When a building owner wants to make changes or renovations to an existing building in California, it is often a concern if the changes will trigger a code-required seismic retrofit. The additional costs for seismic strengthening requirements often prevent property owners from making tenant improvements and other upgrades to their buildings. In addition to this, some jurisdictions such as San Francisco and Los Angeles, have enacted mandatory seismic strengthening improvements. Seismic improvements can be one of the most responsible improvements you could make to your building, and it will increase the value and give assurance that your property and its occupants are safe. Owners now have an additional financing solution that can make seismic upgrades more affordable.
Property Assessed Clean Energy (PACE) financing can be used for more than energy efficiency improvements. California for example, introduced and passed an amendment called the Seismic Safety Finance Act. This was enacted into the Streets and Highways Code, related to contractual assessments. This enables property owners to use PACE financing for Seismic Retrofits. If you are looking to modernize your building, but did not want to trigger a costly seismic retrofit, or your building is on the target mandatory seismic update property list, PACE could help you pay for it with $0 out of pocket initially. In some cases, you are able to pass on the additional assessment costs or a part of them to your tenants. PACE is a great solution for spreading out the seismic retrofit costs over 20 – 30 years if desired.
CleanFund’s Guide to Seismic Retrofits in California
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Mandated Seismic Improvements
In California, some cities have enacted mandatory programs requiring that property owners perform seismic retrofits on building structure types deemed to present an increased risk of danger during an earthquake. San Francisco has enacted the Mandatory Soft Story Program.
- Affects more than 5,000 residential and non-residential properties in the City of San Francisco.
- More than 500 of these properties is comprised of multi-family buildings with 15 or more units.
- All of the property owners have been notified, but compliance with submitting plans to the Building Department is well behind schedule.
The map to the left is taken from the San Francisco Department of Building Inspection website and is a representation of the different Compliance Tiers for the Mandatory Soft Story Program and the current status of these properties. For information about liquefaction please visit the City’s Earthquake Safety Implementation Program (ESIP) website.
Click on the map to find out information on the property address, compliance tier and current status. You may also view the data here and filter the information by tier or status.
The deadline for Tier 2 properties was September 15, 2016. Failure to submit permits and plans to DBI by the deadline will result in code enforcement action and monetary penalties.
If a building is in violation of this program are subject to the enforcement of the San Francisco Building Code. Buildings that are in violation of this program will be placarded with an “Earthquake Warning” placard noticing the building’s owner, tenants, and general public of the risk posed by the building. Buildings who do not complete the work in the time required, apply for a permit in the time required, and/or do not complete the screening process successfully are in violation.
Should the cited owner continue to fail to abate the violation(s), they will be sent to a Director’s Hearing to come before a Hearing Officer and explain why they haven’t complied.
Many property owners don’t know where to begin or how they will even afford these mandatory upgrades, which could range anywhere from $100,000 to $1,000,000 for the commercial/multi-family properties. CleanFund and our Channel Partners can help in getting you on your way with a scope of work and financing solution.
Seismic Safety Improvements Eligible for CleanFund’s PACE Financing
PACE is used to finance energy efficiency, water conservation, renewable energy, and seismic safety improvements that are permanently affixed to the property. Seismic safety includes both “structural retrofits” and “non-structural retrofits”.
Includes but is not limited to the following;
- Lateral support systems
- Shear Walls
- Moment & Brace Frames
- Diaphragm strengthening
Supplemental bracings and supports
Indirect & Soft Costs
- Architecture & Engineering Fees
- Contractor General Conditions & Fees
- Financing, legal & other fees
In most cases, PACE can cover 100% of the seismic retrofit costs, including all fees. Property appraisals are important in the context of sizing the amount of PACE financing as well (ensuring that the PACE financed amount does not exceed a specified PACE lien-to-value, “LiTV”).
Basis for Appraisal
- Fair market value of the land plus all assets permanently affixed to the property.
- Determined on an “as is” and “as completed” basis.
- The as-stabilized property value be used for properties which are already stabilized.
CleanFund’s underwriting of the amount of financing available is based upon a percentage of the “as complete” value, which is typically a ratio that shouldn’t exceed 20%.
CleanFund has an experienced team of professionals to underwrite each project. This is a hands-on process that ensures our ability to fund projects in a timely manner.
CleanFund will work directly with your current and/or future lenders (if applicable) to educate them about PACE and to give them comfort that assessment financing adds value to the property and represents minimal risk to the lender.
It is important to understand that only the amount of any billed and uncollected PACE payments are senior to mortgage debt – and that the full amount of PACE financing cannot accelerate in front of the mortgage in the event of a foreclosure. Following the execution of a simple, one-page mortgage lender acknowledgement, CleanFund efficiently completes underwriting of the project, obtains local PACE program approval, and prepares closing documents for the property owner’s execution. At closing, the property owner will enter into an assessment contract that sets forth the terms of the PACE financing and tax assessment.
Funding & Disbursements
Once the underwriting has been completed, CleanFund wires the funds into a trust or escrow account.
Disbursements from this account can be made as a lump sum payment upon completion of the project, or in progress payments as agreed upon. Payment requests use industry standard payment applications and a separate schedule of values exclusive to the PACE improvements being financed. Disbursements are made on the basis of the percent complete of improvements affixed to the property to date.
If you have already completed a seismic retrofit in the past 3 or 4 years, you may be able to reimburse yourself using PACE.
Demonstrating that you had considered using PACE for your project initially could qualify you for a reimbursement. This is a similar process as outlined above, but much shorter as the improvements have already been completed. Once closed you will receive a lump sum disbursement for the PACE eligible items.