David Tashroudian and Helen Fower with Retrofit1 share the unique opportunity in the multifamily investing space combining the retrofitting of soft buildings combined with multifamily accessory dwelling units.

The Data Driven Real Estate Podcast #38 – Multifamily Accessory Dwelling Units with Retrofit1

Written by:
Aaron Norris
Written on:
March 18, 2021

Retrofit1 is a California design and build construction specializing in soft story retrofitting and commercial accessory dwelling units. California ordinances are currently targeting residential and commercial properties with structural designs that don’t do well in large earthquakes. While ADUs are all the rage for residential properties, most don’t know the state allows commercial owners to add additional units on site. This week, we are joined by David Tashroudian and Helen Fower with Retrofit1 to better understand the opportunity, what California law outlines in the rules about commercial ADUs, and ways to find them in your local market.

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Show Topics

00:00​ The Data Driven Real Estate Podcast Welcomes Helen Fower and David Tashroudian of Retrofit1

01:09​ Commercial and multifamily accessory dwelling units?

02:54​ What is commercial retrofitting?

08:05​ What is an accessory dwelling unit?

09:28​ What does the California ADU ordinance say about ADUs for commercial and multifamily properties?

13:43​ What building type is uniquely suited for ADUs?

18:10​ Case study of the C-shaped soft-story apartment with tuck-under parking replaced with two new ADU units

21:00​ Is the soft story ordinance local or statewide?

24:22​ Earthquake brace and bolt program

27:38​ If a building is currently under rent control, will a newly build ADU also be rent-controlled or at market rates?

29:37​ Any insights on builder codes for commercial spaces?

33:53​ What's the minimum square footage of an efficiency unit?

38:11​ Can manufactured housing and tiny homes work as ADUs?

40:21​ How does Retrofit1 connect with their ideal client?

43:51​ Tips on dealing with the tenants before they begin with the construction on ADUs

52:05​ How to get in contact with Retrofit1

Show Transcript

Aaron Norris  0:05  

Welcome back to the Data Driven Real Estate podcast the podcast for real estate professionals dedicated to driving business using data. I'm Aaron Norris with PropertyRadar and this is episode 38. Today we have David Tashroudian and Helen Fower with Retrofit1. They're a design build firm here in Southern California, but they actually operate all over California. Helping commercial owners and multifamily owners look at the advantage of Accessory Dwelling Unit in combination with retrofitting, with soft buildings. I never even heard of the term. A lot of people talk about ADUs when it comes to single-family. But wait till you hear what's possible with commercial that much more. Don't miss the show. Welcome back to the data driven real estate podcast today we have David Tashroudian and Helen Fower with Retrofit1, and I'm very excited to talk about Commercial Accessory Dwelling Units. We've covered residential in a few different ways. With Kristin, Kristi Cirtwill. And then we, a little bit with Ward Hanigan. But nobody's talking about commercial. So, David and Helen, thank you so much for joining us. How did, how the heck did you get into Accessory Dwelling Units?

Helen Fower  1:09  

So, uhm...

David Tashroudian  1:09  

I can...

Helen Fower  1:11  

Oh, nevermind...

David Tashroudian  1:14  

Yeah, I'll just say I'll defer to Helen, because she was really the one in our company that spearheaded this division. So, yes, let us know, Helen.

Helen Fower  1:23  

So, I again, thank you so much, Aaron. I'm Helen. And as Aaron mentioned, we are with Retrofit1 as well as now a special division just dedicated to ADUs, called ADU 1, very appropriate. And so, ADU 1 came to be similarly to our Retrofit1 division. ADU 1 was kind of born right on time of when California passed the state law for ADUs- Accessory Dwelling Units, which is primarily to increase housing, because there is a housing shortage, shortage across California. So, they really expanded it now to multifamily properties, which was really cool, because everybody kind of identified ADUs connected with single-family residence, you know, typical garage conversions. But what's really awesome for commercial properties and multifamily property owners, they are now allowed to expand their own property, increase the value of their property, add monthly income, and increase the number of units. So, ADU 1 was developed because of the high demand we were getting from our Retrofit clients. Because you can also combine those two together. So, we were getting a lot of demand all around to combine the retrofitting requirements with the development of ADUs, and really just kind of maximize their money, return on investments, instead of only spending money on retrofits. So, with that came at ADU 1.

Aaron Norris  2:54  

Excellent, and some people may not understand what retrofitting exactly what you do. And I know some of about that only because I go to the Apartment Owners Association events several times a year and there, I often see, you know, the lineup of all the vendors. And that's where I was introduced to the first concept of retrofitting. But what does that mean to you? And who is Retrofit1?

David Tashroudian  3:13  

Yeah, I can answer that part. So, the city of Los Angeles had adopted this ordinance requiring building owners who own these buildings that have tucked under and sort of carport style parking, with weak soft storylines, and units above to sort of reinforce those parking areas and the building in that week's off storyline to ensure that it doesn't collapse in the event of an earthquake. And the city of Los Angeles actually followed in the steps of the city of San Francisco, which adopted a similar ordinance in 2013. So, essentially, all these buildings across the area in Los Angeles and now a couple other cities, such as Santa Monica, Beverly Hills, and Pasadena are requiring landlords to retrofit these soft story buildings. And the retrofit typically entails the installation of steel moment frames, steel columns, shear walls with new foundations and things like that. It's really interesting because buildings, soft story buildings have been identified not only by these couple of jurisdictions that I mentioned, but also by the state as a sort of parallel to life. And a lot of you might remember that back in the, during the time of the Loma Prieta earthquake in 1989, I think it was, and the Northridge earthquake in 1994 that followed shortly after that. There are a lot of these soft story buildings that collapse and there was a tremendous loss of life. So, the state is taking a vested interest in not only protecting life, but also protecting property and ensuring that in the event of a catastrophic earthquake, these soft story buildings which I mean they're they're tons, they're like tens of 1000s, if not 100,000 across the state of California, they don't fail. And, and the real economic impact of a failure of all of these soft story buildings during the event of an earthquake is that there will not- no longer be enough housing in California. And that'll be detrimental to the economy. So, we saw an opportunity to retrofit these buildings. Like I said, it's mandated here in Cal- in Los Angeles. And it's been a great business. But slowly, but surely these buildings are being retrofit and sort of dovetailed into the ADU space, because it's just a natural sort of combination of our of our skills and abilities.

