Multifamily Accessory Dwelling Units with Retrofit1 #DDRE38

Episode Transcript
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Aaron Norris (00:05):
Welcome back to the Data Driven Real Estate
podcast the podcast for realestate professionals dedicated
to driving business using data.
I'm Aaron Norris withPropertyRadar and this is
episode 38. Today we have DavidTashroudian and Helen Fower with
Retrofit1. They're a designbuild firm here in Southern
California, but they actuallyoperate all over California.
Helping commercial owners andmultifamily owners look at the
advantage of Accessory DwellingUnit in combination with

(00:27):
retrofitting, with softbuildings. I never even heard of
the term. A lot of people talkabout ADUs when it comes to
single-family. But wait till youhear what's possible with
commercial that much more. Don'tmiss the show. Welcome back to
the data driven real estatepodcast today we have David
Tashroudian and Helen Fower withRetrofit1, and I'm very excited
to talk about CommercialAccessory Dwelling Units. We've

(00:49):
covered residential in a fewdifferent ways. With Kristin,
Kristi Cirtwill. And then we, alittle bit with Ward Hanigan.
But nobody's talking aboutcommercial. So, David and Helen,
thank you so much for joiningus. How did, how the heck did
you get into Accessory DwellingUnits?

Helen Fower (01:09):
So, uhm...

David Tashroudian (01:09):
I can...

Oh, nevermind...

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

So, I again, thank you so much, Aaron. I'm Helen.
And as Aaron mentioned, we arewith Retrofit1 as well as now a
special division just dedicatedto ADUs, called ADU 1, very
appropriate. And so, ADU 1 cameto be similarly to our Retrofit1
division. ADU 1 was kind of bornright on time of when California

(01:48):
passed the state law for ADUs-Accessory Dwelling Units, which
is primarily to increasehousing, because there is a
housing shortage, shortageacross California. So, they
really expanded it now tomultifamily properties, which
was really cool, becauseeverybody kind of identified

(02:08):
ADUs connected withsingle-family residence, you
know, typical garageconversions. But what's really
awesome for commercialproperties and multifamily
property owners, they are nowallowed to expand their own
property, increase the value oftheir property, add monthly
income, and increase the numberof units. So, ADU 1 was

(02:29):
developed because of the highdemand we were getting from our
Retrofit clients. Because youcan also combine those two
together. So, we were getting alot of demand all around to
combine the retrofittingrequirements with the
development of ADUs, and reallyjust kind of maximize their
money, return on investments,instead of only spending money

(02:50):
on retrofits. So, with that cameat ADU 1.

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

Yeah, I can answer that part. So, the city
of Los Angeles had adopted thisordinance requiring building
owners who own these buildingsthat have tucked under and sort
of carport style parking, withweak soft storylines, and units
above to sort of reinforce thoseparking areas and the building

(03:37):
in that week's off storyline toensure that it doesn't collapse
in the event of an earthquake.
And the city of Los Angelesactually 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 Angelesand now a couple other cities,
such as Santa Monica, BeverlyHills, and Pasadena are

(03:58):
requiring landlords to retrofitthese soft story buildings. And
the retrofit typically entailsthe installation of steel moment
frames, steel columns, shearwalls with new foundations and
things like that. It's reallyinteresting because buildings,
soft story buildings have beenidentified not only by these

(04:19):
couple of jurisdictions that Imentioned, but also by the state
as a sort of parallel to life.
And a lot of you might rememberthat back in the, during the
time of the Loma Prietaearthquake in 1989, I think it
was, and the Northridgeearthquake in 1994 that followed
shortly after that. There are alot of these soft story

(04:41):
buildings that collapse andthere was a tremendous loss of
life. So, the state is taking avested interest in not only
protecting life, but alsoprotecting property and ensuring
that in the event of acatastrophic earthquake, these
soft story buildings which Imean they're they're tons,
they're like tens of 1000s, ifnot 100,000 across the state of

(05:01):
California, they don't fail.
And, and the real economicimpact of a failure of all of
these soft story buildingsduring the event of an
earthquake is that there willnot- no longer be enough housing
in California. And that'll bedetrimental to the economy. So,
we saw an opportunity toretrofit these buildings. Like I
said, it's mandated here in Cal-in Los Angeles. And it's been a

(05:24):
great business. But slowly, butsurely these buildings are being
retrofit and sort of dovetailedinto the ADU space, because it's
just a natural sort ofcombination of our of our skills
and abilities.

