No Country for Old Buildings:
The Earthquake Threat to Unreinforced Masonry and pre-1994
Buildings in the Northwest
By
Walt McMonies
Lane Powell PC
© Lane Powell PC (2010)
No Country for Old Buildings
Terms Used
•
1.
2.
3.
4.
5.
Terms to Learn
Subduction
PML (Probable Maximum Loss)
Subsidence
Tectonic
URM (unreinforced masonry
building)
6. Ghost Forest
7. Orphan Tsunami
8. Crustal Quake
9. Intra- plate Quake
10. Ground motion
11. Shear force
12. Ductility
13. Tie-down
14. UBC (Uniform Building Code)
15. OSSC (Oreg. Structural Specialty
Code)
16. Seismic Risk Assessment
17. Façade Donation
18. SHPO (State Historic Preservation
Office)
19. Life Safety Upgrades
20. Preservation Plan
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No Country For Old Buildings
•
My Personal Involvement.
–
–
Summer 2009,
• Explored refinancing a 4-story, 1910 historic brick apartment
building, the Trinity Place Apts.
Learned:
• Classed as an unreinforced masonry building (URM)
• As a URM, didn’t qualify for a Fannie Mae DUS loan.
• Could only refinance with a bank portfolio loan
• RESULT: Annual P & I payments to Bank $28,400 higher
than DUS.
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No Country for Old Buildings
Trinity Place Apartments, circa 2010
The Earthquake Threat to Unreinforced Masonry and
Other Pre-1994 Buildings in the Northwest
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No Country for Old Buildings
Fannie Mae DUS Earthquake Requirements
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No Country for Old Buildings
Personal Involvement (cont)
Hired a structural engineer
•
•
•
•
Commissioned a “seismic risk assessment”
– including a calculation of a probable maximum loss
(“PML”);
Confirmed that Trinity of URM construction
With a PML of 30+;
But maximum 20 PML allowed for a DUS loan.
Then had engineer prepare plans for a seismic upgrade
•
Goal: bringing its PML down to 20.
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No Country for Old Buildings
Seismic Upgrade Plans for Trinity (part)
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No Country for Old Buildings
Trinity Place: Floor Joist Tied-Down
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No Country for Old Buildings
Personal Involvement (cont)
Educated myself on:
•
the Cascadia Subduction Zone (CSZ) seismic
hazard in Portland and all along the I-5 Corridor,
•
the seismic vulnerability of URM and other older
buildings,
•
the number and importance of URM and older
high rise buildings in the Northwest,
•
the difficulties and costs of seismically
retrofitting a URM building, both financial and
practical.
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No Country for Old Buildings
Discovery of Massive CSZ Earthquakes.
•
By 1991, geologists had identified Coastal OR and WA as being subject
to “subduction zone” earthquakes (“CSZ”).
–
Steps to Discovery:
•
Plate Movement. By the early 1980’s
–
Established that the Juan de Fuca plate subducts under the
North American Plate, at an average rate of 4 meters (13
feet) per century but
–
No consensus
» on how the plates moved
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No Country for Old Buildings
Discovery of CSZ Quakes (cont)
• Alaska Precedent:
– 1964 Alaska subduction quake (M 9.2), result:
» a 1.5 meter subsidence of coastal land in Cook Inlet,
• Alaska Analogy Confirmed
– By the late 1980’s geologists found:
» similar evidence of subsidence in OR and WA
» the land had dropped to create “ghost forests” of
western red cedar
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No Country for Old Buildings
Discovery of CSZ Quakes (cont)
• Sudden or Gradual??
» Still, geologists were unsure if the dead trees were
the result of sudden subsidence,
• Tsunamis and Subsidence = Earthquakes
– Deposits of sand sheets were found in the same strata
with subsidence evidence
» Sand sheets indicated tsunamis, based on
comparative examples from Chile and Japan
• When? And Massive or Localized??
» Carbon dating of the death of the trees, pointed to a
quake or quakes in the period 1695 to 1720
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No Country for Old Buildings
Discovery of CSZ Quakes (cont)
Enter Brian Atwater of U.S.G.S.