Aaron Norris  5:40  

Well, let's go back before the ADU laws. So, before 2017, you know, there was just talking about ADUs. And when somebody was looking at a retrofit, let's just say, I don't know, you've got an apartment building, with the tuck under apart... park...parking. How much would it cost to stabilize that parking? Like, how much are we talking about to make parking more? I have no concept.

David Tashroudian  6:06  

Yeah, it really depends on the size of the building and the size of the tuck under parking area. So, your retrofit can run you anywhere between probably $35,000 - $40,000, at the very low end, where you don't even require steel. And you can just do it with shear walls, all the way up to 550- $600,000 for these large, sprawling communities, that are just built atop these sticks and post.

Aaron Norris  6:31  

Right.

David Tashroudian  6:31  

So, it can get very expensive really quick.

Aaron Norris  6:33  

So, before the ADU law, you're just spending that kind of money, just to make sure the building was secure, but no extra income, you were just making the investment?

Helen Fower  6:42  

Exactly.

Aaron Norris  6:43  

So, Helen, did you get really excited when the ADU law came out?

Helen Fower  6:47  

Of course, Uhm, personally, I really liked it, because in a way, I kind of felt bad for the property owners that suddenly they have this ordinance slapped on them. And especially, especially the owners who maybe they only have one building, and this is their source of income to live. And it's their livelihood, and suddenly they have to pay $80,000 to retrofit. So, I always felt really bad in those situations. Of course, we're here to help and work were a business. But whenever I would talk with the property owners, I could hear how difficult it would be to have to spend this money to get nothing back, of course, for the safety of their, their residents and tenants and the building. But it was always a tough situation to have to present this ordinance. Sometimes we were the first people to tell them that they have to do this. So, I was really excited that it can now be combined with something that can get them a return on their investment, make them more money and help the housing shortage and just the economy and the community with housing at the same time. So, it really resonated better with me this time that it's helping in so many ways, rather than somebody just spending money for the sake of meeting the requirements.

Aaron Norris  8:05  

So, let's go back up real quick. And just in case somebody's landing on this video, and they're like, 'What are they talking about? ADU?' So, Accessory Dwelling Units are just secondary units, typically. A lot of times it's thrown around a lot more in the residential space, where it can look like a converted garage, which is a Junior Accessory Dwelling Unit, it can be attached and share a wall. It can be a completely separate structure. And by law, the state came down and said no more games, local zoning you're out by right you and California have the right if you're a landowner to build an Accessory Dwelling Unit, and it's set some guidelines, the setbacks changed. What some other things they, they finally updated it to where there's a maximum height level. Early, early legislation had no cap, so technically, you could have a 10 story ADU in the backyard they, they fix that. One of the biggest things is that they made them you don't have to be an owner occupant, which is great. A lot of cities were also roped in because they're charging really ridiculous fees, impact fees, some cities were charging up to $50,000 in impact fees that had nothing to do with anything besides you want to build one? $50 grand. They were setting lot size limits like 'Oh, an ADU? Sorry, you don't have a 20,000 square foot lot.' So, the state has continually come down and regulated this. It's been fascinating to watch, but commercial ADUs don't get enough conversation. So, can you talk a little bit about the ordinance of what it allows in the state of California? For commercial?

Helen Fower  9:28  

Yes, sure. I can continue with that. So, pretty much kind of a blanketed rule all across California right now for multifamily properties. You're allowed to create up to 25% of your existing number of units and that counts for attached. So, that would be converting space within the existing footprint. Garages if they're already attached, the tuck under parking as we described, storage rooms, rec rooms, passageways, basements, so, any room that's within the existing dwelling, you can create up to 25% of your existing number of units. And then a flat rate across the board is up to two detached units. And that would be you could either have, again, a simple conversion of a detached garage, detached, carport, even sheds, barns, they're allowing, as long as it was an existing accessory structure. Or you can do brand new construction, detached, space permitting, following all of the setback rules and height limits.

Aaron Norris  10:33  

25%. That's interesting. Can you convert existing square footage, like maybe you had a two bedroom, two bath and you want to split them into one in one will that work or this has to be converted space?

Helen Fower  10:44  

For the ADU law, they're pretty much sticking to root- space that was primary, uhm before uninhabited.

Aaron Norris  10:52  

Okay. So, some of these fancy buildings who created a lot of amenities that people weren't using a lot, especially now during COVID, the movie rooms, oversized gyms, you can convert those into livable spaces. That's really interesting.

Helen Fower  11:07  

If they're within the proper zoning.

Aaron Norris  11:10  

Okay, and I think another really interesting thing about commercial is that you're typically located a very, very specific part of the rule is that you don't have to replace parking. If you're within a half a mile of public transit. That still stands correct?

Helen Fower  11:22  

Yup, exactly.

Aaron Norris  11:23  

That's fantastic. And a lot of multifamily that almost by the very nature of the type of zoning cities typically, more often times than not most commercial, does it fit into that category?

Helen Fower  11:34  

Exactly. We have yet to, at least with all of the customers and clients I've been working with personally, they're all within hundreds of feet to a bus stop.

Aaron Norris  11:43  

Is it just bus stop? It's funny, I interviewed Senator Murkowski a couple years ago, and I just come back from the Consumer Electronics Show where the LA Department of Transportation showed off their multimodal stuff that they were doing, and I asked him, Do those bikes count? And you know, those scooters if they're on the corner? And he's like, I haven't thought about that.

