Work record / Development / Soft-Story Retrofits
Soft-story retrofits: paying for the mandate Los Angeles handed down
Los Angeles ordered landlords to retrofit thousands of buildings and gave them no way to pay for it. In 2017, as CEO of Tellus, I built a retrofit line that answered the money question first.
The seat
I was the Chief Executive Officer of Tellus Design and Build, and this work ran from April to October 2017, in Los Angeles. Soft-story retrofits were a service line of our own. I launched it from the top seat at Southern California's first green construction company, and it was not a client engagement.
| Sector | Residential construction and municipal compliance |
|---|---|
| Type of work | Service-line launch with financing |
| Where | Los Angeles, California |
| Years | April to October 2017 |
| How long | Seven months |
| Through | Tellus Design and Build. |
| Credits | Common Ground Jesse Fowler, Chief Executive Officer, Tellus Design and Build |
What I was brought in to decide
Los Angeles passed Ordinance 183893 in 2015. The council approved it on October 9, and it took effect November 22. It requires a seismic retrofit of wood-frame buildings with two or more stories, built to codes before 1978, that have parking or another open floor beneath the apartments above. Buildings like that failed in the Northridge earthquake. Anything with three units or fewer was left out. Each owner's clock starts the day the notice lands, with two years to file plans, three and a half years to get a permit, and seven years to finish the job.
The city counted about 15,000 buildings on its list. Small landlords owned most of them, and they had no capital budget for code work they never asked for. A retrofit adds no rent either, which leaves a bank nothing to lend against. The mandate produced demand and gave nobody the means to pay.
What we did
- I looked at who actually owned the buildings on the list, and that moved the problem. It was no longer about the contractor's capacity. It was about whether the owner could pay.
- Tellus became a Ygrene-certified PACE contractor. That let us arrange financing that is repaid through the property tax bill, alongside the construction contract, and we did not have to send owners off to find money elsewhere.
- We partnered with a structural engineer, so the report that sets the scope of a retrofit lived inside the same relationship as the money and the construction.
- Tellus had run this same play twice before. Around 2012 we pulled plan expediting, then architecture, in house. Around 2014 we went from contractor to design-build. The move never changed. Spot the errand a customer would otherwise run alone, take it on ourselves, and close faster than the firm that left it outside. In 2017 that errand was money.
- We rebuilt intake so financing questions come before scope questions. Who holds the building? What is the parcel worth and where does the lien position stand? Are the taxes current? What did a conventional lender say? Who can sign?
- We ranked lead channels by how exclusive they were: referrals from engineers first, city compliance notices second, and the PACE contractor directory last. Every lead passed the same screen, and one proposal covered both financing and scope.
- The engineer partnership was announced in April 2017, and the Ygrene certification followed in October 2017.
Results
- We launched the line with 100 percent PACE financing available and the engineer under the same roof.
- An owner who used to face three separate errands, an engineer, a lender and a contractor, now dealt with one relationship, and had an answer on the money at the first meeting.
- We never drew a proposal for a parcel unable to carry the assessment, nor for anyone without the authority to sign for it.
- The volume the mandate promised did arrive, and it went to whoever took away the payment constraint. By 2023 a University of Colorado study counted about 8,100 retrofitted buildings in the city, with owners spending about $1.3 billion.
The lesson
A mandate creates demand, and it does not create the ability to pay. Settle the money question before anyone draws a proposal.
Public record
- PRWeb: Tellus Design + Build partners with local engineer for mandatory soft story retrofit program (April 2017)
- PRWeb: Tellus Design + Build becomes Ygrene certified contractor (October 2017)
Stories from this work
Questions about Soft-Story Retrofits, answered
Firm record
Common Ground keeps its own account of this engagement: Soft-Story Retrofits on the Common Ground wiki.