Substantial rehabilitation is extensive renovation work on an existing building, often crossing thresholds that trigger new code requirements. Can also be a just-cause eviction ground under California tenant-protection law.
Substantial rehab typically involves major work on structural, mechanical, electrical, or plumbing systems affecting a significant portion of the building. Scope that crosses specific thresholds can require bringing the entire building to current code — a much higher standard than maintenance. Under SB 567, using substantial remodel as an eviction ground requires specific documentation and tenant notice.
For LA multifamily sellers considering substantial rehab as a pre-sale strategy, the math rarely works — costs are high, code-upgrade triggers add expense, and the time required often exceeds the seller's timeline. More commonly a post-acquisition buyer strategy for value-add deals.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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