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

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

Right.

So, it can get very expensive really quick.

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

Exactly.

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

Of course, Uhm, personally, I really liked it,
because in a way, I kind of feltbad for the property owners that
suddenly they have thisordinance slapped on them. And
especially, especially theowners who maybe they only have
one building, and this is theirsource of income to live. And
it's their livelihood, andsuddenly they have to pay

(07:09):
$80,000 to retrofit. So, Ialways felt really bad in those
situations. Of course, we'rehere to help and work were a
business. But whenever I wouldtalk with the property owners, I
could hear how difficult itwould be to have to spend this
money to get nothing back, ofcourse, for the safety of their,
their residents and tenants andthe building. But it was always

(07:31):
a tough situation to have topresent this ordinance.
Sometimes we were the firstpeople to tell them that they
have to do this. So, I wasreally excited that it can now
be combined with something thatcan get them a return on their
investment, make them more moneyand help the housing shortage
and just the economy and thecommunity with housing at the

(07:53):
same time. So, it reallyresonated better with me this
time that it's helping in somany ways, rather than somebody
just spending money for the sakeof meeting the requirements.

So, let's go back up real quick. And just in case
somebody's landing on thisvideo, 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 thrownaround a lot more in the
residential space, where it canlook like a converted garage,
which is a Junior AccessoryDwelling Unit, it can be
attached and share a wall. Itcan be a completely separate
structure. And by law, the statecame down and said no more

(08:25):
games, local zoning you're outby right you and California have
the right if you're a landownerto build an Accessory Dwelling
Unit, and it's set someguidelines, the setbacks
changed. What some other thingsthey, they finally updated it to
where there's a maximum heightlevel. Early, early legislation
had no cap, so technically, youcould have a 10 story ADU in the

(08:46):
backyard they, they fix that.
One of the biggest things isthat they made them you don't
have to be an owner occupant,which is great. A lot of cities
were also roped in becausethey're charging really
ridiculous fees, impact fees,some cities were charging up to
$50,000 in impact fees that hadnothing to do with anything
besides you want to build one?
$50 grand. They were setting lotsize limits like 'Oh, an ADU?

(09:09):
Sorry, you don't have a 20,000square foot lot.' So, the state
has continually come down andregulated this. It's been
fascinating to watch, butcommercial ADUs don't get enough
conversation. So, can you talk alittle bit about the ordinance
of what it allows in the stateof California? For commercial?

Yes, sure. I can continue with that. So, pretty
much kind of a blanketed ruleall across California right now
for multifamily properties.
You're allowed to create up to25% of your existing number of
units and that counts forattached. So, that would be
converting space within theexisting footprint. Garages if
they're already attached, thetuck under parking as we

(09:52):
described, storage rooms, recrooms, passageways, basements,
so, any room that's within theexisting dwelling, you can
create up to 25% of yourexisting number of units. And
then a flat rate across theboard is up to two detached
units. And that would be youcould either have, again, a

(10:14):
simple conversion of a detachedgarage, detached, carport, even
sheds, barns, they're allowing,as long as it was an existing
accessory structure. Or you cando brand new construction,
detached, space permitting,following all of the setback
rules and height limits.

25%. That's interesting. Can you convert
existing square footage, likemaybe you had a two bedroom, two
bath and you want to split theminto one in one will that work
or this has to be convertedspace?

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

Okay. So, some of these fancy buildings who
created a lot of amenities thatpeople weren't using a lot,
especially now during COVID, themovie rooms, oversized gyms, you
can convert those into livablespaces. That's really
interesting.

If they're within the proper zoning.

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

Yup, exactly.

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

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

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

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

And I don't know if you've experienced this. I
don't mean to throw localplanning under the bus, but in
your experience, are they veryforthcoming with that
information? Or will they tellowners like 'Yeah, you can't do
that.'

