Los Angeles in 2016, encompasses residential and commercial buildings (4 or more units) that have a weak story line which leads to potential catastrophic circumstances:  The entire upper level may collapse on the weak first story.  In order to minimize this structural calamity, the Soft Story Ordinance requires building owners to upgrade/fix/enhance their buildings to reduce this risk.

Figure 1

Figure 1 demonstrates this principle and shows the collapse mechanism.  It’s no different from having a heavy object on “stilts”.  A lateral force applied to the upper floors will cause the structure to tip over.  The objective of the Ordinance is not to save the building/property.  Rather, the prime and single goal is to save the People inside the building.  Many property owners don’t realize this objective, and its important to be clear that the Ordinance is not trying to save property values, it’s main object is Life Safety.

The L.A. Ordinance officially affects approximately 14,000 buildings but that number is changing because new buildings are being added to the list, and other Cities in Los Angeles County are decidedly passing similar Ordinances.

Figure 2

There are several engineering options available to resolve this dangerous condition.  At least five repair options are to be considered:

• New Steel Moment Frames
• Strengthening existing Steel Moment Frames
• Strengthening existing Wood Shear Walls
• New Wood Shear Walls
• New Steel Flagpole Columns

Figures 2 and 3 show a few schematics of a Steel Moment Frame and Wood Shear Wall.
My advice to owners is to look at each of these options and evaluate the “best choice” from an economic feasibility standpoint.

Figure 3

Each property is unique and requires personal attention of a structural engineer and contractor. It’s definitely not a “one size fits all” scenario.  Look around, shop around, and do some diligence before you commit to a specific solution/vendor approach.  The time lines for compliance are 7 Years from the date of notice, 2 Years for plans and permits.  If you are interested to learn more about the Soft Story Ordinance, this author has produced an online video for your reference: https://vimeo.com/194302379

Dr. Khatri has 31 years of civil engineering experience involving land development, subdivision, commercial, residential, multi-family, industrial, and educational facilities. Design, construction, and overall management of major infrastructure improvements comprising sewer, water, storm drain, flood control, and grading design.

By Justin Alanis via Multifamily Insiders

A gradual shift in the American Dream from home ownership to renting has some U.S. developers of multifamily housing and real estate market analysts (like the CoStar Group) worried over a threat of overbuilding. The concern is that the rapid increase in rental demand will eventually (and soon) dwindle, leaving a plenitude of “sitting empty” apartments and apartment buildings.

Others though — like the market researchers who attended the annual National Multi Housing Council meeting earlier this year — contend that as a whole, the industry remains safe from being over saturated with building.

“While the pipeline in some markets is at worryingly high levels (see Which Markets are at Most Risk of Over Development? below), the national supply is within normal levels,” said Bendix Anderson of National Real Estate Investor.

Mark Obrinsky of the National Multifamily Housing Council (NMHC), also doesn’t believe we are overbuilding multifamily. “The rebound in the single-family home market doesn’t mean that the multifamily market is overbuilt, Obrinsky said.

The construction rate remains below the demand for new apartments — even in the midst of the somewhat unimpressive economic recovery. “Demand requirements outpace the supply pipeline,” said Jubeen Vaghefi, international director and leader of Jones Lang LaSalle’s Multifamily Capital Markets. “This year, expected deliveries of new product will be 12 percent below historical average delivery levels.”

How Does the Real Estate Cycle Factor Into the MultiFamily Overbuilding?

When kicking around the overbuilding multifamily debate, it is important to note that local real estate development is cyclical. It includes periods of accelerated new growth, oversupply, high vacancies, followed by periods of declining rent, slowed down construction and lower prices. Then, we see an absorption of excess supply, lower vacancies, leading to an increase in prices and rent. This starts the real estate cycle over again with accelerated new construction. And as the economy improves and bank financing becomes easier — a period that we’re in now — multifamily gains momentum.

Which Markets are at Most Risk of Over Development?

While there are experts on both sides of the fence as to whether the nation as a whole is overbuilding multifamily, there are some clear ideas on overbuilding in certain segments of the country in the views of some multifamily finance professionals.

According to Apartment Finance Today’s annual CFO Survey of 100 multifamily finance professionals, markets most at risk for overbuilding include D.C. and Seattle, where 15 percent and 10 percent of the CFO respondents, respectively, indicated as their belief as areas most at risk for being overbuilt.

Atlanta and Jacksonville, Florida are other areas that are in danger of being overbuilt, says Greg Willett, vice president of research and analysis for MPF Research. That said, in Washington and Raleigh for example, Willett is certain that overbuilding is temporary in both those markets. “They’re very attractive long-term investment markets, due to their healthy overall economies and great renter demographics,” Willett says.

Points to Ponder

“There are people who will be making the transition to homeownership sooner and there are people who will be making the transition later. And some never will. That’s always been the case, but that last number will probably be larger,” says Rolf Pendall, a housing expert at the Urban Institute.

The rental culture is changing and not just in real estate. Younger generations are embracing renting. They rent rather than own movies through streaming, they share bikes instead of buying their own (Philadelphia and New York as examples of this growing trend), and they even share cars rather than bearing the cost and responsibility of car ownership (Zipcar is an example).

The multifamily market (both on the construction side and rental side) isn’t going away anytime soon. The fact of the matter is that it is contributing to the nation’s economic recovery, however lackluster that may be. Clearly we’re in the early stages of the multifamily development cycle, but how far away are we from overbuilding?

Justin Alanis is the Co-Founder and CEO of Rentlytics Inc.  Rentlytics is based in San Francisco, CA providing deep analytics for apartment property owners and managers. View and analyze property operational and financial metrics more effectively and identify issues.