The most common reason property owners in Los Angeles delay a soft-story seismic retrofit is not ignorance of the requirement. It is not disagreement about the structural risk. It is not uncertainty about which contractor to hire.

It is money. Specifically, it is the question of how a property owner writes a check for $100,000 to $250,000 for a mandatory structural improvement that doesn't add a bedroom, doesn't improve the finishes, and doesn't generate immediate rental income — in a market where capital is already stretched across maintenance, debt service, insurance increases, and a dozen other competing demands on the operating budget.

That question is legitimate. It deserves a direct, detailed answer — not a dismissal dressed as encouragement, and not a financing pitch from a contractor who benefits from the owner's decision to proceed regardless of the terms.

The direct answer is that retrofit financing options in Los Angeles are more varied, more accessible, and more owner-favorable than most property owners realize — and that the confusion around those options is itself a barrier to action that a clear explanation can remove.

Here is how retrofit financing actually works in Los Angeles — the mechanisms available, who bears the cost under each one, and how to think about the financing decision as part of the overall investment analysis.

The Baseline: Why Retrofit Financing Exists at All

Seismic retrofits are mandatory capital improvements — obligations imposed by ordinance that the property owner did not choose and cannot avoid without penalty. Unlike discretionary capital improvements — renovating a lobby, adding EV charging, installing new appliances — the retrofit produces no immediate competitive advantage in the rental market. Every building in the ordinance's scope is required to complete it. The improvement is a floor, not a ceiling.

This distinguishes the retrofit from most capital improvement financing decisions, where the owner is evaluating the return on a discretionary investment. The retrofit is not a return question. It is a cost management question: how do I fund an obligation I cannot avoid, in a way that minimizes the impact on my operating cash flow and preserves capital for the improvements that do generate return?

The financing mechanisms that have developed around seismic retrofit obligations in California reflect this reality — they are designed to make the mandatory improvement financeable without requiring the owner to liquidate reserves or take on conventional debt at full cost of capital.

Financing Mechanism #1: PACE Financing — Property Assessed Clean Energy

PACE financing is the retrofit financing mechanism that generates the most confusion and the most misunderstanding — and also, for the right owner in the right situation, the most useful terms.

PACE stands for Property Assessed Clean Energy. It is a financing mechanism that allows property owners to fund qualifying improvements — including seismic retrofits, as California has explicitly included seismic safety improvements in the qualifying category — through an assessment added to the property tax bill rather than through conventional debt.

The mechanics: a PACE provider funds the cost of the retrofit directly to the contractor. The owner repays the PACE provider through an annual assessment added to the property tax bill, amortized over a defined term — typically 5 to 25 years depending on the program and the owner's preference. The assessment is secured by a lien on the property, senior to most other liens, which means it is repaid from the property before the mortgage in a sale or foreclosure.

The advantages of PACE for retrofit financing are meaningful:

No out-of-pocket payment at project initiation. The PACE provider funds the contractor directly, which means the owner does not need to deploy capital reserves to start the project. In a market where capital is constrained, this is a significant operational advantage.

Long amortization terms that match the improvement's useful life. A retrofit that will protect the building for 50 years can be financed over 20 to 25 years — producing annual payments that are a fraction of the total cost and that can be sized to fit within the property's operating cash flow without materially compressing NOI.

Fixed interest rates that provide cost certainty over the repayment period. In a volatile interest rate environment, a fixed-rate PACE assessment provides the same cost certainty that fixed-price contracting provides on the construction side.

Potential tax deductibility. Property tax assessments, including PACE assessments, may be deductible as operating expenses for income-producing properties. The tax treatment of PACE assessments is a question for the owner's tax advisor — but the potential deductibility means the after-tax cost of PACE financing is lower than the nominal interest rate suggests.

The disadvantages of PACE that owners need to understand:

The PACE lien is senior to the mortgage. Conventional mortgage lenders — and many institutional lenders — have historically been resistant to PACE financing because the PACE lien's senior position creates a risk that the lender's collateral position is impaired. Some lenders require notification or consent before PACE financing can be placed on a mortgaged property. Owners who place PACE financing without lender notification or consent may be in technical violation of loan covenants.

PACE interest rates are typically higher than conventional financing. PACE providers price the risk of the senior lien position and the unsecured nature of the underlying credit into their interest rates — which have historically ranged from 5% to 9% depending on the program, the term, and the market environment. In a low-rate environment, PACE is expensive relative to conventional alternatives. In the current rate environment, the differential is smaller.

PACE financing transfers with the property. When a PACE-financed property is sold, the PACE assessment remains on the property tax bill — it is assumed by the buyer unless it is paid off at closing. This affects the transaction: buyers must be informed of the PACE assessment, lenders must underwrite the property with the PACE payment included in the expense structure, and the PACE payoff may be a negotiating point in the sale.

PACE is most appropriate for: owners with limited capital reserves who need to initiate the retrofit without a large upfront deployment, owners with properties that will be held long-term and where the PACE assessment can be absorbed into the operating structure, and owners whose lenders have confirmed consent for PACE financing in advance.

