SF Apartment : June 2016


Small But Safe

by Kilby Stenkamp

I noticed a lot of construction as I was driving across town the other day: new development, sewer line replacement in the Lower Haight, and a number of soft-story retrofits. By now we all know that the city has mandated full seismic upgrades on 5-plus-unit buildings. I started thinking about the economics of a full seismic retrofit of 2-4-unit buildings. San Francisco’s market for smaller 2-4-unit buildings is dominated by Victorian and Edwardian architecture. These are wood-framed buildings and might not withstand a big earthquake. The owner profile for these types of properties tends to be owner-occupiers and individual owners. (Commonly, 5-plus-unit buildings are owned by non-owner-occupier investment groups.)

According to John Pollard, owner of Soft-Story Solutions and SF Garage, a retrofit can run from $70,000 to $200,000 or more, depending on the property. Right now, the city is working through the four soft-story tiers, none of which include buildings with fewer than five units. While there is currently no legislation regarding 2-4-unit buildings, it is widely anticipated to follow the completion of tier 4 in 2020. (For more information on the different tiers and their timelines, see the feature on page 16.)

Pollard has realistic concerns on the impact of mandatory soft-story retrofits on the smaller-property owners, something I am also curious about. It’s been my observation that 2-4-unit buildings often have long-term tenants, or have been sold individually as TICs, many of which then go on to become condos. The smaller condo associations tend to have modest HOAs or work on a pay-as-you-go model, not keeping large reserves.

San Francisco’s Chief Resilience Officer Patrick Otellini was appointed to the city’s Soft-Story Task Force in 2010. According to Otellini, the goal of the task force is retrofitting “potentially dangerous soft-story buildings.” This position is an innovative city government role that was created to promote communication between different government agencies, local businesses, and internal organizations; problem solving; and reporting back to the mayor. This position was pioneered by the Rockefeller Foundation and is meant to help cities around the world become more resilient to physical, social, and economic challenges.

According to Otellini, the United States Geological Survey forecasts a 76% probability of a major earthquake in the next 30 years. He relayed that while no legislation has passed, San Francisco is anticipating mandatory seismic upgrades for 3-4-unit properties by 2025. He went on to say that the 5-plus program has had 99.99% compliance, the most successful compliance rate of any seismic retrofit program in U.S. history.

Constant outreach for information and resources has helped 5-plus-unit retrofits succeed. The city launched a finance program with a 20-year term that compliments the 100% pass-through time line for seismic retrofitting cost, which also contributed to the program’s success. Under current law, property owners can pass through 100% of the cost of retrofitting to tenants, with a 20-year amortization.

The city coordinated with primary lenders in San Francisco to come up with programs to assist owners in financing their retrofits. Many 5-plus-unit property owners have opted to refinance and pull equity out of their properties while rates are low. San Francisco properties are often an owner’s largest single asset. Otellini acknowledges that there are slightly different issues associated with 3-4-unit soft-story buildings. I’m confident he’ll make sure the small 3-4-unit property owners have the same successful compliance results.

Scraping Data
A lot of the content in this article came from Hoodline (hoodline.com), a site that provides real-time, comprehensive, neighborhood news. Hoodline is a good way to keep track of developments like soft-story retrofitting. Hoodline also scrapes a labyrinth of technology and city departments for data, including permit hearings and planning meetings. According to the site, its mission is “to provide the most comprehensive, relevant information, and insights about the places where you live, work, and play. In doing so, our vision is to help readers lead more informed, engaged, and fun lives within reach of their front doors.”

Hoodline started as a local neighborhood blog, Haighteration, which covered daily stories in the Lower Haight. Today its writers cover 37 neighborhoods, with plans for expansion. Recently, Hoodline partnered with ABC 7 to air a weekend edition every Thursday from 4 p.m. to 5 p.m. Hoodline attributes its success to its six-person editorial team, freelance writers, their technology to scrape databases, and local tipsters who have been responsible for over 2,000 stories. Currently they are venture capital funded and generate a small revenue from advertising.

I recently had the pleasure of talking to Hoodline’s Jes Wolfe (business development) and Eric Eldon (editorial). They cover real estate projects; city data; in-depth reports on what’s really happening in neighborhoods—like who’s moving in and the sustainability of businesses. During our candid conversation, I learned that the Upper Haight has quietly become a national destination for urban street wear clothing, for example. They want to get deeper into the function of each neighborhood: local businesses, neighborhood associations, how the neighborhood works, and what makes it a desirable place to live.

Our City by the Bay
As San Franciscans, we should embrace our diverse and colorful city, while also making it a safe place to live. I interviewed quite a few people while doing research for this article, and I was so impressed to find that all of them truly care about San Francisco and want to maintain our rich, colorful, and diverse city. A big thanks to John Dallas, member of the Board of Directors of the Alamo Square Neighborhood Association, for his input on the article. He also gave me some great info on the upcoming Alamo Square Park renovation. Stay tuned to Hoodline for the latest updates.

Kilby Stenkamp is a realtor in the Noe Valley office of Hill & Co. She can be reached at kilby@hill-co.com or 415-370-7582.