The City of Portland is in the final stages of passing a mandate that requires owners of Unreinforced Masonry (URM) buildings to complete extensive (and expensive) retrofits. While some uncertainty remains, the bulk of the retrofit requirements and incentives appear to be set.
We’ve completed a number of recent appraisals of URM and physically similar non-URM buildings. We’ve analyzed all of the relevant value indicators, and are seeing about a 5%-10% discount, which is at the low end or below the potential cost impact. However, due to the very limited number of current sales, it can be difficult to identify exactly what is driving the discount (location, condition, income/expenses, overall market conditions.....or the URM status).
There are a number of potential reasons for a lack of discount.
- The possibility of having to comply with more stringent regulations and thus face additional costs is a new phenomenon that has not been readily apparent until recently. The City of Portland introduced potential retrofit requirements in December 2014, though it was not until April 2017 when a report was provided detailing potential requirements and potential costs.
- Very strong investor demand for well-located urban properties, and investors possibly discounting future risks based on the strong urban location of most URM buildings
While some form of mandatory compliance is likely.
The final mandates have not been approved by Portland City Council
The timing could extended out as far as 25 years
There is uncertainty on the financial benefit of the incentive offered
With the final mandates likely to be approved, and cost estimates floating around, we think the discount will grow. Retrofit estimates are $20-$70/Sq. Ft., or maybe 7%-25% of value. I've spoken with some owners who believe the actual costs will be higher. The City of Portland has proposed many incentives, but there is uncertainty on the financial impact. We are watching this issue closely both on the regulatory requirements and the sales.
The NW Examiner recently wrote a great article from the perspective of a few different local market participants. In addition, the full report from the City of Portland can be found here.
City of Portland - URM Retrofit Cost Estimates