Pay up: LA’s transfer taxes go into effect

Measure ULA adds 4% tax on property sales over $5M, 5.5% on deals over $10M

Los Angeles mayor Karen Bass (Getty)
Los Angeles mayor Karen Bass (Getty)

Sellers of residential and commercial property, get ready to shell out cash: The city of Los Angeles’ new transfer taxes are officially in effect. 

All residential and commercial sales that trade above $5 million will be subject to a 4 percent tax, while all sales above $10 million will face a 5.5 percent tax, in addition to a 0.56 percent city tax that is currently applied to all transfers. 

Brokers, investors and homeowners rushed to close sales before the tax, dubbed Measure ULA, went into effect. 

Joel Schreiber’s Waterbridge Capital closed a $110 million deal to buy the 40-story Union Bank Plaza, allowing seller KBS to avoid an extra $6 million in taxes. The transfer taxes put “increased pressure” on the Union Bank Plaza sale to close before April 1, Colliers, which arranged financing for the deal, said in a statement.

A Windsor Square home at 425 South Plymouth Boulevard sold in two days, a timeline one escrow officer called “record-breaking.” 

The number of signed deals for homes for $5 million and above jumped from 30 in January to 57 last month — a 90 percent increase, according to real estate appraiser Jonathan Miller of Miller Samuel.

Industry players are already expecting the tax to have a freeze effect on the market, drying up an already slow stream of sales as a result of rising interest rates. Even the city has reduced its own estimates of how much the taxes will bring in during its initial year. 

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In mid-March, the city said it anticipated the taxes will bring in up to $672 million in revenue during the first year of implementation — a 25 percent cut compared to projections given to voters on a November ballot. All revenue from the taxes are expected to be placed in a new revenue fund, which will be used to build affordable housing and provide other resources to individuals at risk of homelessness.

Some real estate deals were unable to close before the tax came into effect, opening themselves up to a future tax burden. 

The Reuben brothers scored court approval on Friday to foreclose on the $2.5 billion Century Plaza development in Century City, but had tried to push for a transfer before the tax went into effect. 

Even though the court gave the investor brothers the all clear, foreclosure sales cannot go through on March 31, given it’s a California state holiday — César Chávez Day. This means the earliest that foreclosure can go through is April 3. 

Attorneys are still unclear whether or not the tax will apply to foreclosures, though the city has not written in any tax exemption for foreclosures. 

Neither the office of L.A. Mayor Karen Bass nor the City Administrative Office, which handles budgetary and financial issues, responded to requests for comment. 

Any sale involving a nonprofit, community land trust or entity that has a history of affordable housing development will be exempt from the tax, according to the city’s finance office. Other exemptions include a U.S. agency or other public agency or other charitable organization, like a church.