Financing Mechanism #2: The Soft-Story Retrofit Loan Program — City of Los Angeles

The City of Los Angeles, in recognition of the financial burden that the mandatory soft-story retrofit ordinance imposes on smaller property owners, has established a retrofit loan program specifically designed to fund seismic retrofits on multifamily properties subject to the ordinance.

The program — administered through the City's Housing + Community Investment Department — provides low-interest loans to eligible property owners to fund the cost of completing a mandatory soft-story retrofit. The specific terms of the program — loan amounts, interest rates, repayment periods, and eligibility requirements — have been updated since the program's inception and property owners should confirm current program terms directly with HCID or with a program-approved lender.

The general structure of the program includes loan amounts sized to cover the retrofit cost up to defined limits, interest rates that are subsidized below market to reflect the public benefit of seismic safety improvement, repayment terms that are designed to keep the debt service within the operating capacity of the property, and eligibility requirements that typically include income or unit count thresholds designed to target the program toward smaller property owners who have the most limited access to conventional capital.

The City retrofit loan program is the most owner-favorable financing mechanism available for qualifying properties — because the subsidized interest rate represents a genuine cost reduction relative to any market-rate alternative. The tradeoff is program eligibility: not every property owner qualifies, and the program's loan limits may not cover the full retrofit cost for larger or more complex buildings.

For owners who qualify, the City program should be the first financing option evaluated — before PACE, before conventional debt, and before the owner considers using capital reserves. The subsidy embedded in the program's interest rate is a direct financial benefit that is not available through any market-rate mechanism.

Financing Mechanism #3: Conventional Financing — Cash-Out Refinance and Construction Loans

For owners who don't qualify for the City loan program, who have PACE-resistant lenders, or who prefer conventional debt structures, the retrofit can be financed through conventional financing mechanisms — specifically, a cash-out refinance of the existing mortgage or a construction loan secured by the property.

Cash-out refinance is the most common conventional mechanism for funding capital improvements on multifamily properties. The owner refinances the existing mortgage for a higher loan amount, using the additional proceeds to fund the retrofit. The refinancing is a market-rate transaction — the interest rate reflects the current financing environment, the property's value and income profile, and the owner's credit and financial position.

The advantage of cash-out refinancing for retrofit funding is that it integrates the retrofit cost into the existing debt structure — there is no separate loan, no separate lien, and no separate repayment obligation. The retrofit becomes part of the property's mortgage, amortized over the mortgage term, at the mortgage interest rate.

The timing consideration: a cash-out refinance initiated with the intent to fund a retrofit should ideally be completed before the retrofit is underway, with proceeds available at project initiation. A refinancing initiated after the retrofit is complete — to recover deployed capital reserves — is a different transaction with potentially different underwriting characteristics.

The compliance consideration: a cash-out refinance on a non-compliant soft-story property may encounter the same lender resistance as any other financing on a non-compliant property. Some lenders will require either retrofit completion or a retrofit completion commitment as a condition of the refinancing — which creates a chicken-and-egg situation that is best resolved by working with a lender who has specific experience with retrofit-financing transactions and who can structure an appropriate commitment or holdback mechanism.

Construction loans — short-term, interest-only loans specifically designed to fund construction projects — are available for retrofit financing through commercial banks and private lenders. A construction loan funds the retrofit as work progresses, converting to a conventional mortgage or being paid off through a cash-out refinance at project completion. Construction loans typically carry higher interest rates than permanent financing but provide flexibility in deployment timing that is useful for owners who need to initiate the project before a refinancing is complete.

Financing Mechanism #4: Special Assessment — For HOAs and Condo Buildings

For condominium associations subject to SB 326 — where the balcony inspection and repair obligation falls on the HOA rather than an individual property owner — the financing mechanism is different from the multifamily owner mechanisms described above: it is the special assessment.

A special assessment is a one-time or periodic charge levied on all unit owners in a common interest development for a specific purpose — in this case, funding the cost of a mandatory capital improvement. The special assessment is governed by the association's CC&Rs, the Davis-Stirling Common Interest Development Act, and the SB 326 compliance framework.

The mechanics of a special assessment for balcony compliance or seismic retrofit costs are established in the association's governing documents. A properly structured special assessment requires:

Board authorization through a properly noticed vote, with quorum and vote threshold requirements specified in the CC&Rs. In many associations, a special assessment above a defined threshold requires member vote — not just board approval — which adds procedural timeline to the funding process.

Proper notice to all members of the assessment amount, the purpose, the payment schedule, and the appeal rights available under Davis-Stirling.

A payment timeline that provides members with reasonable time to fund the assessment — typically 30 to 90 days, with options for installment payment over longer periods depending on the governing documents.

For associations whose reserves are insufficient to fund the required improvement without a special assessment — which describes most associations facing a significant balcony repair scope or a mandatory retrofit — the special assessment is not optional. It is the funding mechanism that the law contemplates and that the governing documents authorize.

