LA voters approved a transfer tax that applies to all commercial property, not just residential, of 4% on > 5m and 5% on > 10m. It's a fund the homelessness tax. not going to get into the billion in bonds they did 5 years ago and the same period of time that it homeless, property crime, minor larceny etc have only increased. So basically overnight, the city just claimed 5% of value across a significant swath of commercial real estate holdings. They estimate up to $1B a year will now be managed by a city for market rate incentives or public sheltering. This coming ~6 years after a billion $ bond program that sits vastly unspent to solve the same sort of issues. This also coming on the heels of an elected candidate who represents bureaucracy.
Interested to hear if anyone's facing commercial ramifications and if there's been any sort of brainstorming already to solve for this. Otherwise, a low key vent on why the area can't stay out of its own way when it comes to solving issues.
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Do not work too much with CA markets but at a glace Culver City has seen decent development and sales activity. Do you think people are overreacting to CA transfer tax news or do you think Culver City just benefited from the strong economy and strong RE market these past few years?
But playing catch up to what? A trend born out of COVID. San Francisco Proposition I in 2020. San Jose Measure E in 2020. Culver City Measure RE in 2021. Correct, yes LA and SM are the most recent but catchup to exactly what?
It is far too early to say these produce good outcomes. Culver has been growing since 2015, long before a transfer tax measure passed within the last couple years.
5% is large, has to be the highest in the country by at least 100%. My first thought was well NY or NJ or some NE corridor must surely be within this same ballpark so maybe they are playing catchup there. It looks like that is definitely not the case and CA is leading its own charge.
So with all that in mind, was curious what the ground level RE conversations have been
San Francisco transfer tax is 6%. Going to be a disaster for LA just like it has been in San Francisco.
One of many reasons we stopped developing/acquiring in California.
Technically the elected candidate represents constituents who voted him or her into office, not "bureaucracy".
And if it makes meaningful strides towards eliminating homelessness or at least alleviating the problem, then it's very possible that it leads to increased property values anyway. And the fact that homelessness and petty crime have increased isn't necessarily tied to the bond issue they did - you may think that asserting those two things next to each other implies causation, but that isn't how it works.
OK, and the homeless problem was being solved how, exactly? This tax is brand new. Homelessness isn't. So prima facie, you're statement is wrong. You may disagree with how the city is going about solving the issue, but by definition the LA area tried doing nothing incremental and hoping things got better, and it didn't work. So they're trying something else.
Adding new supply of housing units could ease pressure on renters in the City. Additionally, most new market-rate multifamily development projects in LA utilize some form of entitlement incentive to increase density/height/FAR - usually TOC or State Density Bonus - which requires designating a % of the units as affordable. However, this new tax makes investing in a new multifamily project less attractive, especially for merchant builders who essentially will make 5.5% less profit. Will be interesting to see if fewer projects are proposed.
For commercial buildings, there’s an argument that Measure ULA will put upward pricing pressure on commercial transactions. Higher prices put pressure on landlords to raise rents, higher rent puts pressure on restaurants and businesses to raise their prices, and higher prices puts pressure on the City’s low-income residents to make ends meet.
I am hearing from brokers that some owners have indicated they will be selling all of their LA assets before the tax becomes effective in April. Seems to be especially impactful in the MM space where long term owners who have significant equity built up want to avoid a massive tax upon sale.
My guess is that NIMBYism and restrictive zoning are far bigger problems when it comes to adding density than this tax, which, after all, is going to be passed on to landowners and not merchant builders, seeing as the transfer tax is agnostic as to asset class so there is no escaping it.
This doesn't track. There is a maximum price which renters will pay - landlords are already incentivized to seek that price, so it doesn't make a lot of sense to argue that they're only now going to respond by raising prices. It makes far more sense that this will mean a 5.5% reduction in asset values.
If that is true, it's really dumb and doesn't really make sense. If you're a long term owner with a huge tax bill, the 5.5% isn't moving the needle by any meaningful amount - theoretically it should just reduce your equity out, which means a reduction in taxable gain. From a macro standpoint, rushing to sell before April, in one of the worst markets we've seen in more than a decade, screams selling at the bottom, and even if not, a glut of properties on the market will drive prices down, as will a tight closing window. Prices are far, far lower than 5.5% off their highs from last year. Even if you don't believe we get back to the cheap credit conditions that drove 2021 valuations so high (which is fair), there is a strong argument that most buildings will recover their value by more than the 5.5% reduction that the transfer tax implies. If someone wants to make an emotional decision in protest to a new taxation policy instead of acting in rational economic self-interest, so be it... but we don't owe that person sympathy for making a stupid decision.