Helen Fower  12:03  

Right. Yeah, I'm not sure either. But I know, it's not just bus stop. It's right, rideshare systems, anything else. So um, that may possibly work.

Aaron Norris  12:13  

And I don't know if you've experienced this. I don't mean to throw local planning under the bus, but in your experience, are they very forthcoming with that information? Or will they tell owners like 'Yeah, you can't do that.'

Helen Fower  12:27  

I would say, right now, luckily, California because it's a state law. It supersedes any, you know, local jurisdiction. However, it is still very new. So, some cities with their own if they're, they may be in the process of developing their own ordinance. Santa Clarita, for example, their ADU ordinance just passed in January and went into effect over the weekend. So, prior to that, they kind of had a gray area for ADU submission, but now they finally finalized everything. So, they're, of course within the parameters that are even able to have wiggle room. So, many cities right now, if they don't have their own ordinance, they have to follow California. And if they do have their own ordinance, it's still within certain requirements and restrictions that California put on.

Aaron Norris  13:18  

Are you experiencing timelines that the law states the city has or county building department has 60 days to approve a permit Are you seeing in the COVID environment that that is holding true?

Helen Fower  13:33  

I believe so. I, we haven't had any issues so far with with at least like the first rounds or anything like that. It's been, it's been okay.

Aaron Norris  13:43  

Okay. Do you see any specific building types that it just works so well for? Large apartment buildings or these you know, these smaller complexes?

Helen Fower  13:55  

It definitely works for the tuck under the dingbat style that um, you know, just has those areas easy conversion, it's already kind of part of the footprint. I've seen a huge benefit for duplexes, triplexes for plexus, because they can almost double, double their unit count. And typically, those building because they're smaller, they have extra lot and land, you know, that that has been just an empty space. So, they've been able to really capitalize on the detached units. We've seen some two, four, I mean, really, yeah, any buildings, duplexes, triplexes, fourplexes, all the way up to buildings that have you know, larger storage rooms that they want to convert, tuck under maybe around the entire perimeter on that, can use that and because they have extra parking lot, or the street is okay for parking. So, we really haven't encountered any buildings where it wouldn't unless they never had parking to begin with. And there's no existing extra lot or land?

Aaron Norris  15:02  

Yeah, I've uh, I created this word called the 'cramlord', don't be a 'cramlord'. So, I was very excited to talk to you because of the design side, the livability, in some cities where you're working the concept of, you know, you make the building a little bit less livable, I think of some parts of LA where parking is already just a trauma, trying to find it, and then you get rid of existing parking, and you make a really terrible living experience for the tenants. And it actually could impact the value of your property. Is tho- are those conversations you're having to have with some building owners that see the opportunity, but it's just not the right opportunity for where they're at?

Helen Fower  15:38  

Absolutely, absolutely. And we, I've discussed numerous times with the property owners, if they're building it, it would be worth it with them or create more of a headache or issue, especially, we definitely understand that taking away parking or providing the unit without parking may, if for them, it's harder to fill than they know that specific building might not be right for them. However, there's other buildings that if they know, most of their tenants are using bikes using public transportation, a high walkability score, it's, it's, it's a great opportunity, nor do the owners have to use all of their parking. And they can also take advantage of stuff, we've designed two story structures, if they have kind of like a parking lot, or even just a row of parking. Following setback rules, we can build a two story structure that preserves parking underneath and has units on top. So, we have many design ways to either preserve their parking, not use up all the spaces, if they you know, don't want to, just convert storage areas, or some configuration that can help for what's best for that specific property.

Aaron Norris  16:55  

I love that. An investor contacted me about a triplex he owned and what it, was on a rather large lot. And what he decided to do is add three garage units with ADUs on top. And just so you know, for the sake of public records, this is a triplex plus three ADUs. He rented the garages out to the different owners. It didn't matter out of the six, you just paid extra for the garage. I thought that was so brilliant, who is able to add quality of life and not get rid of parking. I just thought that was really great. I love the concept of in public record, looking at the zoning so, something already zoned like R3 or LA R3, so triplex and right now there's still only a single family, somebody's never come in and done, highest and best use. So, I've got investors specifically looking for that. And then adding the ADUs on top of adding two additional units. So, going from single-family home to adding five additional units in markets like this where it's hard to maybe find a deal. You create it. That's really cool.

Helen Fower  17:55  

Absolutely.

Aaron Norris  17:55  

I think I was on the, I was showing David that yesterday sort of some fun ways to look at the public records and you just happened to be doing the commercial. The commercial building right next door to the lot that I pulled out. That was so funny. So, are there...

David Tashroudian  18:08  

The one on Clark? Yes.

Aaron Norris  18:10  

Isn't that weird? What a small world? You're in, on the Apartment Owners Association? You had one? You had two projects specifically I would love to bring up, one was the C-shaped building where on, I think it was there's two streets on either side of the building, and there was tuck under parking on either side of the street. And I think what was so brilliant about that project is not only did you create two, brand new two bedroom, two bedroom, one bath, I believe but there was a courtyard in the center that you replace the parking on site, which I thought was so great. And then the whole retrofitting angle, so, typically that, that building owner would have to spend what $150 grand to fix the under tuck parking. Is that fair?

David Tashroudian  18:52  

Maybe not that much. Maybe not that much, but probably close to $70,000 to do the retrofit and both the front end in the back.

Aaron Norris  19:00  

How much does it cost to convert those? Do you have any rough estimate for that project?

David Tashroudian  19:06  

Yeah, the two units? I think the two units there is a total of like, I want to say 1100 square feet. And we came in a little bit over 300. And in that neighborhood, the doors, each door was selling for about 275. So, you know, yeah, exactly. They're paying $150 for the door. And you know, instantly the equity goes up per door by 250 to $275,000. So, it's like a no brainer, basically.

Aaron Norris  19:36  

In your experience when building owners are also tackling these kind of large projects. So, they're also doing other maintenance on the building at the same time?

