The Sky is Falling! Will CAPEX be Rising?
August 27th, 2009 | 
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As if landlords didn’t already have enough to worry about, dealing with delinquent rent payments, having to offer concessions left and right to increase occupancy, and wondering what they will do when their current loan balloons, they now may have to increase their capital expenditure budgets and rework their ARGUS models too. Why you ask? Well if new legislation in Philadelphia gets passed this fall, and then catches on in other major cities with older infrastructure, landlords may have to pay for exterior building maintenance.
For the third time in the last three months, debris from three different center city Philadelphia high rise buildings crashed down on the sidewalks below. Miraculously, nobody was hurt in any of these incidents.
On Tuesday, two masonry panels fell from the sixth floor of the block long building on the north side of the 1100 block of Chestnut Street about 3 a.m. Earlier this month, on Aug. 5, bricks rained from the top of a six-story building on the southwest corner of 16th and Chestnut Streets. No one was injured, but morning rush hour drivers were diverted until officials from the Department of Licenses and Inspections could investigate. On June 3, three sections of a marble facade fell from the top of a building at 1619 Walnut street showering debris below. The panels, approximately three by six feet each, fell about 80 feet from the building. City Councilmen Frank DiCicco and Jim Kenney announced yesterday that they will introduce legislation in Council that will require exterior building maintenance and inspections.
“Property owners need to guarantee that passersby are safe,” Kenney said in a prepared statement. “It’s our responsibility to create stronger regulations and protect the general public.”
If passed, the legislation will require that the exterior of any building six stories or taller be inspected every five years by an engineer or registered architect. If a building is found unsafe, the property owner would be required to make repairs within 30 days. The legislation is set to be introduced Sept. 17th.
Now, I am not disagreeing that this is an issue that needs to be addressed, especially before somebody dies. Its just that the timing is impeccably bad for landlords. Furthermore, it will be very curious to see this measure’s impact on underwriting standards, and whether or not sellers reflect this expense accurately to potential buyers, lenders and insurance companies, especially if they are out of towners who are not familiar with this type of requirement. Caveat Emptor!
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I’m afraid I do not feel any pity for landlords that they will now have to take responsibility on exterior building maintenance. It’s high time that landlord’s take responsibility for some cost of their assets, as over the years they have managed to pass along just about everything to tenants. The fact that it had to be legislated in order to get landlords to comply is evidence enough that all landlords want anymore from their holdings is profit with no financial or maintenance obligation. They’re going to pass it along to tenants in CAM anyway.