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Tuesday, Sep 26, 2023


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Staff Reporter

Commercial building owners in the San Fernando Valley were hit hard by both the Northridge earthquake which exposed weaknesses in steel-frame construction and the commercial real estate recession.

But now there’s the possibility of relief a City of L.A. bond program to help ease the burden of quake-damage inspection and repair costs.

Under the program, a special assessment district would be created through which owners of steel-frame buildings could borrow funds for quake-related repairs at below-market rates.

The funds would come by way of a city-sponsored “private placement” taxable bond issue. The bonds would be secured by liens held by the city against the properties, and paid off over 20 years through semi-annual property tax payments, said Martha Cox-Nitikman, government affairs manager of the Building Owners & Managers Association of Greater L.A.

In mid-January, the L.A. City Council gave its preliminary approval of the assessment district and bond issue, which would be underwritten by investment banking giant Morgan Stanley & Co.

Owners of all 250-some steel-frame buildings subject to a 1995 city inspection/repair ordinance the bulk of them commercial buildings in the Valley would be eligible to participate in the assessment district and bond program, said Valerie Smith, an attorney with O’Melveny & Myers in downtown L.A. who is helping coordinate the bond issue.

The assessment district is voluntary, and hence would only include owners who opt to participate.

Cox-Nitikman said the steel-frame bond issue would only make financial sense if at least 40 owners agree to participate.

When preliminary discussions were held last summer, about 110 owners expressed strong interest in the program, she added.

One plus is that owners who have already completed the costly work mandated by the ordinance inspecting the critical connections tying buildings’ vertical columns to their beams would be eligible to participate in the program, Smith said.

That would allow them to finance the work already completed at a lower interest rate.

That aspect is attractive to Ricky Gelb, who spent $25,000 to inspect a three-story steel-frame building he owns on Ventura Boulevard in Encino. The inspection did not uncover any damage.

“I think (the bond program) is a great idea,” Gelb said. “When the city creates an ordinance requiring owners to spend money whether or not a building is damaged, the city should come up with a financing program.”

Of the approximately 250 steel-frame buildings subject to the inspection/repair ordinance which gave owners about three years to inspect and (if necessary) repair the frames about 40 have yet to comply with the mandatory inspection program, Cox-Nitikman noted.

The ordinance requires that repairs to damaged connections return the buildings to pre-Northridge condition although owners can add more joint reinforcements if they so choose.

The ordinance doesn’t impose penalties for noncompliance nor does it mandate specific repair methods or address potential seismic retrofit ordinances the city might eventually pass.

The modern steel-frame construction method had been considered almost “quake-proof” until the January 1994 Northridge earthquake left a shocking amount of cracks in the beam-column connections.

Those joints are bolted and welded together and constitute the key stress points that absorb the potentially destructive force an earthquake generates.

Most structural engineers believe the Northridge quake’s unusual combination of vertical and horizontal ground motion led to the surprising amount of cracking in and around so many connections, said Maurice Chasse, who heads the M.R. Chasse Co. Inc. building services firm in Alhambra.

While no modern steel-frame buildings toppled in the 6.8-magnitude Northridge quake, about half the buildings that have been examined sustained joint damage that required repairs.

In mid-January, a group of quake-damaged steel-frame building owners quietly filed a class-action defective product suit seeking more than $1 billion in damage awards from Cleveland-based Lincoln Electric Co., the nation’s biggest seller of weld metal.

The Los Angeles Superior Court suit accuses Lincoln Electric of making and marketing a weld metal that poses an unreasonable risk to building owners and the public.

Lincoln’s subsequent SEC filings indicated the company would “vigorously” defend itself against the lawsuit’s allegations. The case is still pending.

Chasse said the costs owners have typically incurred in inspecting their buildings under the city ordinance are close to original projections about $1,200 per connection for a thorough inspection. Repair costs are running from a minimum of $6,000 for a slightly damaged connection up to nearly $30,000 for severely damaged joints, Chasse’ said.

He added that many owners have had to put their own money into the mandatory inspections and repairs and hence would be the most likely to participate in a bond offering.

Despite the recession-related plagues of depressed rents and “under water” mortgages along with high earthquake insurance deductibles or no insurance at all Chasse said he knows of only one building owner who has “walked away” from a quake-damaged property due to financial hardships.

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