The challenge for HOA boards is the political and procedural difficulty of initiating a special assessment — the member notification, the meeting requirements, the payment collection, and the inevitable disputes from members who contest the amount, the necessity, or the process. These challenges are manageable with proper legal guidance and board discipline. They are the governance cost of operating a common interest development in a state with mandatory structural improvement requirements.

Financing Mechanism #5: Tenant Pass-Through — Recovering Retrofit Costs Through the Rent Roll

We have covered the AB 1482 and RSO capital improvement pass-through mechanisms in detail in a prior post — the mechanisms that allow multifamily owners to recover a portion of qualifying capital improvement costs through temporary rent increases on covered tenants.

In the retrofit financing context, the pass-through is not a financing mechanism in the traditional sense — it doesn't fund the retrofit at project initiation. It is a cost recovery mechanism that converts a retrofit expense into a revenue stream over time, effectively reducing the net cost of the improvement to the owner.

The economics: a 12-unit building that completes a $180,000 retrofit and implements an RSO-compliant capital improvement pass-through of $250 per unit per month over 60 months recovers $180,000 in gross pass-through revenue — fully recovering the retrofit cost through the rent roll over five years. The after-pass-through net cost of the retrofit is zero. The financing cost of whatever mechanism was used to fund the project during construction is the owner's actual out-of-pocket cost.

Combining a financing mechanism — PACE, a City loan program, or conventional financing — with a tenant pass-through produces the most capital-efficient retrofit structure available: the financing covers the upfront cost, and the pass-through revenue services or offsets the financing cost over the recovery period.

This combination is the retrofit financing structure that minimizes the owner's net capital deployment while maintaining full compliance with tenant protection laws. It is the structure that converts the retrofit from a pure expense to a capital-neutral or capital-positive improvement — and it is available to most multifamily owners in the LA market.

Who Is Actually Paying for the Retrofit — The Economic Reality

When all of the financing mechanisms and pass-through options are considered together, the economic reality of who pays for a soft-story retrofit in Los Angeles is more nuanced than the initial sticker shock suggests.

For owners who use a City loan program at subsidized rates and implement an RSO pass-through over five years: the retrofit is funded at below-market cost, the repayment is structured over the loan term, and the pass-through revenue offsets the debt service. The owner's net cash outlay over the recovery period may be minimal — the subsidy and the pass-through combined absorb most or all of the financing cost.

For owners who use PACE financing and implement an AB 1482 pass-through: the PACE assessment is a property tax item that may be partially deductible, the pass-through revenue offsets the annual assessment, and the net cost to the owner reflects the spread between the PACE rate and the deductible savings minus the pass-through recovery.

For owners who use capital reserves without financing: the upfront cost is absorbed from reserves, the pass-through provides ongoing income recovery, and the net cost reflects the opportunity cost of the deployed capital minus the pass-through recovery.

In no scenario is the owner the only economic participant in the retrofit. The tenants contribute through the pass-through. The tax system contributes through deductibility of financing costs and property tax assessments. The City contributes through subsidized loan programs where available. The retrofit is a shared economic obligation — and structuring the financing to maximize participation from each source is the work of careful financial planning, not the passive acceptance of a fixed expense.

What SKS Brings to the Retrofit Financing Conversation

SKS Construction is not a lender. We are not a financial advisor. We are the construction firm that delivers the retrofit — at a fixed price, with complete documentation, under one contract from structural design through Certificate of Compliance.

What we bring to the financing conversation is the fixed-price proposal that makes every financing mechanism workable. PACE providers, City loan program administrators, and conventional lenders all require a specific, documented project cost to underwrite the financing. A fixed-price proposal from a firm with 39 years of project history and 850-plus completed retrofits is a credible, defensible cost document — the kind of proposal that financing programs accept without the contingency loading that subject-to-change estimates require.

We also bring the documentation package that financing programs require at project completion: the finaled permit, the Certificate of Compliance, the stamped as-built drawings, and the engineer's certification. PACE providers require project completion documentation to close the financing. City loan programs require the same. Lenders underwriting a post-construction refinancing require the same. The documentation that SKS produces as a standard project deliverable is the documentation that every retrofit financing mechanism requires to complete the financial transaction.

Thirty-nine years. Over 850 completed soft-story retrofits. Fixed-price bids with no subject-to-change clauses. Direct owner access to Shahab and Sam Shaolian. One firm whose project documentation satisfies both the compliance requirement and the financing requirement simultaneously.

Get a FREE Retrofit Assessment and Financing Options Overview

SKS Construction offers FREE soft-story retrofit assessments for multifamily property owners across Los Angeles, Burbank, Glendale, Torrance, Culver City, and Pasadena. Our assessment includes a structural evaluation of your building, a fixed-price retrofit proposal, and a clear overview of the financing mechanisms available for your specific property — so the money question has an answer before it becomes the reason for continued delay.

The 2026 deadlines are active. The financing options are real. The net cost, properly structured, is lower than the sticker price suggests.

Call (818) 855-1181 or email info@sksconstruction.com to schedule your FREE retrofit assessment today.