David Tashroudian  19:45  

A lot of times we're upgrading the sewer lines, because we'll run a camera it will show the, we're licensed plumbers. So, we do a lot of the plumbing work will either repipe the entire building for the, for the, for the owner because they'll realize like 'Hey, you know I'm doing this in basic construction, they're putting in this great new product called pecs.' And it's solving all the problems they're having with pinhole leaks and their copper. So, rather than just having two units that are, that are sort of insulated from future failures, they properly decided to repipe, the whole building, and then we'll run a camera to find the existing sewer lines, we can tie in the new sewer to that, and they'll find it. It's, it's cracked in four or five different places. So, rather than waiting for the entire sewer line to collapse, we'll just do a liner. And, and we'll upgrade the sewer line for another 50 to 75 years.

Aaron Norris  20:34  

Wow, that's...

David Tashroudian  20:36  

That's a value add.

Aaron Norris  20:39  

In real briefly, let's talk about if there's money available. Early on in retrofitting, I heard that there was money and grants available for building owners because the city was very worried if there was a massive earthquake that they would be short, a lot of inventory. Is that money still around?

David Tashroudian  20:55  

I wish. Not that we've seen.

Aaron Norris  20:57  

Okay.

David Tashroudian  20:58  

Quite frankly, no.

Aaron Norris  21:00  

Well, and that. Is the ordinance really at the city level? You mentioned state and then local. I'm on your website, I saw that there were several areas specifically you have ordinances so the city can have their own ordinance?

David Tashroudian  21:12  

Yes. So, it's at the city level now at the municipality level. And there, there are several municipalities, like I've seen. San Francisco is really the pioneer of the soft story retrofit requirements. And then it sort of migrated its way down to Los Angeles. I think in San Francisco, there are maybe 3000 buildings subject to the ordinance. Los Angeles was closer to 12, Santa Monica maybe had 2000, the City of West Hollywood and, and Beverly Hills maybe 800 each, 500 in Pasadena. Now, other cities, like such as Oakland, and I think Mountain View is looking at it. They're sort of adopting the ordinance as well. But it's an issue that's, that's sort of brought has been brought to the attention to legislators, legislators statewide. So, there's a provision in the government code that states that these kind of buildings are a hazard to, to health and safety. I can't recall what it is off the top of my head, what's there in the government code. And there was a congressman down here out of Burbank who tried to get the state to prepare a statewide inventory of soft story buildings to sort of local municipalities can take a look at an ordinance. But that was shut down because I think it was something like a an on. I can't recall why it wasn't signed by Governor Brown in 2018. I think it reached his desk, but he refused. He didn't sign it. It might be coming back again. But it's definitely on people's minds, on the minds of the legislature, because you want to make sure in the event of a catastrophic earthquake, we don't run out of housing for people. Because they're, I would, I would imagine there are millions of people living in these kind of units.

Aaron Norris  22:56  

Not only that, you know, depending on who you talk to $1.5 to $3 million, you know, unit. So, yeah, the last thing we need is existing units to disappear and make the problem worse.

David Tashroudian  23:06  

Yes, yes, that's right. It would have a you know, sort of a domino effect. Right? If you can't have people, if people can't live in California, they're not gonna be able to work in California. If you can't work in California, the state's GDP by definition is going to decline. So, be very difficult to get us back on our feet after the event of an earthquake. If people can't live and work.

Aaron Norris  23:27  

I always encourage real estate investors to get very local, go to the municipality, check the building department, check with your utility. Sometimes if you're doing upgrades, they will have, sometimes they get these grants from national or the state that they have to spend. My favorite was when retrofitting was around I called AOA . I was like, do you know about this installation program that the LADWP has, where they're just giving away commercial installation, they just have to spend the money and they're having a hard time. So, while you're doing a retrofit, you can re insulate your building, and then tap into the utility to get rebates on things like windows or air conditioners or things like that. And he's like, nope, didn't know about it. So, you never know when those kind of resources change. So, that's why I was asking about the retrofit money. And since it is a local ordinance, if these ordinances come with money sometimes doesn't sound like that's happening, especially with COVID.

David Tashroudian  24:22  

No, definitely. But there is, there are grants available for single-family homes that want to retrofit their foundations. And that's through the Earthquake Brace and Bolt program. I've personally taken advantage of my house, in the last couple of earthquakes. I really haven't felt much you know, because my foundation now bolted to the ground. And it's really interesting process. It'll save you a lot of money in the long run in case there is an earthquake, because it prevents your essentially your structure from sliding off the foundation.

Aaron Norris  24:52  

Oh, wow. I did, I've never, I've heard of the bolt program, but I didn't know it came with money. That's interesting. Where do you even find that?

Helen Fower  24:58  

Could mean several thousand dollars for single family owners,

Aaron Norris  25:02  

How much does it cost to get it done?

Helen Fower  25:05  

The average I would say anywhere between six to 10,000, depending on the size of the property. So, you can get, you know, up to 50% back, which is really helpful.

Aaron Norris  25:17  

It is very helpful. And then also, you could probably get a discount on insurance, I would think? Somewhere.

David Tashroudian  25:25  

Yeah, a lot of our, a lot of our earthquake retrofit customers are doing it in order to get a discount on their insurance. But not only that, you know, a lot of people are forced to retrofit their buildings, soft story buildings, because of bank requirements. So, if they're going through a refinance, the lenders gonna want you to refi to retrofit your building, in order to ensure that their collateral is still around, you know, in the event of an earthquake. So, rather than, rather than doing that, when you're doing a refi, rather than retrofitting, when you're refinancing, we've got a client right now just purchased a set of buildings, they have to retrofit these buildings in order to comply with the terms of their loan. But instead of doing that, he's just creating new units. He's putting the ADUs and retrofitting at the same time.

Aaron Norris  26:10  

That's amazing. I had no idea. So, you have lenders saying we're going to go ahead and pass until you do the retrofit?

David Tashroudian  26:16  

Yes.

Aaron Norris  26:20  

Wow.