•Ghost Forest:
• Growth rings of dead red cedar trees in a “ghost
forest” marsh near Grays Harbor, WA indicated
trees died in late 1699/ 1700
•Orphan Tsunami:
• Japanese feudal records of an “orphan tsunami”
which struck Japan on January 27, 1700
•Determined: 1700 Quake sudden and massive,
caused a several meter (5 or 6 foot) drop (subsidence)
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No Country for Old Buildings
Discovery of CSZ Quakes/ Atwater (cont)
– W. OR and WA subject every 300-600 years to quakes
– Quakes relieved tectonic plate pressure and resultant
coastal uplifting.
– Enter Chris Goldfinger, OSU Professor of Geology.
– Studied coastal sediment and undersea landslides
– Over 10,000 years: 19 distinct 1.5 to 2.0 meter drops of
coastal land in OR and WA indicating Magnitude (“M”)
8.7-9.2 quakes.
– Big CSZ quakes in 400, 750 and 900 A.D.
– 18 localized CSZ quakes (M 8.0 to 8.5) in S. OR and N.
CA
» for a total of 37 or 38 CSZ quakes.
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No Country for Old Buildings
Risk of a Massive CSZ Quake
Destructiveness.
• Enormously destructive, duration 4 minutes, occurring 50 miles out
from the Coastline.
Only two 20th Century quakes worldwide surpassed M 9.0,
• the 1960 Chilean quake (M 9.5) and
• the 1964 Alaskan quake (M 9.2), both being subduction zone
quakes.
• An M 9 quake radiates as much energy:
(1) As the US consumes in a month or
(2) As two (2) x 90 mph, month-long hurricanes
(3) Equal to 4 trillion kilowatt hours.
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No Country for Old Buildings
•
Photo from M9.5 1960 Chilean Quake
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No Country for Old Buildings
– Destructiveness (cont)
– Full CSZ quake:
» the full 600 miles of the CSZ fault rupture,
» the plates would lurch past one another by about 20
meters (66 feet).
– Likelihood
•
•
M 9 CSZ full fault EQ in the next 50 years is 14 percent,
M 8- M 8.5 limited fault EQ on S. OR and N. CA coasts 37
percent
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No Country for Old Buildings
Other Characteristics of a Subduction Zone Quake
• emanates long-period waves (over one minute) which
particularly affect tall buildings.
Note: EQ shock waves will be amplified vis a vis a
particular building when the soil under a building is soft,
especially if:
•the soil is saturated with water or
•the soil is artificial fill.
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No Country for Old Buildings
Non-Subduction Quake Risks in Oregon.
Pre-1990, Oregon classed as relatively low earthquake risk.
Oregon had been known to be subject to:
“Shallow/crustal” quakes
• the Scotts Mill (or Molalla), OR quake 1993 (M 5.6),
• last for only 20 to 60 seconds, and
“Deep/ intra-plate” quakes,
• the 2001 Nisqually, WA quake (M 6.8),
• lasted for 45 seconds.
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No Country for Old Buildings
Factors Affecting Severity of Structure Damage
»
»
»
»
»
»
the depth and horizontal distance away from the
quake’s epicenter,
the site’s soil conditions (loose, wet bad),
the slope of adjacent hillsides,
the building’s type of construction (URM, etc.)
the building’s state of repair, and
the proximity of other earthquake-vulnerable
buildings liable to collapse on the subject .
20
No Country for Old Buildings
Comparing 2010 Haitian and Chilean Quakes.
•
2010 Haitian quake was M 7/ Chilean quake was M 8.8
• 501 times stronger (subduction)
Anomaly (Less Chilean damage) resulted from
• Distance from Epicenter.
• Chilean epicenter 65 miles/ 210 from Cities and 21.7
miles underground
• Haitian epicenter was almost directly under Port Au
Prince, and only 8 miles down
• Quality of Buildings.
• Newer Chilean buildings to seismic standards
• Older ones tested by seismic events, e.g. 1960 EQ.
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No Country for Old Buildings
Effect of CSZ Quake in the Northwest
In a M 9, full rupture CSZ Quake,
Result : many buildings in I-5 Corridor will be severely damaged, as
will bridges, highways, roads, utility lines.
