Hines’ Pasadena Deal Due to No “Mansion Tax”: Newmark Broker

Hines has made an end run around L.A.’s “mansion tax” by buying a 140-unit apartment complex in nearby Pasadena for $60 million.

The Houston-based developer bought the Pasadena Gateway Villas at 290 North Hudson Avenue, the Los Angeles Times reported. The seller was Washington Capital Management, based in Seattle.

The deal for the four-story apartments works out to $428,571 per unit.

Brokers Kevin Shannon, Chris Benton, Ken White, Dean Zander, Mitch Clarfield and Anthony Muhlstein of Newmark represented the seller. Newmark’s Gabe Munson represented the buyer.

“The intensity of the bidding for this opportunity in Pasadena was incredible with over 40 offers received,” Shannon, co-head of U.S. Capital Markets at Newmark, said in a statement to the Times. “The fact that there is no mansion tax in Pasadena was a significant factor in adding to the depth of the buyer pool.”

The voter-approved Measure ULA real estate transfer tax, which went into effect on April 1, 2023, now charges a 4 percent fee on all residential and commercial property sales above $5.1 million and a 5.5 percent fee on sales above $10.3 million. The tax, commonly known as the “mansion tax,” is expected to be adjusted in June.

By December, the tax had collected about $480 million since implementation — after it was sold to voters as a means to generate up to $1.1 billion a year for affordable housing and homelessness prevention initiatives.

A state ballot initiative that could have rescinded the tax was blocked by the state Supreme Court last summer, but opponents have continued challenging the tax in state and federal court.

The Howard Jarvis Taxpayers Association, which filed suit in state court, believes the tax is invalid and is pursuing an appeal after a judge dismissed its case late last year.

Los Angeles Mayor Karen Bass and city attorneys are looking into ways to temporarily nix the ULA tax — reviled by the real estate industry — to expedite rebuilding the fire-torn Pacific Palisades.

The Hines investment in Pasadena allowed it to skirt the tax, while benefitting from an opportunity buy in the upscale neighbor to L.A. The investor plans a “value-add” upgrade of the complex, built in 2002 on 1.6 acres, to make it comparable to local resort-style properties.

Pasadena Gateway Villas, in the foothills of the San Gabriel Mountains, contains studio, one-, two- and three-bedroom apartment homes targeted at the city’s wealthy tenant base.

Its units have gas fireplaces, in-unit washers and dryers, personal balconies and patios and vaulted ceilings. The complex has a pool and spa, fitness center and outdoor lounge areas. Rents charged at the complex were unclear.

— Dana Bartholomew