The bond program was issued as a "fix.” Nearly 6 years later, it’s vastly unspent.
Now, you're filling gov coffers by 500m to 1b per year as a programmatic solution to the same issue. Where is the evidence that this will be spent efficiently? My point is they earmarked a not insignificant amount of money in the past and what happened? The intended issue deteriorated even further over this period. And now they're passing legislation that will be "catchup" (its not) in CA, but why? Seriously what is the point. What's the competitive disadvantage besides saying we have money to spend? 6 years is a long enough time frame to determine if a policy was even remotely effective and the answer is by large no, or not yet, or maybe.
The elector is a long-term politician. The constituents voted for a candidate who's been working in CA gov since mid-2000 -- that's my point on that topic.
But aside from all that, interested in what ramifications people are anticipating? Also, does it make the area financially unattractive or are solutions already working around something similar in Norcal passed in 2020?
Moreover, if you thought a one time bond issuance was a permanent "fix" then you are very naive. It is meant to help... but that doesn't mean conditions can't worsen, or a crisis deepen, that requires additional funding.
Where is the evidence it won't? We don't have evidence of how a future action will play out, for the obvious reason it hasn't happened yet. The previous bond issuance to help address the LA homeless crisis seems to have been spent reasonably well.
See, you're either a troll or an idiot, because no one can honestly take this position in good faith. Pledging to build housing doesn't have any a priori effect on homelessness or rents - it provides new housing at an affordable price, which over time should reduce homelessness and/or pricing by adding supply, and adding it for the most vulnerable.
If HHH had been spent with perfect laser precision and built the 10,000 promised units in a year, lets say, but private developers simultaneously leveled 12,000 units of housing, then you'd expect to see the homeless problem get worse, since there are 2,000 fewer units of housing than there had been. Despite that, Prop HHH would have to be considered the most successful government program in history. And yet your argument presupposes that success needs to be tied to an outcome which Prop HHH can't possibly solve in the short term.
And the point is to house the most vulnerable groups of people in the municipality. You may not believe that the government has a responsibility to make sure it's citizens have a roof over their head, but many others do. They're asking some of the wealthiest people/groups in their city to contribute to housing the homeless, which seems reasonable. Moreover, property owners have a vested interest in getting people off the streets, which can only increase real estate values.
That isn't a point. You made a banal observation and tried to turn it into a conspiracy theory, or you wouldn't have mentioned it in the first place. Karen Bass doesn't represent "bureaucracy," she represents the City of Los Angeles, and if that in practice turns into giving the people who voted for her what they want instead of bowing to the wishes of those who voted for her opponent, well, that's democracy. If her actions benefit bureaucrats at the expense of everyone else, you might have a point, but it seems far too early to tell.
It’s not insurmountable. And you literally cannot lose buying and holding in LA.
That isn't the point. The point is that the folks complaining about this want someone to solve the homelessness crisis for free, or better yet, for someone else to pay for it.
Whether or not it's still possible to make money in Los Angeles doesn't matter to these clowns, it's all a question of privatizing the most gain and socializing the most cost.
So, this is coming from someone who worked public safety through a Non-Profit that helps the homeless. Take it as you will. Our wages were compensated through a sales tax from businesses that operated in the area. Our jobs were to make sure the homeless families and individuals were safe (we would call dispatch if we saw someone OD or not respond), along with the public whenever they were in the area we operated in (downtown). I got to understand a little bit on the political spectrum on the homeless issue, and there are just so many variables regarding homeless as a topic.
The money there is to have it so it allows proper budget to hire or start organizations where aid can be provided to these people. We have a system in place to help those who want to get out (I know of 3 so far that successfully made it out of being homeless. One became a doctor, the other two are working corporate jobs). However, people are working around the clock to try and figure this out - this is a world wide issue. If you want to get involved or get an understanding - connect with your local nonprofit or talk to the homeless division in the local city government on what is going on, policies, and how to help (this is how I got started).
Regarding the actual post - I hope the fund goes as intended (and it will). Many of the issues on this scale also deals heavily on the political level. It is not cheap and not easy dealing with the state on these things. One of the directors I knew in the past that worked directly for the city to help the homeless had said it took months on end to get an item approved that he wanted. People who work in this space truly want to help others and are selfless in that effort.
PM if any questions.
I reckon there's a lawyer out there who is working on a loophole and will make a shitload of money until they close the gap.
Just f-ing repeal Prop 13 on commercial properties already. That would be the single best thing that California could do for their tax revenue.
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