I would say, right now, luckily, California because
it's a state law. It supersedesany, you know, local
jurisdiction. However, it isstill very new. So, some cities
with their own if they're, theymay be in the process of
developing their own ordinance.
Santa Clarita, for example,their ADU ordinance just passed
in January and went into effectover the weekend. So, prior to

(12:49):
that, they kind of had a grayarea for ADU submission, but now
they finally finalizedeverything. So, they're, of
course within the parametersthat are even able to have
wiggle room. So, many citiesright now, if they don't have
their own ordinance, they haveto follow California. And if
they do have their ownordinance, it's still within

(13:10):
certain requirements andrestrictions that California put
on.

Are you experiencing timelines that the
law states the city has orcounty building department has
60 days to approve a permit Areyou seeing in the COVID
environment that that is holdingtrue?

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

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

It definitely works for the tuck under the dingbat
style that um, you know, justhas those areas easy conversion,
it's already kind of part of thefootprint. I've seen a huge
benefit for duplexes, triplexesfor plexus, because they can
almost double, double their unitcount. And typically, those

(14:16):
building because they'resmaller, they have extra lot and
land, you know, that that hasbeen just an empty space. So,
they've been able to reallycapitalize on the detached
units. We've seen some two,four, I mean, really, yeah, any
buildings, duplexes, triplexes,fourplexes, all the way up to

(14:36):
buildings that have you know,larger storage rooms that they
want to convert, tuck undermaybe around the entire
perimeter on that, can use thatand because they have extra
parking lot, or the street isokay for parking. So, we really
haven't encountered anybuildings where it wouldn't
unless they never had parking tobegin with. And there's no

(14:58):
existing extra lot or land?

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 becauseof the design side, the
livability, in some cities whereyou're working the concept of,
you know, you make the buildinga little bit less livable, I
think of some parts of LA whereparking is already just a
trauma, trying to find it, andthen you get rid of existing

(15:24):
parking, and you make a reallyterrible living experience for
the tenants. And it actuallycould impact the value of your
property. Is tho- are thoseconversations you're having to
have with some building ownersthat see the opportunity, but
it's just not the rightopportunity for where they're
at?

Absolutely, absolutely. And we, I've
discussed numerous times withthe property owners, if they're
building it, it would be worthit with them or create more of a
headache or issue, especially,we definitely understand that
taking away parking or providingthe unit without parking may, if
for them, it's harder to fillthan they know that specific

(16:00):
building might not be right forthem. However, there's other
buildings that if they know,most of their tenants are using
bikes using publictransportation, a high
walkability score, it's, it's,it's a great opportunity, nor do
the owners have to use all oftheir parking. And they can also

(16:21):
take advantage of stuff, we'vedesigned two story structures,
if they have kind of like aparking lot, or even just a row
of parking. Following setbackrules, we can build a two story
structure that preserves parkingunderneath and has units on top.
So, we have many design ways toeither preserve their parking,

(16:42):
not use up all the spaces, ifthey you know, don't want to,
just convert storage areas, orsome configuration that can help
for what's best for thatspecific property.

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 addthree garage units with ADUs on
top. And just so you know, forthe sake of public records, this
is a triplex plus three ADUs. Herented the garages out to the

(17:15):
different owners. It didn'tmatter out of the six, you just
paid extra for the garage. Ithought that was so brilliant,
who is able to add quality oflife and not get rid of parking.
I just thought that was reallygreat. I love the concept of in
public record, looking at thezoning so, something already
zoned like R3 or LA R3, sotriplex and right now there's
still only a single family,somebody's never come in and

(17:36):
done, highest and best use. So,I've got investors specifically
looking for that. And thenadding the ADUs on top of adding
two additional units. So, goingfrom single-family home to
adding five additional units inmarkets like this where it's
hard to maybe find a deal. Youcreate it. That's really cool.

Absolutely.

I think I was on the, I was showing David that
yesterday sort of some fun waysto look at the public records
and you just happened to bedoing the commercial. The
commercial building right nextdoor to the lot that I pulled
out. That was so funny. So, arethere...

The one on Clark? Yes.

Isn't that weird?
What a small world? You're in,on the Apartment Owners
Association? You had one? Youhad two projects specifically I
would love to bring up, one wasthe C-shaped building where on,
I think it was there's twostreets on either side of the
building, and there was tuckunder parking on either side of
the street. And I think what wasso brilliant about that project

(18:30):
is not only did you create two,brand new two bedroom, two
bedroom, one bath, I believe butthere was a courtyard in the
center that you replace theparking on site, which I thought
was so great. And then the wholeretrofitting angle, so,
typically that, that buildingowner would have to spend what
$150 grand to fix the under tuckparking. Is that fair?