David Tashroudian  26:20  

More so now. Yes. More so now.

Aaron Norris  26:24  

Are you getting a sense that these landlords are just done and they're leaving, or they want to take on this retrofit? Are they looking to sell? Like, how are they feeling about all this?

Helen Fower  26:34  

The majority are doing it, you know, they want to keep it still worth it to do the retrofit, it's a, it's a, they're paid for it once, but then they still, of course, you know, continue to get that income from their income property. So, the majority of our clients and customers and everybody else there, they're doing the retrofitting every now and then there is somebody who does have to sell their building. And that's what I personally hate when that happens. So, I really try to connect them with every single financial resource I can to help them or we do of course, with with whatever is in our power to help. So, they don't have to sell something that's their only income, you know, based on this. But the majority are doing it, and now we notice from all of those categories, the ones who were able to do it, the ones who had to sell the ones who did financing, are jumping on board with the ADUs because it's almost like that's the tanswer they were looking for. If I'm going to spend this money, how can I do it in a way where I at least get something in return? And it doesn't just hurt me in so many ways.

Aaron Norris  27:38  

I bet you get this question a lot. If I have a building that's currently under rent control? Will the Accessory Dwelling Units fall under the rent control? Or because of the new certificate of occupancy, I can charge market rents?

Helen Fower  27:50  

So, from my under...

David Tashroudian  27:51  

I can answer that.

Oh, yeah. Thanks. So, you know, I would just like to start off with the caveat that I would, you know, engage your own legal counsel to give you an opinion. But our understanding in our experience thus far has been that these are new units. Right. And these new units are exempted from Costa Hawkins and the local municipalities, rent control requirements, for I think it's the 15 years that you have for a new construction. So, it falls within that, but, but again, I would just you know, encourage somebody who's looking at doing this, to, to get legal advice from qualified counsel on that.

Aaron Norris  28:28  

That could really help a lot of landlords who have maybe been very gracious or silly and not raising rents. I fall under that category, because I enjoy my tenants and I like them to stay really long time. I'm not very aggressive on that front. But where maybe they they're locked in, and they're a little scared, and they've got, they're looking at this huge bill, this is such a neat way to increase income if you have to do those kinds of things. So, I hope we're right. That is my understanding as well that you do not have to chart it's not under the rent control. But I like that speak with your attorny, very good idea.

David Tashroudian  29:02  

Yes.

Helen Fower  29:04  

It's a little different for single-family too, because rent control doesn't, you know, count for single-family residences. But if they were to add ADUs that could then make them a multifamily property, they may be subject to rent control there that they weren't prior.

Aaron Norris  29:22  

Interesting.

Helen Fower  29:23  

That's also something like David mentioned, ever, I think every person needs to double check and do their own due diligence to make sure because there is, also there's, you know, state rent control, especially as local rent control. So, there's some differences there with how it's affected.

Aaron Norris  29:37  

Good point, please go down to the local level and do your homework. When it comes to builder code for commercial when you're converting these spaces, any insights on things like solar sprinkler systems? Are there any surprises that you've found that people aren't expecting?

Helen Fower  29:53  

Yes, so there is with the title 24, newly constructed detached units, do you have to have solar? You can either put the solar on the new unit or on the primary dwelling, it's up to the owner, but they will be subjected to those energy efficiency standards. And that is required for newly constructed detached units.

Aaron Norris  30:16  

So, you're telling me if I figure out a way to attach a wall, I may not have to have solar?

Helen Fower  30:23  

Possibly, possibly, we would have to see kind of how rigid and detailed they are with what they consider, you know, detached or not.

David Tashroudian  30:32  

But a, a detached unit, like Helen is saying it's gonna have to be at least six, sometimes 10 feet away from the existing structure, you probably won't be able to get away with that.

Aaron Norris  30:42  

All right. I'm just trying to be creative. Our crew, and I'm also trying to think in the data that we have access to how to spot things things. I call the chief appraiser for Riverside County asking how they were adding these in the realm of public records. And they are but it's not getting done correctly countywide, at least in Riverside County. So, I think we're a ways away from not communicating with people that might have these. So, how do we how do we suss that out? I don't know. But do you have any favorite cities that you really enjoy, because it's just so easy to do these and they're really excited about these.

David Tashroudian  31:21  

Los Angeles.

Aaron Norris  31:22  

Really?

David Tashroudian  31:22  

The reason I like Los Angeles is because Los Angeles is very gracious in the amounts and the square footage rather of the detached at us that they're allowing. So, the state minimum is anywhere between 800-850 square feet that the municipality has to allow. So, municipalities are very stingy, and they'll only allow you the state minimum. But the city of Los Angeles, again, has been very gracious to property owners, and is allowing the full 1200 square feet. So, you could add up to two, 1200 square foot detached units on your property. That's like a 2400 square foot house, essentially, it's cut in half, three bedroom, two bath, very spacious. And in most parts of the city, you're commanding $3,000 a month rent on that unit.

Aaron Norris  32:07  

On each?

David Tashroudian  32:07  

Very nice.

Aaron Norris  32:09  

Each?

David Tashroudian  32:09  

On each, yeah, 1200 square feet, three bedroom, two bath, you imagine?

Helen Fower  32:14  

Well, more, it's not more Santa Monica, tiny little studios can be $2,000 a month.

Aaron Norris  32:22  

It's just and rents are very crazy these days. But what a cool strategy. And I'm so glad we're covering this in, in a unique way. One of the other when I watched your AOA presentation, one of the projects I absolutely loved was the concept of the two story ADU. And the height limitation in the law is 16 feet high. Correct?

Helen Fower  32:42  

Yes.

Aaron Norris  32:43  

So, yeah, you're like, do I build a really short garage? Like, how do I do that? And I'll let you take it over that particular project was really neat. And how you got around that?