Vulnerable Geographic Areas:
The Coast: Coastal Oregon and Washington:
Tsunami:
• Likely wave height of 13.5 meters (45 feet)
• an at- risk population of more than 150,000
• hits within 15 to 30 minutes of a quake and
• effect compounded by a 5-6 foot subsidence
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No Country for Old Buildings
Vulnerability (cont)
– CSZ Risk (& Ground Motion) Lessens Further from Coast:
• Coast maximum ground motion estimate 150
• Portland rating of about 90 (60% of Coast’s) and
• Central Oregon: much lower 35. (23% of Coast’s)
– I- 5 Corridor. Can expect minutes of violent shaking resulting in
enormous damage.
» Long period ground motion waves from a CSZ quake
can travel 100 to 200 kilometers (60-120 miles)
without major energy loss.
» High rise buildings (over 115 feet) and built prior to
the area’s 1994 reclassification as a Seismic Zone 3
are particularly vulnerable.
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No Country for Old Buildings
Vulnerability (cont)
• Effect on Structure Types:
Wood Frame: Less threatened, but they need to be attached to
their foundations
High Rise Buildings: also long bridges, steel aqueducts,
– readily sway if exposed to long waves at periods of one
second or more
– waves create a damaging resonance between the
ground and the long/tall structures above.
– Some 66%, 743 of the some 1,131 tall buildings (12
stories or higher) along the I-5 Corridor, predate the
1994 seismic code changes to Zone 3.
24
No Country For Old Buildings
Vulnerability (cont)
•
Distribution and Age of Tall Buildings
» Vancouver, B.C. (634/ 381 or 60% predate 1995),
» Seattle (225/ 156 or 69% predate),
» Portland (127/ 84 or 66% predate)
» Salem, OR (24/ 20 or 83% predate)
» Eugene, OR (25/ 20 or 88% predate)
Note: small cities have higher % of older…
•
Vulnerable Soils: Long waves can be trapped and amplified
in sedimentary basins like those under Seattle and Tacoma
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No Country for Old Buildings
Vulnerability (cont)
• URM Buildings:
– FEMA surveyed eight U.S quakes from the 1886
Charleston, S.C. quake (M 7.7) to the 2003 San
Simeon, CA quake (M 6.5), concluded :
» URM buildings bore a disproportionate share of the
damage suffered.
–
Of 4,457 URM buildings involved in the 8 quakes
» 5 of 6 buildings (83%) were damaged enough for
brickwork to fall and
» 1 of 5 buildings (20%) were damaged to the point of
partial or complete collapse.
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No Country for Old Buildings
•
2003 San Simeon Quake (M 6.5) totally destroyed some URM
buildings resulting in successful wrongful death suits.
Photo by: Hey Paul from Sacramento, CA (http://heypaulsblog.blogspot.com/)
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No Country for Old Buildings
Vulnerability (cont); URM (cont):
• URM buildings are esp. vulnerable because :
• load bearing walls of inadequate strength to resist
horizontal (“shear”) forces
• the walls’ lack of flexibility or “ductility”,
• the heavy weight of the building creating enormous
momentum once in motion,
• the lack of structural connections throughout
• the weakness of the roof and floor diaphragms and
susceptibility to deflection,
• the prevalence of parapets, cornices, chimneys, and stone
ornamentation prone to breaking off, and
• typically designed totally without reference to seismic forces.
28
No Country for Old Buildings
Portland URM Inventory.
•
In 2001, the City of Portland inventoried its URM buildings
– Found about 1765 URM’s in the City including;
–
200 apartment buildings (including condo conversions),
totaling over 3.8 million sq feet and 5200 units worth
over $350 million.
–
the remaining 1565:
» schools (49),
» hotels/ motels (38),
» churches (49),
» restaurants (85),
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No Country for Old Buildings
Portland URM Inventory (cont)
»
»
»
»
»
»
»
»
»
auto repair (61),
office buildings (186),
child care, medical and nursing homes (26),
assembly halls and theaters(43),
stores-general (119),
commercial buildings-general (352),
warehouses and storage (198),
govt. public buildings (6),
and industrial-gen (95)
30
No Country for Old Buildings
Portland URM Inventory (cont).
•
– Clearly, URM buildings are a key component of
» “close in” rental housing and commercial building
stock,
» historic fabric, making an aesthetic and architectural
contribution to the City
Additional Notes:
– Most URM apartment buildings in Portland were built
between 1902 and 1935.