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

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

Yeah, the two units? I think the two units
there is a total of like, I wantto say 1100 square feet. And we
came in a little bit over 300.
And in that neighborhood, thedoors, 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

(19:28):
door by 250 to $275,000. So,it's like a no brainer,
basically.

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

A lot of times we're upgrading the sewer
lines, because we'll run acamera it will show the, we're
licensed plumbers. So, we do alot of the plumbing work will
either repipe the entirebuilding for the, for the, for
the owner because they'llrealize like 'Hey, you know I'm
doing this in basicconstruction, they're putting in
this great new product calledpecs.' And it's solving all the

(20:05):
problems they're having withpinhole leaks and their copper.
So, rather than just having twounits that are, that are sort of
insulated from future failures,they properly decided to repipe,
the whole building, and thenwe'll run a camera to find the
existing sewer lines, we can tiein the new sewer to that, and
they'll find it. It's, it'scracked in four or five
different places. So, ratherthan waiting for the entire

(20:27):
sewer line to collapse, we'lljust do a liner. And, and we'll
upgrade the sewer line foranother 50 to 75 years.

Wow, that's...

That's a value add.

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

I wish. Not that we've seen.

Okay.

Quite frankly, no.

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

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 thepioneer of the soft story
retrofit requirements. And thenit sort of migrated its way down
to Los Angeles. I think in SanFrancisco, there are maybe 3000
buildings subject to theordinance. Los Angeles was
closer to 12, Santa Monica maybehad 2000, the City of West

(21:33):
Hollywood and, and Beverly Hillsmaybe 800 each, 500 in Pasadena.
Now, other cities, like such asOakland, and I think Mountain
View is looking at it. They'resort of adopting the ordinance
as well. But it's an issuethat's, that's sort of brought
has been brought to theattention to legislators,

(21:55):
legislators statewide. So,there's a provision in the
government code that states thatthese kind of buildings are a
hazard to, to health and safety.
I can't recall what it is offthe top of my head, what's there
in the government code. Andthere was a congressman down
here out of Burbank who tried toget the state to prepare a

(22:17):
statewide inventory of softstory buildings to sort of local
municipalities can take a lookat an ordinance. But that was
shut down because I think it wassomething like a an on. I can't
recall why it wasn't signed byGovernor Brown in 2018. I think
it reached his desk, but herefused. He didn't sign it. It

(22:40):
might be coming back again. Butit's definitely on people's
minds, on the minds of thelegislature, because you want to
make sure in the event of acatastrophic earthquake, we
don't run out of housing forpeople. Because they're, I
would, I would imagine there aremillions of people living in
these kind of units.

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 todisappear and make the problem
worse.

Yes, yes, that's right. It would have a
you know, sort of a dominoeffect. Right? If you can't have
people, if people can't live inCalifornia, they're not gonna be
able to work in California. Ifyou can't work in California,
the state's GDP by definition isgoing to decline. So, be very
difficult to get us back on ourfeet after the event of an
earthquake. If people can't liveand work.

I always encourage real estate investors to get
very local, go to themunicipality, check the building
department, check with yourutility. Sometimes if you're
doing upgrades, they will have,sometimes they get these grants
from national or the state thatthey have to spend. My favorite
was when retrofitting was aroundI called AOA . I was like, do
you know about this installationprogram that the LADWP has,

(23:51):
where they're just giving awaycommercial installation, they
just have to spend the money andthey're having a hard time. So,
while you're doing a retrofit,you can re insulate your
building, and then tap into theutility to get rebates on things
like windows or air conditionersor things like that. And he's
like, nope, didn't know aboutit. So, you never know when
those kind of resources change.
So, that's why I was askingabout the retrofit money. And

(24:13):
since it is a local ordinance,if these ordinances come with
money sometimes doesn't soundlike that's happening,
especially with COVID.

No, definitely. But there is, there
are grants available forsingle-family homes that want to
retrofit their foundations. Andthat's through the Earthquake
Brace and Bolt program. I'vepersonally taken advantage of my
house, in the last couple ofearthquakes. I really haven't
felt much you know, because myfoundation now bolted to the
ground. And it's reallyinteresting process. It'll save

(24:44):
you a lot of money in the longrun in case there is an
earthquake, because it preventsyour essentially your structure
from sliding off the foundation.