David Tashroudian  32:53  

Yeah, that the engineering is is pretty novel on that. So, the idea is that the 16 foot height limit is measured within five feet, is measured from the grade within five feet from a structure. So, you can actually excavate portions of the building, rather than portions of the lot in order to accommodate for a taller building. So, if you can get down like a foot and a half or two, that's enough to provide you with, you know, an extra foot or two to get out a taller ceiling, for example, on the second floor. So, the parking requirement is that you only have to have seven feet of clearance in the in the parking lot, that's fine. You have to have a minimum of seven, six, typically in the living, in the dwelling area. So, with that additional foot that you excavate for the half that you excavate. You've got plenty more room up in the living area to to give it a nice bright, open and airy feel.

Aaron Norris  33:49  

That is so great.

David Tashroudian  33:52  

Yeah, it's great.

Aaron Norris  33:53  

Very novel way to approach it. And what's the minimum square footage you? How do I ask this question? The minimum square footage, you need to build something of substance? I don't know how to ask it.

David Tashroudian  34:06  

An efficiency unit, believe it or not, is 150 square feet. Some jurisdictions have a different maximum. Helen will tell, me told me that recently that the city of Santa Monica requires at least 220 square feet. But man if you can get away with 150 square feet with a hot plate and the plates and prepare your food and I think an area for a small fridge and bathroom facilities you are good to rent.

Aaron Norris  34:33  

Wow. So, you could almost turn every garage into its own efficiency unit underneath? If you have enough...

David Tashroudian  34:39  

Yeah.

Aaron Norris  34:40  

...units?

David Tashroudian  34:41  

Yeah, let's let's say a garage. I mean, typical parking spots right now are, I think eight, eight feet minimum by 18 feet in depth, but a lot of times you see them eight feet by 20. So, if you had an eight foot by 20 spot, and there's two spots right next to each other, technically you could put two tiny micro units in there.

Aaron Norris  35:03  

Hey, listen, I live in New York City, you don't have to tell me twice people will rent that all day long.

Helen Fower  35:07  

I as about to say, similar to Manhattan closets?

Aaron Norris  35:12  

Well...

David Tashroudian  35:12  

I'm thinking out loud here, I'm sorry, I'm sorry, I didn't mean to cut you off, you're thinking out loud. Let's say for example, this, the state starts providing grants to alleviate the homeless, the homelessness problem that we're having all over the place, you know, you can just make a ton of these micro units in these tuck under parking spots of people's buildings. And if this, if the city is giving out $100,000 a month in grants to houses, you know, the previously homeless, that's amazing. I mean, you can get like, I don't know, 10 units in your you, in your building at 150 square feet of pop at 10,000 a month, bucks a month, your rent roll. I mean, that's unheard of.

Aaron Norris  35:52  

Have you heard any cities doing some variants for this very thing that we're talking about? Now, I know there's going to be some government strings attached. Like if you take money or they do a variance for you, you're going to get something recorded. But do you know of any city saying yeah, if you're willing to build affordable units, you can go small and we'll let you build more?

Helen Fower  36:11  

There, similarly, maybe, maybe they encompass what you're what you're describing. There actually are a lot of grants and programs right now. Maybe not specifically to funding for, for homelessness and housing. But there are if you make enough units for the low income population, there are some programs and grants there. I know San Diego may have some and some cities up north, I forgot if it was Oakland, or Alameda or something like that. But there are some funding and programs right now, if you do create units for low income, as well as I believe even middle income to low income, there's some funding. And I know I was helping a very nice lady right now in San Diego, she rents all of her properties to veterans, section aids, wounded warriors, things like that. So, I've been trying to help her link to programs that can help fund her ADUs because she's doing so much for her community. So, there are some if anybody needs to talk to us, I'm happy to help try to connect with any possible funding out there that can help the community.

Aaron Norris  37:25  

Absolutely, I love the creativity. And it's often something I like to tell people is don't rule out the nonprofit space. So, a lot of investors don't always live in the county where they own property, go to the County 211 and start asking for those kind of programs, housing programs and call it nonprofits and say, Are you getting creative? What kind of funding is available? Because believe me, the nonprofit space is on it. They're doing some research, they're starting more housing programs. The 211 has data and almost every county in California, it's like Riverside County housing for the last five years that I've been looking at the data is always housing related, people needing help with rent and stuff like that, so.

Helen Fower  38:02  

Absolutely, absolutely. And hopefully, if there's enough push, they'll create programs and funding for it as the ADUs continue to roll out.

Aaron Norris  38:11  

In residential. I know it's a much more popular conversation. It doesn't have to be stick built. So, manufactured housing in some cities or even allowing Tiny Homes. Does that cross over into commercial as well?

Helen Fower  38:22  

Yes, I believe they allow mobile Tiny Homes they're called. There's ,of course, its own restrictions with what they look like sizing stuff like that. They can have their own power just to leave certain stuff has to be hidden underneath. But that is one of the categories that they're allowed in many areas.

Aaron Norris  38:40  

So, you landowners or commercial owners that have to do a major retrofit. Maybe you can bring some of these units online and not completely be without income while you're doing some big retrofits too. I love it.

David Tashroudian  38:51  

Yeah, I really, I really liked the manufactured space. We've got a manufacturer. Yeah, we work with a partner, Abodu. And what they're doing is they are manufacturing these 600 square foot ADUs. And we're just doing the site work and plopping them on people's land or property and that's done in like a month. No, it's very quick in and out.

Aaron Norris  39:12  

Wow, that is fast. And what are these things look like? 600 square feet? That's a nice size.

David Tashroudian  39:19  

It's beautiful. I mean, you can go check out their website I think abodu.com and you can take a look at the sizing. The, the styling is. They're just fantastic. And it's quick and easy in and out. And you have a unit and you can put these onto the commercial spaces as well.

Aaron Norris  39:39  

I definitely think the plant manufactured housing is gonna have its heyday we just don't have enough skilled labor out here. Have you guys been facing a lot of increases in labor cost and supply chain?

Helen Fower  39:52  

Oh, yeah.