– In mid 1930’s, building codes, first in California and then
in other states, began to address seismic risk,
31
No Country for Old Buildings
URM Inventory; Comparative
•
Seattle Inventory.
– 850 to 1000 URM’s in the City of Seattle and
– 2200 URM’s in King, Pierce and Snohomish Counties
•
Bay Area Inventory.
– In 1990, 6800 URM’s in ten Bay Area counties.
– By 2003,
• about 3,736 had been seismically upgraded
• another 357 had been demolished,
– reducing URMs to 2700.
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No Country for Old Buildings
Consequences of URM Building Failures.
–
–
–
–
–
Casualties. Occupants’ injury or death
Property Damage. Often demolition is the only feasible
alternative.
Loss of Use. Can require closure until repairs are made.
» Typically post-quake repairs will need to be coupled
with seismic upgrades, such that closure longer.
(Related) Economic Loss. Affected business can’t operate.
Aesthetic/ Cultural Loss.
» the loss of much of the urban historic fabric.
» in Portland 170 URM or semi reinforced masonry
apartments of National Register historic quality.
» Doubtless an equal no. of historic commercial bldgs
33
No Country for Old Buildings
E.Q. Changes to Building Codes
•
•
1994 Uniform Building Code (“UBC”).
– Seismic Zone 3 (high hazard) extended to W. OR and WA,
– Zone 4 for Coastal CA and OR
– Zones = predicted ground motion and potential risk from large
quakes within 50 years.
– a structure in Zone 4 must be 33 percent more seismically
resistant than a structure in Zone 3.
2007 Oregon Structural Specialty Code determines seismic risk by
factors in addition to geographic location and its construction,
including:
– (a) the site’s “maximum considered earthquake ground
motion” and
– (b) its soil profile
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No Country for Old Buildings
Changes to Building Code
•
Portland’s Seismic Regulations. Chapter 24.85
•
•
Do not:
•
Do mandate upgrade to ASCE 31 standards, when there is:
• A major structural alteration costing $34 or more per sq. foot,
inflation adjusted ($1.36 mm for a 40,000 sq. foot building)
• A replacement roof (but only required to upgrade roof)
• A change of occupancy , a 150 person increase in occupant
load, a change to “live work”
• Catastrophic damage;
• Earthquake damage; or
• A Dangerous building. (continued)
35
(a) Mandate seismic upgrades of URM’s
(b) Impose limitations on the current allowed occupancy
(c) Force demolition
No Country for Old Buildings
Changes to Codes; Portland Code (cont)
• If proposed alterations exceed $197,286 cost (with some
excluded items), requires a ASCE 31 seismic risk
assessment
Seattle’s Seismic Regulations.
– Much like Portland’s
Rate of Upgrading.
– Seattle, without mandatory upgrading, has had a low/ slow the
rate of seismic upgrading:
• From 1990 through 2007, only 29 of 575 (5%) of monitored
URMs were seismically upgraded and only another 12 had
been demolished (total 7%), this even though many (74)
were damaged in the Nisqually quake of 2001.
– Portland, anecdotal evidence replicates the Seattle data.
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No Country for Old Buildings
Rate of Upgrades/ Contrast California
•
•
•
1986 State “URM” Law.
Mandated that local governments in seismic Zone 4 areas:
– Inventory all “potentially hazardous buildings,” i.e. ones built
before Building Code required seismic
– Establish mitigation programs to (a) seismically upgrade, (b)
downgrade the use, (c ) demolish URMs and (d) to create
incentives, and
– Require warning signs stating that as a URM a building is “not
safe in an earthquake” if not retrofitted by 12/31/2004
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No Country for Old Buildings
Rate of Upgrading/ Contrast Calif
• (E.G.) Oakland, CA (cont)
•
Buildings with URM “bearing walls” required to apply for
permit in 1-3 years and complete retrofit within 2-4 years
•
The required retrofit was essentially “life safety”:
– Result: 89% of 1612 URM’s retrofitted or demolished, 200+ meet
higher UCBC standard.
38
No Country for Old Buildings
Response of Insurers to Heightened EQ Risk.
