Comparing Two Legislations That Impact California Investors
More and more owners are beginning to learn about SB-721, more commonly known as the “Balcony Law.” Drafted in response to a tragedy in Northern California, it increases the likelihood structural issues are addressed before tragedy occurs again.
This article is not to address the pros and cons of the legislation, it’s pretty straightforward, the pros are that it saves lives and reduces the frequency of a major capital improvement project impacting owners and tenants, the con is it is going to cost more money; more money spent by owners and additional costs of enforcement and bureaucracy that ultimately trickles down to tenants. What we would like to bring to the attention of everyone involved is what we can learn from the last major piece of legislation focused on the structural components of multifamily property. There are numerous parallels in the legislation, implementation time, and most importantly the financial impact on owners.
Similar to Soft Story Retrofit in Los Angeles and other cities, the costs were obvious to legislators and ample time was given for implementation. In the case of SB-721, legislation was passed in 2019 and the first required inspection must be completed by 1/1/2025. Another reasonable part of this legislation is that there are three levels of inspection results; a passing grade, non-life-threatening recommendations and potentially life-threatening repair requirements. Since the passing of the law, multifamily owners who have had an inspection certified would have that inspection serve as the mandatory inspection required prior to 1/1/2025 and all subsequent inspections would have to occur every six years. Less than 4% of all buildings requiring an inspection in the State of California had completed an inspection by 1/1/2023.
In fact, in our most recent simple survey of owners inquiring about their knowledge of SB-721, 40% of owners were unaware and less than 10% said they had completed an inspection. We saw a similar lack of proactive inspections by owners during the lead up to soft story retrofit implementation and it affected owners’ costs dramatically. We have been tracking inspection and repair costs and are seeing them gradually increase as we get closer to 1/1/2025. With 90% of the owners still needing an inspection, apartment owners will have to pay a premium to get inspections and work done within the required time frames. Additionally, as we get closer to the deadline, we will also see owners who are in the sales process increasingly bearing the cost of work yet to be completed or inspected. As of this writing, future balcony costs are rarely a negotiation point between buyer and seller. In today’s market where the buyer and seller gap has widened, an additional cost will only further complicate completing transactions.
While we do expect to see costs increase as we get closer to January 1, 2025, the next few months might be the optimum time to address the SB-721 issue. We are seeing an increase in highly capable inspection firms and construction professionals entering the “Balcony Law.” An increase in firms while the number of inspections is still low should get apartment owners reasonable inspection rates, and repair costs as these firms look to establish a track record of satisfied customers.
In short, most balconies, exterior walkways, landings, and stairs have seen little or no routine maintenance and inspection schedule. In a coastal climate with periods of high humidity it’s likely that most properties with these exterior features will need some work. As we have tracked this issue and prepared our comprehensive report (#getithere) we have established relationships with some highly qualified professionals in this space. Now may be the best time between now and January 1, 2025 to get this done.
Contact our team to learn more about how your property complies with SB-721 or if an immediate inspection is necessary.
562.269.4844
info@centennialadvisers.com