Reform of historic property taxes could impact brokers

City of LA looks to change implementation of California’s Mills Act, which a factor in both condo and single-family home sales

Bill Cooper, Matthew Berkley, and clock tower for Eastern Columbia Lofts (Bill Cooper, Matthew Berkley, Andrew Asch of The Real Deal)
Bill Cooper, Matthew Berkley, and clock tower for Eastern Columbia Lofts (Bill Cooper, Matthew Berkley, Andrew Asch of The Real Deal)

Proposed changes to tax breaks for historic homes could impact residential brokers in Los Angeles.

City of Los Angeles’ Planning Department recently released a study that proposes changes to how the Mills Act is implemented in the city. Recommended changes include not automatically renewing Mills Act contracts, which offer property owners cuts in property taxes in exchange for investing the savings from property taxes in the rehabilitation of a historic building. An initial public comment period is scheduled to wrap up Sept. 1.

Cities throughout California run Mills Act contracts programs independently. Los Angeles administers about 948 Mills Act contracts.

Ken Bernstein, a principal city planner for the city of Los Angeles, said that the city’s share of foregone property tax from Mills Act contracts is currently $2.1 million annually. The planning office is considering changes in part because the L.A. City Council placed a $2.1 million limit on foregone revenue from the Mills Act program. Also, after working with the law since 1996, the planning department wanted to see if it could administer Mills Act contracts more efficiently and equitably, Bernstein said.

A change in the way Mills Act is administered in Los Angeles could change the way Bill Cooper of Douglas Elliman does business.

When showing condos in downtown Los Angeles, Cooper tells prospective buyers about tax breaks they can get through California’s Mills Act, which was passed in 1972. In Los Angeles, every Mills Act contract is administered for houses or condos located in a historic cultural monument or in neighborhoods designated as a Historic Preservation Overlay Zone, such as University Park in Los Angeles’ West Adams district.

It’s possible for new homeowners to save up to 50 to 70 percent of their property taxes if they close a deal for a unit in a historic building in the downtown area, such as the Eastern Columbia Lofts, a 92-year-old building distinguished by its clock tower and unique turquoise tiles, Cooper said. The property is listed as a Los Angeles Historic-Cultural Monument.

“It will make it a lot more difficult to sell in historic buildings,” Cooper said. “You’re always competing with new buildings. When it comes down to it, you’re looking at a lot more monthly expenses without the Mills Act.”

Cooper contends that the Mills Act was the deal sweetener that convinced many people to move to downtown Los Angeles during the past decade.

“If you want to see downtown stumble and fall, take away the Mills Act,” he said.

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Cooper has focused on downtown condos for the past 20 years. But reform might also affect the way agents sell single-family homes working with Mills Act contracts.

Matthew Berkley of DPP brokerage, headquartered in Pasadena, focuses on single family homes with historic and architectural importance. Berkley said that most of his clients are wealthy enough to be able to afford a home that costs $10 million. A Mills Act contract may not mean as much to Berkley’s preservation-minded clients as a first-time condo buyer.

In his 22 years selling real estate, he does not remember one case of a Mills Act contract being revoked. However, he believes that the market could change if Mills Act contracts are changed. For example, Mills Act guidelines discourage speculators looking to flip an architecturally unique house.

“The houses would be in danger. Properties would be at greater risk of destruction,” Berkley said.

Bernstein with the city of L.A. said his department is evaluating the report’s recommendations and mulling changes it would suggest to the City Council.

“There are some trade-offs,” Bernstein said. “But the city has a strong commitment to grow the program.”

Trade-offs include whether to phase out contracts that have lasted more than a decade. Bernstein stated that those property owners whose contracts are phased out will have a soft landing where they will work with a property tax assessment based on their Mills Act contract for a period of nine years before their taxes return to market rate.

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