After the discovery of CSZ earthquakes, some casualty insurance
companies:
–
–
–
•
Re- rated W.OR and W. WA for earthquake casualty risk
Began to change coverages to limit exposure
For a time, State Farm stopped writing new commercial
earthquake insurance in Oregon
This retrenchment was partly a reaction to enormous losses suffered
by the casualty insurance industry in the 1994 (M 6.7) Northridge
Quake in Los Angeles.
– insurers estimated $3 billion in claims,
– but paid out more than $15 billion,
39
No Country for Old Buildings
Insurers Retrench; Northridge Effect (cont)
•
In California, when 90% of the insurers writing E.Q. insurance
withdrew.
– RESPONSE: the Legislature created the California Earthquake
Authority, a state backed and managed, but privately funded,
pool which provides “bare bones” earthquake coverage.
•
Other states have crafted different responses to insurance company
retrenchment in response to disaster risk:
– E.g. Florida Hurricane Catastrophe Fund
• provides cost effective reinsurance to residential property
insurers writing residential coverage.
40
No Country for Old Buildings
Insurers Retrench (Cont); Oregon & Washington
–
In the Northwest, no radical changes in E.Q. Coverage by
insurance companies:
• Insurers have lessened their risk by:
– raising their policy deductibles to 10% or even 20% of
the amount of the coverage, not of the amount of loss,
– covering only direct quake loss and not landslides,
erosion, tsunami or volcanic eruption, even if part of an
earthquake event, and
– excluding from coverage:
» personal property,
» ancillary improvements and
» rental income replacement.
41
No Country for Old Buildings
Insurers Retrench (cont); Oregon
• Withdrawn: Allstate (nationwide), Mutual of Enumclaw and
Rocky Mountain Fire have withdrawn
• E.Q. insurance is expensive: 17.5 Cents per 100 of insured
value including lost rental income. ($11,375 for a 40,000 sq.
foot building with a $6.5 million value and $400,000 of annual
income) and
• Is typically written through the less regulated “surplus lines
market”
42
No Country for Old Buildings
Lender’s Response to Increased Quake Risk.
–
Commercial mortgage lenders in OR and SW WA are more
conservative in making loans collateralized by URM buildings.
–
–
(Dec 2006), DUS Program [Underwriting] Guide
Imposed new requirements for URMs:
– 100% full replacement cost earthquake property/
casualty insurance (maximum 10% deductible);
– A Level I, Seismic Risk Assessment (PML Study) for all
loans on properties located Seismic Zones 3 and 4;
– A PML of 20 or less;
– Seismic upgrading of URM apartments not accepted to
satisfy the 20 PML standard unless the work is
completed prior to loan funding.
43
No Country for Old Buildings
Lender’s Response (cont); Portfolio Lenders:
– Portfolio lenders more cautious about loaning on URM buildings:
– Typically require earthquake insurance;
– Underwriting guidelines:
» limit the loan to value (LTV) and
» increase the debt service coverage (DSC) ratios on
URM building loans;
– Although the interest rates and maturities still good,
» 75-100 basis points higher than Fannie per annum
» principal amortizations 25 yrs versus up to 30 and
» personal guarantees standard.
44
No Country for Old Buildings
Feasibility and Cost Effectiveness of Seismic Retrofitting of URMs
–
Feasibility. Seismically retrofitting a URM is feasible as
demonstrated in specific earthquakes, most recently:
•
2003 San Simeon Earthquake (M 6.5), the town of Paso
Robles near the epicenter:
– Of 53 URM buildings
» All 9 that had been retrofitted experienced no major
damage.
» Many of the other 44 URM’s were damaged so
extensively they were subsequently demolished.
45
No Country for Old Buildings
Cost Effectiveness of a Seismic Retrofit.
•
•
•
Cost of a “standard” retrofit can exceed 30% of value
However does not increase “curb appeal” or income and
only modestly reduces expenses:
– Marginally lowers earthquake insurance premiums
– On refinancing, improves interest rate and P & I
payments
A “standard” seismic retrofit of an existing URM building
consistent with Portland’s Ch 24.85 is estimated to cost $15
to $30 per gross square foot ($800,000+ for a 40,000 sq. ft
apartment building).