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

Could mean several thousand dollars for single
family owners,

How much does it cost to get it done?

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

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

Yeah, a lot of our, a lot of our earthquake
retrofit customers are doing itin order to get a discount on
their insurance. But not onlythat, you know, a lot of people
are forced to retrofit theirbuildings, soft story buildings,
because of bank requirements.
So, if they're going through arefinance, the lenders gonna
want you to refi to retrofityour building, in order to
ensure that their collateral isstill around, you know, in the

(25:48):
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 aclient right now just purchased
a set of buildings, they have toretrofit these buildings in
order to comply with the termsof their loan. But instead of
doing that, he's just creatingnew units. He's putting the ADUs
and retrofitting at the sametime.

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

Yes.

Wow.

More so now.
Yes. More so now.

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 tosell? Like, how are they feeling
about all this?

The majority are doing it, you know, they want to
keep it still worth it to do theretrofit, it's a, it's a,
they're paid for it once, butthen they still, of course, you
know, continue to get thatincome from their income
property. So, the majority ofour clients and customers and
everybody else there, they'redoing the retrofitting every now

(26:54):
and then there is somebody whodoes have to sell their
building. And that's what Ipersonally hate when that
happens. So, I really try toconnect them with every single
financial resource I can to helpthem or we do of course, with
with whatever is in our power tohelp. So, they don't have to
sell something that's their onlyincome, you know, based on this.
But the majority are doing it,and now we notice from all of

(27:17):
those categories, the ones whowere able to do it, the ones who
had to sell the ones who didfinancing, are jumping on board
with the ADUs because it'salmost like that's the tanswer
they were looking for. If I'mgoing to spend this money, how
can I do it in a way where I atleast get something in return?
And it doesn't just hurt me inso many ways.

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

So, from my under...

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 ourexperience thus far has been
that these are new units. Right.
And these new units are exemptedfrom Costa Hawkins and the local

(28:12):
municipalities, rent controlrequirements, for I think it's
the 15 years that you have for anew construction. So, it falls
within that, but, but again, Iwould just you know, encourage
somebody who's looking at doingthis, to, to get legal advice
from qualified counsel on that.

That could really help a lot of landlords who have
maybe been very gracious orsilly and not raising rents. I
fall under that category,because I enjoy my tenants and I
like them to stay really longtime. I'm not very aggressive on
that front. But where maybe theythey'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 toincrease income if you have to

(28:52):
do those kinds of things. So, Ihope we're right. That is my
understanding as well that youdo not have to chart it's not
under the rent control. But Ilike that speak with your
attorny, very good idea.

Yes.

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

Interesting.

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

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

Yes, so there is with the title 24, newly
constructed detached units, doyou have to have solar? You can
either put the solar on the newunit or on the primary dwelling,
it's up to the owner, but theywill be subjected to those
energy efficiency standards. Andthat is required for newly
constructed detached units.

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

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

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

All right. I'm just trying to be creative. Our
crew, and I'm also trying tothink in the data that we have
access to how to spot thingsthings. I call the chief
appraiser for Riverside Countyasking how they were adding
these in the realm of publicrecords. And they are but it's
not getting done correctlycountywide, at least in

(31:03):
Riverside County. So, I thinkwe're a ways away from not
communicating with people thatmight have these. So, how do we
how do we suss that out? I don'tknow. But do you have any
favorite cities that you reallyenjoy, because it's just so easy
to do these and they're reallyexcited about these.

Los Angeles.

Really?

The reason I like Los Angeles is because Los
Angeles is very gracious in theamounts and the square footage
rather of the detached at usthat they're allowing. So, the
state minimum is anywherebetween 800-850 square feet that
the municipality has to allow.
So, municipalities are verystingy, and they'll only allow
you the state minimum. But thecity of Los Angeles, again, has
been very gracious to propertyowners, and is allowing the full

(31:45):
1200 square feet. So, you couldadd up to two, 1200 square foot
detached units on your property.
That's like a 2400 square foothouse, 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

(32:06):
unit.

On each?

Very nice.

Each?

