Selling a Soft-Story Apartment Building in Los Angeles

If you own a soft-story apartment building in Los Angeles, you face a decision with significant financial consequences: retrofit or sell. The City of Los Angeles' mandatory seismic retrofit program (Ordinance 183893) requires approximately 13,500 wood-frame soft-story buildings to complete structural reinforcement. The original compliance deadline was extended, but enforcement is accelerating. Owners who haven't begun retrofitting need to understand their options now.

What Is a Soft-Story Building?

A soft-story building has a weak ground floor -- typically open parking, large commercial spaces, or other configurations that lack adequate lateral bracing. In an earthquake, the ground floor can collapse or "pancake," causing catastrophic damage to the entire structure.

Most soft-story apartment buildings in LA share these characteristics:

• Wood-frame construction
• Built before 1978 (overlapping with RSO)
• Ground-floor parking with apartments above (the classic "tuck-under" design)
• 2+ stories with 3+ units
• Located in the City of Los Angeles

LADBS maintains a public inventory of identified soft-story buildings. If your building is on the list, you've received notices from the city.

The Compliance Timeline

The City of LA's retrofit mandate has multiple phases based on building occupancy:

Priority Tier	Building Type	Retrofit Deadline Status
Priority 1	16+ units or 3+ stories	Deadlines have passed or are imminent
Priority 2	All remaining soft-story buildings	Compliance required by April 2028

Key dates:

• Permits must be obtained and work must begin by the applicable deadline
• Full retrofit completion is required within a defined period after permit issuance
• Buildings that miss deadlines face escalating penalties, potential vacate orders, and loss of insurance

Your Three Options

Option 1: Retrofit and Hold

Cost range: $20,000 to $350,000+ depending on building size, configuration, and site conditions

Typical costs per unit:

• Small building (4-8 units): $5,000 - $15,000 per unit
• Medium building (9-20 units): $10,000 - $25,000 per unit
• Large building (21+ units): $15,000 - $40,000 per unit

Pros:

• Property retains full market value
• Insurance remains available at standard rates
• No forced sale pressure
• Retrofit costs may be partially passed through to tenants (50% over 10 years for RSO buildings per LAHD guidelines)

Cons:

• Significant upfront capital required
• Disruption to tenants during construction (2-4 months typical)
• Permit and engineering delays
• If building has other deferred maintenance, total capital needs stack up

Option 2: Sell As-Is (Before Retrofit)

Discount range: 10% to 30% below fully compliant comparable sales

The discount depends on:

• How close the compliance deadline is
• Estimated retrofit cost
• Building condition overall
• Buyer pool depth in your submarket

Pros:

• No upfront capital required
• Transfer compliance obligation to buyer
• Immediate liquidity
• 1031 exchange into compliant replacement property

Cons:

• Sale price reflects retrofit discount
• Smaller buyer pool (only buyers willing to take on retrofit)
• Lender restrictions (some banks won't finance non-compliant soft-story buildings)

Option 3: Ellis Act Withdrawal

For owners considering exiting the rental market entirely:

Pros:

• No retrofit required (no tenants = no occupancy compliance)
• Land value may exceed building value for development-ready sites

Cons:

• Relocation fees ($9,050 - $22,680 per unit)
• 120-day minimum notice period
• 10-year re-rental restrictions
• Loss of rental income during process
• Not practical for most owners

How We Price Soft-Story Buildings

When listing a non-compliant soft-story building, we account for the retrofit cost directly in our pricing strategy:

1. Establish compliant value: What would the building be worth fully retrofitted? Use standard cap rate and price-per-unit comps from compliant sales
2. Estimate retrofit cost: Obtain a structural engineering estimate or use per-unit benchmarks
3. Apply discount: Reduce from compliant value by the retrofit cost plus a risk premium for execution uncertainty
4. Target the right buyers: Operators who have completed retrofits before, value-add investors with construction experience, and developers evaluating demo/rebuild scenarios

Example: A 12-unit soft-story building in Van Nuys. Compliant value: $3,600,000 ($300K/unit). Retrofit estimate: $180,000 ($15K/unit). Risk premium: $70,000. Listing strategy: $3,350,000, with full disclosure of retrofit status and cost estimates in the OM.

Insurance Implications

This is the sleeper issue that forces many owners to act. Insurers are increasingly:

• Declining to renew policies on non-compliant soft-story buildings
• Charging premiums 2-5x higher than compliant buildings
• Requiring proof of retrofit progress before issuing coverage

Without insurance, you cannot obtain or maintain a mortgage. Lenders will force-place expensive coverage or call the loan. This is why the compliance deadline creates real urgency even if enforcement is slow.

Frequently Asked Questions

What is a soft-story building?

A soft-story building has a structurally weak ground floor, typically due to open parking areas or large commercial spaces that lack adequate lateral bracing. In an earthquake, the ground floor can collapse. The City of Los Angeles has identified approximately 13,500 wood-frame soft-story buildings that require mandatory seismic retrofit.

How much does a soft-story retrofit cost?

Retrofit costs range from $20,000 to $350,000+ depending on building size and configuration. Typical per-unit costs: $5,000-$15,000 for small buildings (4-8 units), $10,000-$25,000 for medium buildings (9-20 units), and $15,000-$40,000 for large buildings (21+ units). RSO landlords can pass through 50% of retrofit costs to tenants over 10 years.

Can I sell my soft-story building without retrofitting?

Yes. Non-compliant soft-story buildings sell at a discount of approximately 10-30% below compliant comparable sales, depending on estimated retrofit costs and deadline proximity. The buyer pool is smaller but includes experienced value-add operators and developers.

What is the retrofit deadline for soft-story buildings in LA?

Deadlines vary by priority tier. Priority 1 buildings (16+ units or 3+ stories) have deadlines that have passed or are imminent. Priority 2 buildings (all remaining) must comply by April 2028. Missing deadlines triggers escalating penalties and potential vacate orders.

How does soft-story status affect my insurance?

Insurers are increasingly declining to renew policies on non-compliant soft-story buildings or charging premiums 2-5x higher. Without insurance, mortgage lenders may force-place expensive coverage or call the loan. Insurance pressure is the primary driver forcing owners to retrofit or sell.

Should I retrofit or sell my soft-story building?

The decision depends on your capital availability, time horizon, and investment goals. If you plan to hold long-term and have capital, retrofitting preserves full value and may be partially recoverable from tenants. If you want to exit, selling as-is avoids the capital outlay but accepts a lower price. Our team models both scenarios to help you decide.

How do Glen Scher and Filip Niculete handle soft-story building sales?

We've sold numerous soft-story buildings in both compliant and non-compliant condition. We obtain or estimate retrofit costs, price the building accounting for compliance status, and target buyers with retrofit experience. For our sellers, we model the net proceeds of selling as-is versus retrofitting and selling post-compliance, so you make an informed decision. Call (818) 212-2808.