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No Country for Old Buildings
Cost Effectiveness (cont)
•
Post retrofit savings:
– For our typical 40,000 square foot building,
» $1225.00 annual saving on the cost of earthquake
insurance (17 cents vs. 14 cents per sq foot) and
» $25,000 to $ 37,500 annual P & I payment saving
as allows the property to qualify for up to 100 basis
point lower interest rate and longer amortization (30
versus 25 year) on its mortgage loan, reducing debt
service by (say) $ 25,000 on $2 million of debt or
$37,500 on $3 million, for a
» total annual savings of $26,000 to $39,000, at best
a 20 to 30 year payback on $800,000.
47
No Country for Old Buildings
Historic Factor in URM Retrofitting (Aesthetic Cost).
•
Potential adverse impact of an insensitive seismic upgrade
•
Many of Portland’s URM’s are historic buildings
– About 160 historic apartment buildings in Portland either
individually or District listed on the National Register, of
which
– 69 are identified in the URM Database.
•
Some are beautiful examples of early 20th Century American
architecture designed by some of Oregon’s leading early 20th
Century architects, e.g. 1910 Trinity (Knighton), 1923 Belle
Court (Ellis Lawrence), 1893 Dekum Bldg (McCaw, Martin &
White)
•
•
48
No Country for Old Buildings
Belle Court Apartments
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No Country for Old Buildings
The Dekum Building
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No Country for Old Buildings
Impact of Regulation of Historic URM Buildings:
–
–
City Landmarks regulation.
• any seismic upgrading of an historic bldg’s exterior (or of any
historically protected interior space), is regulated by the
Portland Landmarks Commission
SHPO regulation.
• (a) IF the building is individually NR listed or
(b) IF district NR contributing and the owner has applied for a
tax abatement,
• THEN the renovation is regulated by SHPO enforcing the
regulations of the National Park Service.
51
No Country for Old Buildings
Levels of Seismic Upgrading for URM Buildings.
•
The degree of seismic upgrade chosen is determined by:
–
–
–
–
–
Building Code,
the Owner’s lender and/or insurer,
the Owner’s financial strength and perception of earthquake risk,
the projected costs of the upgrade project and
the Owner’s concern about possible liability to occupants.
52
No Country for Old Buildings
•
Levels of Upgrading: Basic Life Safety.
– Cost $5-$10 per sq foot ($200-400,000 for 40,000 sq ft bldg).
– Addresses the deficiencies that could lead to serious injury or
total building collapse.
– Work:
• Reinforce parapet walls, bay windows, chimneys,
entrance canopies and balconies to minimize falling
debris;
• Bolt or tie-in the roof and floor joists to the supporting
masonry walls;
• Reinforce balcony and stair connections to masonry and
floors;
• Tie the building’s exterior walls to its foundation; and
• Reinforce routes of exit.
– Result: If an earthquake, the building would not collapse but
would be seriously damaged requiring major repairs or
demolition. Liability to occupants minimized.
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No Country for Old Buildings
Levels of Upgrading: Full or Standard Seismic Retrofit, Zone 3.
• Appropriate level of upgrade an historic URM.
•Cost: $15 to $30 per square foot (Minimum $600,000 for a typical
four story, 40,000 square foot building.)
•Building is substantially retrofitted to meet, to the extent possible,
the prescribed IBC (building code) or ASCE 31 standards
•Work: All Life Safety work Plus
•Strengthen, as necessary, the roof and floor diaphragms ;
•Strengthen the load and shear capacity of masonry walls,
piers and columns (“Global”)
•Result: Substantial, but repairable, damage after a major
earthquake.
54
No Country for Old Buildings
Levels of Upgrading: Preservation.
• A “premium” seismic upgrade, costing $50.00 or more a square foot
• Normally reserved for important public buildings, hospitals, and
irreplaceable historic structures
• Work. Do all “Life Safety” and “Standard” work, plus
– Install shock absorbers or other seismic isolation devices
between the building and its foundation to soften and reduce the
ground motion.
• Example, the 1897 Pioneer Courthouse (57,000 sq. ft.), Portland
– seismically isolated with “friction pendulum isolators.”
