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Wednesday, October 23, 2013

Seattle Rental Inspections

3:33 PM
I attended a presentation by commercial real estate broker Marcus & Millichap yesterday, highlighting upcoming changes required by the new City of Seattle legislation on rental housing inspections. Here are my notes from that presentation:

Marcus and Millichap Rental Housing Registration and Inspection

Joel Deis, Regional Manager for M&M, oversees operations, broker for 15 years, professional property manager, has experienced all property types

M&M is the largest investment sales force in the US; real time property marketing systems;

Sara Marckx Russell, commercial multifamily broker, discussed the Seattle Municipal Code 22.214 mandate, currently a complaint-based system. The 2010 census revealed that 10% of the Seattle area rental housing has "moderate to severe" physical problems.

Registration begins January 1, 2014. Units more than ten per property must be registered by July 1, 2014. January 1, 2015 5-9 units must be registered. 2015-2016 deadlines for 1-4 units based on zip codes.

Registration fee is $175 per property with one unit plus $2 for every additional unit. Significant fees (over $10K per month) if not registered in time.

Inspection takes place after registration, with at least one inspection every ten years. Vacation rentals and rooms rented out of your home are not included.

Private inspectors must register and train to inspect units. DPD will also do inspections for $130 per unit plus $25 for each additional inspection.

If a unit fails, DPD has the right to inspect all other units.

Minimum floor, sanitation, heating, ventilation, escape windows, smoke and CO detectors, all building code standards will be terms for inspection.

Implications:
Added expenses
Tenant disruption
Hassle

What will they find? How will you respond? What can be done now to be proactive about this process?

Mitigation
Refinance for capital improvements
Discover and address anticipated violations

Opportunities for investors to pick up substandard value-add properties

Monetize your equity or trade into another asset class, tax-deferred exchange

Central Element Apartments, bought 36 unit for $3.7M, invested $1M, doubled rents and sold last month for $7.7M

35 units on First Hill, Alderview Apartments, invested into three Dollar General Stores, increased cash flow by $270%

Matthew Tyler Rose, Commercial Loan Analyst
Financing is instrumental in any major investment approach; M&M has relationships with national and regional lenders; professional team of lenders

Special financing programs for repositioning properties, all available through M&M

Ray Allen, Associate Director for Capital Markets
Many government lenders already require inspections.

Repositioning program funding is based on pro forma NOI and 4.4% qualifier; 1st disbursement based on current NOI and 4.4% qualifier, with 2nd disbursement when projected NOI is reached, 12-month window to execute

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