Measure ULA, Wildfire Rebuilding Plague Local Developers

Developers from across the Los Angeles region came together to discuss the state of the construction market, the city, rebuilding efforts and more at The Real Deal’s inaugural roundtable event in Hollywood.

Top of mind, among other issues, was Measure ULA, the so-called “mansion tax” that has driven many developers out of L.A. city limits. Homeowners have similarly been repelled by the legislation.

“Buyers and sellers are absolutely disgruntled over ULA, and it is not going away. It’s actually getting worse every day,” Aaron Kirman, CEO of Christie’s International Real Estate Southern California, said. “When you are doing these deals and sellers can be charged anywhere between 4.5 and 5 percent additional fees on top of commissions and closing costs and everything else, it’s make it or break it for a lot of these developers, not only on the luxury level, but for apartments, for retail, and everything in the middle.”

“It’s continuing to be challenging and they really need to fix it because it’s the crux of the issues today when we’re selling anything residential, even commercial, it comes up and it really has probably stopped 50 percent of the deals, maybe even more,” Kirman added.

Sean Burton, chairman and CEO of Cityview, noted that local officials don’t appear to see the issues with ULA.

“When you talk to city council members and others, I think they don’t believe that ULA is slowing housing,” he said. “They think it’s interest rates. They think it’s ICE raids. They think it’s tariffs. They don’t believe that it’s slowing housing. And we’ve been working to provide data [to show that].”

In July, the Los Angeles City Council voted to commit $425 million of Measure ULA funds to affordable housing and homelessness programs. Dan Yukelson, CEO of the Apartment Association of Greater Los Angeles, doesn’t believe all that money is going to be used to help people by building housing.

“A big chunk of that is going to enrich attorneys to help tenants who are facing evictions for whatever violation that might have occurred under their lease agreement. Some of it would hopefully go to rental assistance, which is more direct relief to tenants,” Yukelson said. “But… this is coming from a former planning commissioner in Beverly Hills: I don’t have hopes that the City of L.A. could build anything reasonably efficiently at all. And that’s why our organization has joined forces with the Howard Jarvis Taxpayers Association to try to overturn Measure ULA. It’s just bad legislation.”

Ultimately, ULA still presents a hurdle too high for some developers to overcome.

“We have developers that would love to develop in L.A., that do develop in L.A., that are just saying until ULA gets off the books or changed substantially they’re not going to do it,” Burton said.

Meanwhile, investor and developer Leo Pustilnikov served as an inspiration for some attendees for his challenging of Beverly Hills officials over builder’s remedy.

“I think what you’re doing is the most important thing happening in the broader city, quite honestly,” Larry Green, managing director of Cain Development, told Pustilnikov. “You really have shaken it up… I sit with the council [members] and they’re afraid.”

“Without you sort of doing what you’re doing, people would be still twiddling their fingers worrying about stuff,” Green said. “Now stuff is happening because you’ve taken initiative and you’re going for it and it’s creating a carrot-and-stick approach. It’s like, ‘Guys, either get on board and do something or you know what? We’re going to figure out another way.’ And it’s been dynamite.”

Pustilnikov’s view of his process was simple. “It’s the Roosevelt approach: Speak softly and carry a big stick,” Pustilnikov said. “But Beverly Hills is doing it to themselves. They had an opportunity to just have Linden [Surgical Center as builder’s remedy]. And they refused to cooperate and now they have 12 projects.”

As for the fire rebuilding process in the Pacific Palisades and Altadena, Balaciano Group founder and CEO Shawn Evenhaim, who lost his Malibu home in the January blazes, has given up on rebuilding there thanks to municipal missteps.

“Malibu is doing everything wrong and it’s not surprising,” he said. “They took the governor’s order, which was pretty simple: Let them build, let them build quick, and let them build 10 percent more than what they had. And they put so many regulations on it,” Evenhaim said. “My feeling is this time it’s going to be even worse [than the 2018 Camp Fire in Northern California’s Butte County], especially on the beach where they lost over 300 homes, and one of the homes was ours.”

TRD’s Building Back LA Roundtable was filmed at Mother Wolf restaurant in Hollywood. Thanks to B/S/H Home Appliances Corporation for sponsoring the event and making it possible.