– Cost $20 million, but included numerous unrelated work
• Result: Should protect the building from a major earthquake almost
intact
55
No Country for Old Buildings
Pioneer Courthouse
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No Country for Old Buildings
Current Tax Incentives Usable in a Seismic Upgrade:
•
Certain tax incentives apply if a Building is on the National Register
(NR) or a contributing Building in a NR historic district.
–
–
–
(i) a 10-year (or with extension 20-year) Oregon historic property
tax assessment freeze,
(ii) 20% Federal historic rehabilitation tax credit for substantial
renovation (in excess of basis) and
(iii) Oregon and federal charitable deductions for a building
façade (conservation easement) donations.
57
No Country for Old Buildings
Tax Incentives: Federal Historic Rehabilitation Tax Credit.
– For owner of an historic apartment or commercial building
undergoing historic rehabilitation (includes seismic upgrading)
– equal to twenty percent (20%) of the qualified rehabilitation
expenditures. Building must be:
– Listed on the NR individually or by District,
– Rehabilitation work must meet National Park Service
(“NPS”) Standards,
– Building to be used for income producing purposes,
and
– Cost of the renovation must exceed the owner’s tax
basis.
– Credits are often difficult to use because of AMT.
– 10% rehabilitation tax credit for renovations of non-historic
buildings if (a) the building was placed in service before 1936 (i.e.
74 years old) and (b) non-residential [Apt owner’s needn’t apply]
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No Country for Old Buildings
Tax Incentives: Oregon Historic Special Assessment Freeze.
• Created in 1975 and “sunsets” for new applicants after 6/30/ 2020.
• 10 Year (originally 15 Year) Property Tax Freeze.
• For historic buildings listed on the NR either individually or
as a contributing building in a NR District,
• On application to SHPO/ Assessor,
• Freeze of the building’s (but not the land’s) property tax
assessment (Assessed Value or AV).
• Requires a Preservation Plan.
• Owner must expend an amount equal to ten (10%) percent
of the building’s real market value (RMV)
– For the rehabilitation of the building,
– Within the first 5 years and
– Work must meet NPS historic rehabilitation standards .
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No Country for Old Buildings
Tax Incentives: Assessment Freeze (cont)
–
–
–
EXCEPT
• doesn’t freeze the AV of the land,
• doesn’t prevent an increase in AV for non-historic
construction
Compare: Without Historic Freeze
» relying on the Measure 50’s 3% annual limitation on
AV increases
» renovations will mean an increased AV to reflect
renovation cost/ added value
Right to Extend. A tax assessment freeze may be extended for
an additional ten (10) years, but
» Local Govt. Can prevent extension (for residential)
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No Country for Old Buildings
Tax Incentives: Charitable Deduction for “Façade” Grant.
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Owner of an individually or district NR listed building
Grants a conservation easement protecting the building’s historic
exterior (aka “façade”)
For perpetuity (for ever).
Grantee must be/have :
– a qualified charity as defined in IRC Sec. 170 (h) (3),
– purpose of accepting and maintaining façade donations, and
– resources to monitor and enforce the easement restrictions.
Conservation easement should provide:
• Grantee has right to approve alterations,
• Owner obligated to maintain
• Grantee has the right to enforce compliance
• Easement must not be subordinate to any mortgage on the
property
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No Country for Old Buildings
Tax Incentives: Valuation of a Façade Easement.
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Typical method of valuation “before and after” the imposition of the
easement.
Problem: Historic building is already heavily regulated [So “before”
value is already substantially diminished]
Threat: IRS scrutinizes closely as have been past abuses
Advantages of Façade Donation.
• an itemized deduction and no AMT issues
• Amount of charitable deduction the lesser of:
– the value of the donation, and
– 50 percent of the donor’s “contribution base” (adjusted
gross income less net operating loss carry-backs).
• Can carry-over any unused portion of the deduction for up to
15years
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No Country for Old Buildings
Proposals to Increase Incentives and Remove Impediments to
Seismic Upgrading.
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(1) Awareness of URM Quake Vulnerability
– Problem: Some owners oblivious to their buildings’ URM status
– Solution: Need accurate and up to date inventories of URM
buildings. Use FEMA 154 Handbook “rapid visual screening”
method.
– City Building Dept/ Engineer working with local engineers and
architects can conduct.
