Levels of Renovation: Understanding Code implications of remodeling small multifamily buildings

By Marc Guillaume, LBA Secretary

On a recent project, still ongoing, I have learned more than I wanted to about levels of renovation. Separate from the regular building code is an additional section of regulations, the IEBC or International Existing Building Code. Specifically, this document has definitions of what additional work must be done to the building beyond the intended renovations.

Had I known about this section of code before purchasing this 3-family building in Greenfield, I can confidently say I would have not made the purchase. While there is enough value in the building to have the future rents cover the cost of renovations plus create some cashflow, the amount of work necessary to get to this future would have been spent better on other projects.

Live and learn. Not all deals are home runs but as an investor, as long as most deals are good, one can have a few bloopers.

Levels of Renovation are essential to understand when planning major work on existing buildings. The addition of a window, moving a door, adding new electrical circuits or adding AC to a building can trigger a Level 2 renovation, the biggest factor here being a sprinkler system. When more than 50% of the area of the building is undergoing intended renovation, not only must there be a sprinkler system but there must also be adequate fire separation between all units and all egresses must be brought up to code, among other things.

There is a misconception that the price of a renovation is a major determining factor in how much code compliance is necessary. It is not. During the whole review process, the question was only about the size of the work area (percent of building floor area) and not the cost.

To give an example of how things can cascade, we purchased this 3-family as a vacant property. Because it had not had power for a while (4 years in this case) we needed to get new meters installed. Because of the new meters being installed, we needed to replace not only the knob-n-tube, a normal thing, but all other questionable wiring. Upgrading the wiring alone was enough to trigger a Level 2 code review and by doing the wiring by cutting open walls, we triggered a Level 3.

For a Level 3 review, any parts of the building that are worked on need to be brought into code compliance. This basically means if you can see something, it’s got to be structurally up to code. An example here is that for a Level 3 renovation with sprinkler system, there needs to exist a 1-hour fire separation between the units. (2 layers of ½ drywall is usually enough.) The living room ceiling of the 1st floor had some very nice molding which looked great but was in the way of our drywall layers. During demo, we found under the molding an 11’ long 4x4 that was acting as a beam, which is way undersized to the point of comicality. In Level 3, if we see a code deficiency, we need to fix it. After working to get an engineer’s stamp, we have now replaced that 4x4 with tripled 9.5” deep LVLs.

While we did not intend to replace this beam, once we discovered a known defect, IEBC Level 3 means we need to bring it up to code.

What would be my recommendation when looking to purchase an investment property? First, know that a vacant property is a very different beast than an occupied property. Had the power been on in the building, we would not have had to install new meters, to the tune of at least $7500. A vacant property is also more likely to invite renovating more than 50% of the area of the building, which will again trigger the Level 3.

And the fire system. The IEBC requires sprinklers to be added in Level 2 and Level 3 renovations. While the cost of $21,500 to add sprinklers is steep, we were glad that as a 3 family, we were not required to tie directly into the fire hydrant system. That would have doubled the cost of the system. Incidentally, were it a 4 family or above, tying into the hydrant system would have been required.

There is talk on landlord forums of “beating” sprinklers. There is a section in the IEBC - Section 13 - Performance Compliance Methods, that people refer to. Now, I’m no expert but this section is basically a scoring method to make sure your life safety systems are good enough. On the fire safety side for an R-type building ,which a 3-family is,, you get 21 points to start. No automatic sprinklers? -6 points. No manual pull boxes for the fire alarm? -5 point. Non-code compliant fire separation between units? -10 points. Ooops, now we’re at a 0 score and any other defect will fail us. Well, you might think, I’ll just upgrade the fire separation and get those 10 points back. On some projects this might make sense but for us, that would mean added 4 layers of drywall to every ceiling (3 layers of ⅝, 1 layer of ½”.) I don’t know about you but the prospect of installing 2” thick ceilings makes writing a check for a sprinkler system seem not so bad.

Suffice to say that the Performance Compliance Method is a way to evaluate a project and potentially not have to install sprinklers but it’s a long shot that only lengthens with the age of the building.

For normal turnovers of apartments, where new flooring is being installed and any fixtures are being replaced with like materials, there’s no worry about triggering major code overhauls. If you start moving doors, adding electrical circuits or changing an open porch to enclosed space, it’s worth mentally preparing for a code officer to say the dreaded words, “Sprinkler system.”

Was this project a disaster? My partner (thank his patient and understanding checkbook) and I don’t think so. We’re doing a service of bringing 3 units online with a tight housing market. We’re generating expenses and some good depreciation for tax purposes. Finally, we’re not going to lose money on the project. When it comes time to get the building appraised and mortgaged, we will be able to argue for an appraised value that is at the top of the market for 3-families. Think about it - how many 3-families in Franklin County are fully code compliant for fire safety? We’re counting on that being worth a lot.