David Tashroudian  39:53  

Oh, like you wouldn't believe.

Aaron Norris  39:55  

I don't. I know.

David Tashroudian  39:57  

We pay. We pay our guys well, too, so it's like, it starts to add up.

Aaron Norris  40:03  

Especially if you want to keep them right, so you got to stay competitive in a hot market. My goodness.

Helen Fower  40:08  

I think lumber, at least quadrupled. So, that's been a lot. Steel has gone up maybe five to 7%. Everything has gone up, especially in 2021, especially after COVID. It's been, it's been a lot.

Aaron Norris  40:21  

Okay, how are you guys identifying your perfect customer? That, I mean, you said that some of them don't even know about the retrofit? How are you going about connecting with them?

Helen Fower  40:31  

Luckily, right now, we're reaching out to all of our existing clientele for the retrofitting, spreading the word, you know, any which way we can webinars newsletters, just calling them to, to inform them if they have not heard yet. So, we've been doing it that way. As well as some people have organically been finding out about it. We've been writing some articles as well, for certain publications. I, we do a lot of social media reach LinkedIn posts, Facebook, everything we can to really market the entire new, you know, ordinance and law, as well as just reaching out to as many of our own in house clients that we already have. So, we're doing pretty much everything possible to help spread the word and see who wants to, you know, jump in on this opportunity.

Aaron Norris  41:26  

You guys have like the ideal project that's just so easy, and you know, you're gonna knock their socks off?

David Tashroudian  41:32  

I do. Yeah, it's gonna be a fourplex with a garage, and a backyard with enough room to put two new units at your fourplex and turn into a seven unit apartment building. Beautiful.

Aaron Norris  41:45  

That's awesome. I just...

David Tashroudian  41:46  

Yeah, yeah.

Aaron Norris  41:47  

Is there has to be a minimum square footage on that? The lot that you'd like to see?

Helen Fower  41:50  

We don't have any minimum or maximums for the lot. There are of course, again, setback rules has to be for detached. And there's also certain rear setback rules that can't take up, you know, the entire space of the rear property. But we always anything we propose to our clients. We've already done our research. We know the rules, we know the setbacks or requirements. So, we only propose feasible units, we're not going to promise them a 10 story attached thing that then suddenly gets rejected. So, once they're engaged with us, and we're proposing something we only propose what's feasible and what's allowed by the state and their specific jurisdiction.

Aaron Norris  42:34  

Who is your perfect customer? Is it the mom and pops? Or is it somebody who owns 50 apartment buildings all over Los Angeles?

Helen Fower  42:42  

Both. We have, I would say it's equal between all of them, whoever wants to do this, if their property has the, the room, the space, the minimums, we've been getting huge. Outreach from, from, from both.

Aaron Norris  43:00  

What's been the tenants response? as you're building these? Are they pretty receptive to it? Either way.

David Tashroudian  43:08  

So, we've got to provide the tenants notice, in Los Angeles, at least under a tenant habitability program, or plan rather, in order to give them an opportunity to object and really no one has. So, I would say it's, it's either neutral or positive.

Aaron Norris  43:26  

Okay, well, that so yeah, they're not mining and it's not too disruptive. How long is the process typically taking right now?

David Tashroudian  43:33  

Construction will take you about six to eight months, depending on whether it's attached or detached. If it's detached, you know, we're building from the ground up to take a little bit longer. But if it's an attached unit, and it, you know, tucked under spot, you know, we're in a mountain like, four to six months. Very quick.

Aaron Norris  43:51  

Interesting. Yeah, that is very disruptive for that amount of time if you're a tenant, but any, any tips on how to make them not cranky?

Helen Fower  44:00  

Luckily...

David Tashroudian  44:01  

Be polite and clean, right? No, really.

Helen Fower  44:05  

And luckily, with our team, specifically, we have a wonderful, all of our staff are very hands on, we handle tenant communication and notices the entire way through. So, that's also something that probably property owner doesn't have to worry about complaints being directed to them or just questions about the construction. Somebody in our office is available at all times. You know, when if it's after hours or anything, we get back to you right away. So, we handle all tenant communication and notices, updating on you know, whatever phase of construction, we're on how long left, whatever it is, you know, we, we always make sure to keep our communication open during the entire process. Like David mentioned, we're always very nice. We absolutely understand that it could be a nuisance during the construction process and the noise. I single handedly helped a lady going through some health conditions, as well as teaching a class, chemistry class, high school chemistry at 7am, I helped find her a parking spot where she can move her car to every day during the process of construction. Just so she could, you know, be comfortable, not have to walk and still get back to her class. So, we'll do whatever is needed. And of course, within reason, we will do it to help the tenants during that, those construction phases.

David Tashroudian  45:29  

Yeah. And also sort of piggyback on what Helen is saying, you know, we've got a 4000 square foot office here in Tarzana with maybe 20 people. And also you're, like, hang around here a little bit. And there's just one portion of our office, and we're dedicated to customer service here, I think that's one of our strong suits, that we ensure that, you know, obviously, the client is the number one, and the clients, which is the tenant is essentially number two. So, we're always working to ensure, you know, appropriate communication, timely communication. And like I said, on the job cleanliness, we want to leave the job clean, every evening, free of debris and safe. So, I don't think I think people see that and appreciate it. And that's why, you know, we don't get much pushback.

Aaron Norris  46:15  

Alright. Well, this is the Data Driven Real Estate show. So, it's we've come to that part of the show where we have to focus on data. I, you know, some of my favorite ways to look at these Ivies mentioned are the upzoning opportunities. If you're in the community, and you know, upzoning is coming in, you're there first. You know, as we've talked about the different ways to build these, hopefully, it will trigger things. But now, I had never even understood the term, soft, soft building. I didn't even know what that was until you and I started talking, and I saw your presentation at AOA. And that's not in the realm of public records, necessarily. So, you may not only, you may not know that unless you're driving around and really spot what's really appropriate. So, I have investors that are doing using PropertyRadar to zoom out and then zoom in and see where the project is located. If there's enough room in the back, or where, you know, they might be able to replace parking for good tenant access and livability. That kind of stuff. So, some of it's a little hard. Another way I like to do it is square footage of lot. And then you try to calculate a way to say I only want the main building to be this much square footage. And it's this many stories, and I want the lot to be this size. It's just a cheating way to be able to zoom in as much as possible and start looking at those opportunities. And then you can zoom in and actually look at the map. It's pretty nerdy. What are their data?