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No Country for Old Buildings
Proposals:
•
(2) Cost of a Seismic Risk Assessment.
– Problem: The cost of engineering studies ($3,000 up) and of
seismic upgrade designs ($10,000 up) needed to identify and
design upgrades to deficiencies.
– Precedent: Historic Seattle in response to 2001 Nisqually quake
launched a program of grants of approx. $10,000 to fund initial
engineering studies.
– Solution: Create a public/ non-profit mechanism for
• pooling general technical information on current seismic
upgrade methods, technologies and design for URM
buildings and
• making grants subsidizing seismic inspections and remedial
designs for URM buildings
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No Country for Old Buildings
Proposals:
(3) Inability to Benefit from 20% Tax Credit.
• Problem: The inability of many building owners to benefit from the
20% Tax Credit because of alternate minimum tax (“AMT”)
limitations.
• Suggested solutions:
– Feasible: A non-profit entity or local or state government, e.g.
the Portland Development Commission (“PDC”), should help
“create a market” for the “sale” of tax credits by the historic
building owners to local and national corporations able to use
them.
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No Country for Old Buildings
Proposals:
(4) High expenditure requirements of Oregon’s Historic Assessment
Freeze.
• Problem: Currently the Owner in its Preservation Plan must commit
to spend 10% of the building’s RMV (as determined by the County
Assessor) within the first 5 years to qualify for or renew an
assessment freeze for 10 years.
• Suggested solution: Modify ORS 358.487(2)(a) so that a phased
seismic upgrade of an historic building over as long as a 10 year
period qualifies the building for the freeze
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No Country for Old Buildings
Proposals:
(5) The Perception that Historic Regulators Delay and Complicate
Projects
• Problem: Some believe that the building inspectors, the Landmarks
Commission and SHPO, in the review of applications and plans and
specifications for the rehabilitation of (historic) buildings, are:
– Overly bureaucratic and slow,
– Purists who make decisions without reference to practical
realities, and
– Require costly plan changes.
• Solution: The City and SHPO should appoint a task force, including
representative architects, engineers, and building owners, charged
with (a) informing owners of the review process and the criteria for
review of seismic upgrades and where possible (b) improving them.
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No Country for Old Buildings
Proposals:
(6) Few Tax Incentives for Non-Historic Buildings.
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Problem: The unavailability of most tax incentives to the owners of
non-historic quality URM buildings.
Suggested Solutions:
– Convince Congress to remove the “no-residential” exclusion
from the 10% rehabilitation credit for seismic upgrade work in
Seismic Zones 3 and 4 and
– Convince the Oregon legislature to pass a property tax
assessment freeze available to non-historic URM seismic
upgrading.
•
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No Country for Old Buildings
Proposals:
(7) Earthquake Insurance.
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Problem: The threat of higher premiums, the current 10-20%
deductibles of Building value and the more limited coverage of E.Q.
insurance for URM buildings.
Suggested Solution: The Oregon Insurance Commissioner should
set up a task force, including representative URM apartment
owners and insurance companies, to study the potential future need
for and steps required to set up:
– a state organized and managed earthquake insurance pool
program (as in California) and/or
– a state reinsurance fund for URM buildings insurers (analogous
to that in Florida).
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No Country for Old Buildings
Proposals:
(8) Construction Loans for Seismic Upgrades.
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Problem. The relative unavailability and, if available, the costliness
(substantial fees, equity requirements and higher interest rates) of
renovation (construction) loans, esp. for URM buildings.
Solution: A State or local government (e.g. PDC ) grant program
and/or low interest subordinated loan program (possibly funded by
general revenue municipal bonds) affording URM building owners
renovation loans sufficient to cover a majority of the cost of at least
“life safety” seismic upgrades.
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No Country for Old Buildings
Proposals:
(9) Renovation without Emptying.
• Problem: The difficulty of making interior seismic upgrades without
terminating all tenants and the consequent loss of income.
• Solution: Lenders and building inspectors should allow owners to
undertake the project in discrete stages over several years.
– exterior work (less intrusive) first,
– interior common area work next, and
– work that necessitates entry into tenant units or spaces, on a
unit by unit basis, as much as possible on unit turnover
(vacancy).
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