Real Estate

Pooling resources to deal with potential disaster

The Greenhouse residents debate complicated seismic-retrofit proposal

Homeowners consider the risks of future disasters when they buy and maintain a property. They can take out earthquake, flood or fire insurance, self-insure by setting aside their own funds, make an attempt to mitigate the effects of calamity by updating or retrofitting their residence, or they can bank on faith.

But the decision becomes a debate at residences where external facilities are maintained as a group.

That debate has raged at the San Antonio Road condominium complex The Greenhouse for the past 16 years. The 15-building complex is home to 12 of the 130 multi-family buildings in Palo Alto with a so-called "soft-story" construction. Soft-story buildings, with weak or open walls such as openings to garages on the first floor, are known to be unstable in the event of an earthquake, failing to support the swaying weight of the floors above them. In the event of seismic instability, they are prone to leaning or outright collapse.

Owners may agree that there is risk. Whether they are willing to pay to lessen it is another issue.

"The bottom line, I think, is that people are opposed to it because it costs money," Ralph Cahn, Greenhouse board treasurer, said of seismic retrofitting first discussed in 1995. Greenhouse homeowners have repeatedly agreed that a seismic retrofit to reinforce their buildings is necessary but refused to approve funding the project through special assessments levied on individual owners. A seismic retrofit proposal to dedicate $250,000 of the association's well-funded reserves and charge each owner between $7,975 and $10,238 is scheduled to come to a vote this month.

This proposal is one in a long line of attempts to retrofit the complex. Two separate engineering studies were commissioned by the complex before 2000, resulting in two retrofit proposals. In 1999, homeowners voted for a detailed retrofit plan and against a $6,000 assessment to pay for it. In 2005, the board canceled high-deductible earthquake insurance on the grounds it would not make up a large part of the damage in the event of a catastrophic earthquake.

But that didn't change people's willingness to go into their pocketbooks: A 2010 poll of homeowners showed majority approval for the project and questionable results about the cost.

The current proposal involves installing external buttresses and attaching them to an internal support rod, sheathing vulnerable "cripple walls" with plywood, and ensuring the buildings are adequately bound to their foundations. The proposal resulted from a study by the structural engineering firm The Crosby Group in the late 2000s after an Association of Bay Area Governments risk-assessment survey showed The Greenhouse is at high risk for potentially devastating damage in the event of a significant earthquake and recommended an evaluation.

"The ultimate choice is pretty simple," Cahn said, citing the risks of living in such a construction in an earthquake-prone region. The only legitimate reason to vote "no," Cahn said, is if one cannot afford the special assessment required for retrofit.

Special assessments on top of a condo owner's regular monthly assessment -- whether to repair plumbing, repaint building exteriors, or complete more safety-oriented projects -- are often controversial, especially since condominium complexes house owners of mixed financial ability. Of 140 owners at The Greenhouse, 14 owners purchased their units through a below-market-rate program administered by the Palo Alto Housing Corporation, which has no measures in place to help them finance the initial fee. Although those owners will recover the costs of special assessments when they resell their homes, those who bought their units at reduced rates of an average of $100,000 can't go into their home equity to finance such unexpected expenses as a seismic retrofit.

The Greenhouse board has suggested a solution to this funding quandary, proposing that the condo association take out a 15-year loan and provide loans at an interest rate of approximately 7 percent to those -- below-market and market-rate owners alike -- who aren't in a position to pay their share. The rates are higher than a home-equity loan offers.

"All board members agreed we needed to do everything we could to help people to pay, including being a lender of last resort," Cahn explained.

But this solution, Cahn said, aggravates a small but vocal group of residents who worry about the consequences of supporting those who can't afford to make the payments on time. Cash flow into association coffers from each owner's individual monthly assessment will serve as collateral in the event it has to default on the retrofit loan. Even at a well-funded condo association with no past-due assessments, the decision to plan for disasters seems to come down to whether residents are willing to work with their neighbors.

Retrofitting proposals like those at The Greenhouse, however complicated by condo politics, may be a timely reminder of the risks of banking on faith in the wake of the 9.0 magnitude earthquake that shook Japan on March 11, Cahn said.

"This terrible earthquake in Japan may have the effect of people realizing it could happen here."

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