David Tashroudian  47:33  

A couple things. Yeah, I know exactly where you're going with this. So, the city of Los Angeles is actually and I think city of San Francisco and Oakland. And those cities that do have an ordinance have published addresses of these soft story buildings. So, you could probably take those addresses and import them into your PropertyRadar system to give a new attribute to your data sets.

Aaron Norris  47:59  

Wow, that is amazing. That's fantastic. And all you have to do is find the address and then add it to a list if it meets the criteria. And if it's owned by mom and pops, there's a great chance that we'll have phone numbers and emails, which is awesome. So, you can contact them directly, in whatever way is appropriate. So, I love overlaying demographic data, that's definitely my favorite. If you know the age of the building owner, maybe you can do some creative financing stuff, maybe they own a whole portfolio, and you figure out how to do some really creative stuff could be a lot of fun. What other data do you guys use in your business that people might be interested in? How are you out there beating the competition?

David Tashroudian  48:38  

So that's a trade secret. But no, it's okay. So, aside from that, like, you know, what we learned early on is that we can take, we can take the information that's provided by the state in the city, rather, on these vulnerable buildings and sort of backwards engineer from those addresses, people's contact information, their names, their phone numbers, their addresses, we use PropertyRadar as well, to get that kind of information. So, so, we've just taken whatever's out there in the public domain, and incorporate it into our marketing and we've got a small telemarketing team that takes all that information, and just calls people up all day and offers them you know, a bid. Now ,now that we're doing the new stuff, we're gonna, you know, continue on using you as our data to find opportunities for landlords that may not have realized that they could take advantage of this rule.

Aaron Norris  49:40  

I gotta tell you, I, I don't think the word is out. I really don't. I'm still surprised how many investors are like 'What? This? I can do this. It's like Christmas every day. And it's exciting here that you like to use the phone, so the phone is not dead in 2021.

David Tashroudian  49:56  

Oh, no. Oh no. The phone is great.

Aaron Norris  49:58  

Do you like direct mail or are there any other channels that have been really successful for you guys?

Helen Fower  50:04  

Pretty much everything. I mean, we're utilizing, old school techniques of just phone and giving calls. Again, social media has been big, especially for the ADU side of it too. Whatever we can, you know, writing articles, just getting those out there, too. We wrote some I think even early in. I think we wrote it last year, it was published maybe December or January. And that was just about retrofitting and ADUs to just slowly get the words and then we get organic phone calls coming in, because they read the story, they read the article. So, whatever we can, and we're very fortunate to have a huge network right now. Lots of clientele related to commercial real estate, they have maybe their own portfolio as well as they work with clients who have others, whatever, you know, we can with just networking alone as well has been very helpful.

Aaron Norris  51:01  

Well...

David Tashroudian  51:02  

The direct mail works.

Aaron Norris  51:03  

Oh, you do? Okay. Do you do a lot of work? Whenever you're in the neighborhood, and you're already doing a project? Do you do anything around? Maybe you get a lot of questions from people being like, what are you doing?

David Tashroudian  51:15  

Yeah, so, we put signs on our building, and that on the buildings that we're working on, and that gets a lot of traffic? But no, no canvassing, no canvassing.

Aaron Norris  51:24  

Well, it's hard...

David Tashroudian  51:25  

Because the apartment owner doesn't live next door.

Aaron Norris  51:26  

Right. Right, I was gonna say the commercial owner doesn't necessarily live there, the property manager might not just like I just can't be bothered, they're not gonna necessarily pass that on, they don't care. So, it's really smart to be able to do some research and find out where the actual owner lives. That's great. Interesting, well, your presentation at the Apartment Owners Association, I on the show notes, I definitely will link that it is well worth the hour that you will spend listening, you have just such great pictures and case studies. And that's why I originally reached out to you, I'm going to redo the ADU quick video on how to find the opportunities and the data. And the different ways to do that. And I just really appreciate it was really good.

David Tashroudian  52:04  

Awesome.

Aaron Norris  52:05  

And if they want to find out more information about Retrofit and ADUs, where should they be going?

Helen Fower  52:12  

They can go to our website apartmentadu.com. or give us a call 1866 new ADU-1. We'll always be available, you can hit the contact us through apartment ADU. And we're also going to start doing, David and myself will be doing live weekly seminars with Q&A every week, they can register on apartmentadu.com, register, and every week can have a live Q&A session with both of us to discuss anything ADUs, specific property questions. Or call us again. 1866 new ADU-1.

Aaron Norris  52:50  

I'm gonna have to introduce you to somebody when we get off the air. Hopefully you guys are already very involved in the National Association of Property Management. ,I I know it's, I've taught at their associations before, but this is just too cool not to share. So, Alright guys, well, thank you so much. I will make sure to put all those links in the show notes, and thanks for being here.

David Tashroudian  53:09  

My pleasure. Thank you for having us.

Aaron Norris  53:12  

Thank you for listening to the Data Driven Real Estate Podcast, you can find show notes and links to some of the resources mentioned in the show at datadrivenrealestate.com. Click that join the community, and you'll be forwarded to the PropertyRadar community where you can ask questions about the current show and even see upcoming guests and ask questions there. We'd love to engage with you in the community. So check it out. Please don't forget to like, favorite, subscribe and share on your favorite platform where you're listening to the show. It helps us out a great deal. Thanks for listening, and we'll see you next week.

Written by:
Aaron Norris
Written on:
March 18, 2021