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

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

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

Yes.

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 overthat particular project was
really neat. And how you gotaround that?

Yeah, that the engineering is is pretty
novel on that. So, the idea isthat the 16 foot height limit is
measured within five feet, ismeasured from the grade within
five feet from a structure. So,you can actually excavate
portions of the building, ratherthan portions of the lot in
order to accommodate for ataller building. So, if you can

(33:14):
get down like a foot and a halfor two, that's enough to provide
you with, you know, an extrafoot or two to get out a taller
ceiling, for example, on thesecond floor. So, the parking
requirement is that you onlyhave to have seven feet of
clearance in the in the parkinglot, that's fine. You have to
have a minimum of seven, six,typically in the living, in the

(33:36):
dwelling area. So, with thatadditional foot that you
excavate for the half that youexcavate. You've got plenty more
room up in the living area to togive it a nice bright, open and
airy feel.

That is so great.

Yeah, it's great.

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

An efficiency unit, believe it or not, is 150
square feet. Some jurisdictionshave a different maximum. Helen
will tell, me told me thatrecently that the city of Santa
Monica requires at least 220square feet. But man if you can
get away with 150 square feetwith a hot plate and the plates
and prepare your food and Ithink an area for a small fridge

(34:28):
and bathroom facilities you aregood to rent.

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

Yeah.

...units?

Yeah, let's let's say a garage. I mean,
typical parking spots right noware, I think eight, eight feet
minimum by 18 feet in depth, buta lot of times you see them
eight feet by 20. So, if you hadan eight foot by 20 spot, and
there's two spots right next toeach other, technically you
could put two tiny micro unitsin there.

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

I as about t say, similar to Manhattan cl

Well...

I'm thinking out loud here, I'm sorry, I'm
sorry, I didn't mean to cut youoff, you're thinking out loud.
Let's say for example, this, thestate starts providing grants to
alleviate the homeless, thehomelessness problem that we're
having all over the place, youknow, you can just make a ton of
these micro units in these tuckunder parking spots of people's
buildings. And if this, if thecity is giving out $100,000 a

(35:33):
month in grants to houses, youknow, the previously homeless,
that's amazing. I mean, you canget like, I don't know, 10 units
in your you, in your building at150 square feet of pop at 10,000
a month, bucks a month, yourrent roll. I mean, that's
unheard of.

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

There, similarly, maybe, maybe they encompass what
you're what you're describing.
There actually are a lot ofgrants and programs right now.
Maybe not specifically tofunding for, for homelessness
and housing. But there are ifyou make enough units for the
low income population, there aresome programs and grants there.

(36:32):
I know San Diego may have someand some cities up north, I
forgot if it was Oakland, orAlameda or something like that.
But there are some funding andprograms right now, if you do
create units for low income, aswell as I believe even middle
income to low income, there'ssome funding. And I know I was

(36:54):
helping a very nice lady rightnow in San Diego, she rents all
of her properties to veterans,section aids, wounded warriors,
things like that. So, I've beentrying to help her link to
programs that can help fund herADUs because she's doing so much
for her community. So, there aresome if anybody needs to talk to

(37:16):
us, I'm happy to help try toconnect with any possible
funding out there that can helpthe community.

Absolutely, I love the creativity. And it's often
something I like to tell peopleis don't rule out the nonprofit
space. So, a lot of investorsdon't always live in the county
where they own property, go tothe County 211 and start asking
for those kind of programs,housing programs and call it
nonprofits and say, Are yougetting creative? What kind of
funding is available? Becausebelieve me, the nonprofit space

(37:45):
is on it. They're doing someresearch, they're starting more
housing programs. The 211 hasdata and almost every county in
California, it's like RiversideCounty housing for the last five
years that I've been looking atthe data is always housing
related, people needing helpwith rent and stuff like that,
so.

Absolutely, absolutely. And hopefully, if
there's enough push, they'llcreate programs and funding for
it as the ADUs continue to rollout.

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

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

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

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

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

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

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

Oh, yeah.

Oh, like you wouldn't believe.

I don't. I know.

