Yes, but with significant operational and financial consequences depending on where in the retrofit process the building is. Los Angeles's mandatory soft-story retrofit ordinance, enacted in 2015, requires retrofit of wood-frame multifamily buildings with two or more stories, built on or before January 1, 1978, with at least one parking or other open area on the ground floor. The compliance deadlines have rolled through stages over the past decade. Buildings that are not yet in compliance are subject to non-compliance fees, building department actions, and — most importantly for sellers — a buyer pool that has materially shrunk relative to compliant buildings.
The structure of a sale-pre-retrofit transaction depends on which stage of the compliance process the building is in. The three relevant stages are: pre-engineering (no retrofit plan filed), engineering complete (plans approved but work not started or in progress), and retrofit complete (final certificate of compliance issued).
The worst position to sell from. A building with no engineering filed has the longest path to compliance and the most uncertainty about cost.
Buyer pool: meaningfully restricted. Many commercial multifamily lenders will not finance a non-compliant soft-story building. Buyers depending on financing therefore drop out of the pool. The remaining buyer pool is heavily weighted toward all-cash value-add operators who are equipped to take on the retrofit themselves and have priced the cost into their offer.
The discount the building takes in this position is structural. The buyer absorbs the full retrofit cost (engineering, plan check, construction, tenant relocation during work) and adds a margin for the timeline risk and operational disruption. Typical discount from a comparable retrofit-complete building: 10% to 20% of value, occasionally more for larger or more complex buildings.
The seller's options to improve the position before listing:
File the engineering. Engage a structural engineer, complete the plans, file with LADBS, obtain plan-check approval. This stage typically costs $5,000 to $15,000 in engineering fees and 4 to 8 months of timeline. A building with approved plans is materially more sellable than a building without.
Start the retrofit. Beyond engineering, actually start the construction work. A retrofit in progress is more sellable than a retrofit that hasn't started, though typically less so than a complete retrofit.
A meaningful upgrade from Stage 1. Plans are approved; the cost is now knowable rather than estimated. Some buyers will finance against the building if there is a clear timeline to compliance.
The buyer pool expands to include value-add operators who would tackle the work themselves and to some lenders who will finance with a retrofit-completion holdback. The discount typically narrows to 5% to 12% of value compared to a retrofit-complete building.
Structures that work in this stage:
Escrow holdback for completion. A negotiated amount of the sale proceeds is held in escrow at close to fund the remaining retrofit work. The buyer takes responsibility for completing the work, drawing against the holdback as construction proceeds. The seller's exposure is bounded to the holdback amount.
Seller completes pre-close. The seller continues the retrofit through closing, completes the work, and delivers a retrofit-complete building. Operationally clean for the buyer but extends the seller's timeline and capital commitment.
Buyer assumes the work with full disclosure. The buyer takes the building as-is, with the retrofit work as their responsibility post-close. The seller's exposure is fully transferred but the price reflects the buyer's full assumption of the work.
The optimal position. The certificate of compliance from LADBS is the document that converts the building from "soft-story subject" to "soft-story complete." The buyer pool is fully available — financing lenders, institutional buyers, value-add operators, and 1031 buyers all engage normally.
A retrofit-complete building sells at full market price for its asset class. The retrofit is documented in the disclosure package, the certificate is recorded, and the issue is resolved.
For any sale-before-retrofit, the seller's disclosure package must include:
The disclosure obligation is not satisfied by general statements. The buyer's diligence team will want specifics — engineering letters, LADBS correspondence, contractor estimates. Providing the specifics proactively saves time and demonstrates the seller's good-faith engagement with the compliance process.
Most commercial multifamily lenders treat soft-story compliance as a binary underwriting input. Compliant: lendable. Non-compliant: not lendable, or lendable only with a structured completion holdback.
Some lenders will finance with a retrofit holdback if:
- The engineering is complete and approved
- A licensed contractor is engaged with a defined scope and price
- The construction timeline is reasonable (typically under 12 months)
- The lender's holdback funds are sufficient to complete the work
Some lenders will not finance under any structure until the certificate is issued. The buyer pool for a non-compliant building is therefore narrower than for a compliant building.
The financing constraint translates directly into the buyer pool, which translates into the sale price. A building with broader buyer participation sells for more.
Soft-story retrofit work that requires temporary tenant relocation is subject to LA's tenant protection ordinances. For RSO buildings, primary renovation requires a temporary relocation arrangement with the affected tenants — typically the landlord pays for comparable temporary housing during the work, plus moving costs, plus a right of return to the same unit at the same rent.
These costs are not trivial. For a 12-unit building where half the units need temporary relocation during a 60-day retrofit window, the relocation cost can run $25,000 to $75,000 or more depending on the relocation accommodations. The seller (or the buyer, in a post-close completion structure) carries these costs.
The interaction matters for the sale economics. A building where retrofit work has been completed under the prior ownership has these costs in the past. A building where retrofit work remains to be done is bringing these costs forward as a deduction from the price the buyer is willing to pay.
The right answer almost always involves completing more of the retrofit process before listing rather than less. The cost of completing engineering ($5K-$15K) and obtaining plan approval is small relative to the price improvement it produces by widening the buyer pool. The cost of completing the construction can be substantial ($150K-$500K depending on building size and complexity) but typically recovers in the sale price compared to selling pre-retrofit.
The sellers who do this poorly are the ones who delay engagement with the retrofit process for years, accumulate fines and orders, and then try to sell from the worst possible compliance position. The sellers who do this well engage with the process early, complete the work on their timeline, and sell from a position of full compliance to a broad buyer pool.
The other thing I tell sellers is that the soft-story status is not negotiable in the marketing. Buyers see the LADBS records. They check the certificate status before making offers. A seller representing a non-compliant building as "the retrofit is in progress" when no engineering has been filed will be discovered in the first day of diligence, and the trust gap that creates costs more than the seller saved by the misrepresentation.
Soft-story compliance is a binary input to the buyer pool and a non-binary input to the price. Buildings can be sold at every stage of the compliance process. The price varies meaningfully across the stages. The seller's choice is when to engage with the retrofit relative to the sale — early enough to capture the price improvement, or late enough to push the cost to the buyer and accept the discount. The owners who complete the work before selling almost always net more than the owners who sell mid-process. The math is not subtle.
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Michael Sterman is Senior Managing Director Investments at Marcus & Millichap, specializing in Los Angeles multifamily transactions.
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