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

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

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

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

Luckily, right now, we're reaching out to all of our
existing clientele for theretrofitting, spreading the
word, you know, any which way wecan webinars newsletters, just
calling them to, to inform themif they have not heard yet. So,
we've been doing it that way. Aswell as some people have

(40:52):
organically been finding outabout it. We've been writing
some articles as well, forcertain publications. I, we do a
lot of social media reachLinkedIn posts, Facebook,
everything we can to reallymarket the entire new, you know,
ordinance and law, as well asjust reaching out to as many of

(41:13):
our own in house clients that wealready have. So, we're doing
pretty much everything possibleto help spread the word and see
who wants to, you know, jump inon this opportunity.

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

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

That's awesome. I just...

Yeah, yeah.

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

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 alsocertain rear setback rules that
can't take up, you know, theentire space of the rear
property. But we always anythingwe propose to our clients. We've

(42:11):
already done our research. Weknow the rules, we know the
setbacks or requirements. So, weonly propose feasible units,
we're not going to promise thema 10 story attached thing that
then suddenly gets rejected. So,once they're engaged with us,
and we're proposing something weonly propose what's feasible and
what's allowed by the state andtheir specific jurisdiction.

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

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

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

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

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

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

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

Luckily...

Be polite and clean, right? No, really.

And luckily, with our team, specifically, we have
a wonderful, all of our staffare very hands on, we handle
tenant communication and noticesthe entire way through. So,
that's also something thatprobably property owner doesn't
have to worry about complaintsbeing directed to them or just
questions about theconstruction. Somebody in our

(44:28):
office is available at alltimes. You know, when if it's
after hours or anything, we getback to you right away. So, we
handle all tenant communicationand notices, updating on you
know, whatever phase ofconstruction, we're on how long
left, whatever it is, you know,we, we always make sure to keep
our communication open duringthe entire process. Like David

(44:50):
mentioned, we're always verynice. We absolutely understand
that it could be a nuisanceduring the construction process
and the noise. I single handedlyhelped a lady going through some
health conditions, as well asteaching a class, chemistry
class, high school chemistry at7am, I helped find her a parking
spot where she can move her carto every day during the process

(45:13):
of construction. Just so shecould, you know, be comfortable,
not have to walk and still getback to her class. So, we'll do
whatever is needed. And ofcourse, within reason, we will
do it to help the tenants duringthat, those construction phases.

Yeah. And also sort of piggyback on what
Helen is saying, you know, we'vegot a 4000 square foot office
here in Tarzana with maybe 20people. And also you're, like,
hang around here a little bit.
And there's just one portion ofour office, and we're dedicated
to customer service here, Ithink that's one of our strong
suits, that we ensure that, youknow, obviously, the client is
the number one, and the clients,which is the tenant is

(45:52):
essentially number two. So,we're always working to ensure,
you know, appropriatecommunication, timely
communication. And like I said,on the job cleanliness, we want
to leave the job clean, everyevening, free of debris and
safe. So, I don't think I thinkpeople see that and appreciate
it. And that's why, you know, wedon't get much pushback.

Alright. Well, this is the Data Driven Real
Estate show. So, it's we've cometo that part of the show where
we have to focus on data. I, youknow, some of my favorite ways
to look at these Ivies mentionedare the upzoning opportunities.
If you're in the community, andyou know, upzoning is coming in,
you're there first. You know, aswe've talked about the different
ways to build these, hopefully,it will trigger things. But now,

(46:36):
I had never even understood theterm, soft, soft building. I
didn't even know what that wasuntil you and I started talking,
and I saw your presentation atAOA. And that's not in the realm
of public records, necessarily.
So, you may not only, you maynot know that unless you're
driving around and really spotwhat's really appropriate. So, I
have investors that are doingusing PropertyRadar to zoom out
and then zoom in and see wherethe project is located. If

(47:00):
there's enough room in the back,or where, you know, they might
be able to replace parking forgood tenant access and
livability. That kind of stuff.
So, some of it's a little hard.
Another way I like to do it issquare footage of lot. And then
you try to calculate a way tosay I only want the main
building to be this much squarefootage. And it's this many
stories, and I want the lot tobe this size. It's just a

(47:22):
cheating way to be able to zoomin as much as possible and start
looking at those opportunities.
And then you can zoom in andactually look at the map. It's
pretty nerdy. What are theirdata?

A couple things. Yeah, I know exactly
where you're going with this.
So, the city of Los Angeles isactually and I think city of San
Francisco and Oakland. And thosecities that do have an ordinance
have published addresses ofthese soft story buildings. So,
you could probably take thoseaddresses and import them into
your PropertyRadar system togive a new attribute to your

(47:55):
data sets.

Wow, that is amazing. That's fantastic. And
all you have to do is find theaddress and then add it to a
list if it meets the criteria.
And if it's owned by mom andpops, there's a great chance
that we'll have phone numbersand emails, which is awesome.
So, you can contact themdirectly, in whatever way is
appropriate. So, I loveoverlaying demographic data,
that's definitely my favorite.
If you know the age of thebuilding owner, maybe you can do

(48:22):
some creative financing stuff,maybe they own a whole
portfolio, and you figure outhow to do some really creative
stuff could be a lot of fun.
What other data do you guys usein your business that people
might be interested in? How areyou out there beating the
competition?

So that's a trade secret. But no, it's okay.
So, aside from that, like, youknow, what we learned early on
is that we can take, we can takethe information that's provided
by the state in the city,rather, on these vulnerable
buildings and sort of backwardsengineer from those addresses,

(49:00):
people's contact information,their names, their phone
numbers, their addresses, we usePropertyRadar 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 smalltelemarketing team that takes
all that information, and justcalls people up all day and

(49:23):
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 forlandlords that may not have
realized that they could takeadvantage of this rule.

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

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

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

Pretty much everything. I mean, we're
utilizing, old school techniquesof just phone and giving calls.
Again, social media has beenbig, especially for the ADU side
of it too. Whatever we can, youknow, writing articles, just
getting those out there, too. Wewrote some I think even early

(50:24):
in. I think we wrote it lastyear, it was published maybe
December or January. And thatwas just about retrofitting and
ADUs to just slowly get thewords and then we get organic
phone calls coming in, becausethey read the story, they read
the article. So, whatever wecan, and we're very fortunate to
have a huge network right now.
Lots of clientele related tocommercial real estate, they

(50:49):
have maybe their own portfolioas well as they work with
clients who have others,whatever, you know, we can with
just networking alone as wellhas been very helpful.

Well...

The direct mail works.

Oh, you do? Okay.
Do you do a lot of work?
Whenever you're in theneighborhood, and you're already
doing a project? Do you doanything around? Maybe you get a
lot of questions from peoplebeing like, what are you doing?

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

Well, it's hard...

Because the apartment owner doesn't live
next door.

Right. Right, I was gonna say the commercial
owner doesn't necessarily livethere, the property manager
might not just like I just can'tbe bothered, they're not gonna
necessarily pass that on, theydon't care. So, it's really
smart to be able to do someresearch and find out where the
actual owner lives. That'sgreat. Interesting, well, your
presentation at the ApartmentOwners Association, I on the

(51:47):
show notes, I definitely willlink that it is well worth the
hour that you will spendlistening, you have just such
great pictures and case studies.
And that's why I originallyreached out to you, I'm going to
redo the ADU quick video on howto find the opportunities and
the data. And the different waysto do that. And I just really
appreciate it was really good.

Awesome.

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

They can go to our website apartmentadu.com. or
give us a call 1866 new ADU-1.
We'll always be available, youcan hit the contact us through
apartment ADU. And we're alsogoing to start doing, David and
myself will be doing live weeklyseminars with Q&A every week,
they can register onapartmentadu.com, register, and

(52:35):
every week can have a live Q&Asession with both of us to
discuss anything ADUs, specificproperty questions. Or call us
again. 1866 new ADU-1.

I'm gonna have to introduce you to somebody when
we get off the air. Hopefullyyou guys are already very
involved in the NationalAssociation of Property
Management. ,I I know it's, I'vetaught at their associations
before, but this is just toocool not to share. So, Alright
guys, well, thank you so much. Iwill make sure to put all those
links in the show notes, andthanks for being here.

My pleasure.
Thank you for having us.

Thank you for listening to the Data Driven
Real Estate Podcast, you canfind show notes and links to
some of the resources mentionedin the show at
datadrivenrealestate.com. Clickthat join the community, and
you'll be forwarded to thePropertyRadar community where
you can ask questions about thecurrent show and even see
upcoming guests and askquestions there. We'd love to
engage with you in thecommunity. So check it out.

(53:32):
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