Multifamily developers are slamming the brakes on projects across Los Angeles, despite high demand and some of the most-expensive rental rates in the country.
A roller-coaster of development regulations in the past five years has caused lenders like pension funds and insurance giants to turn their backs on financing L.A. projects, the Los Angeles Times reported.
Measure ULA, the law that levies additional taxes on real estate sales above $5 million, has been another obstacle that many developers either can’t or are unwilling to overcome.
“L.A. has been redlined by the majority of the investment community,” Ari Kahan, principal of California Landmark Group, told the outlet.
The city’s apartment vacancy rate is among the country’s lowest, and rental rates are among the highest. Even so, the number of units under construction in Los Angeles has been in a free fall since early last year, approaching a decade low.
Fewer than 19,000 apartments were under construction in the third quarter, a 30 percent drop from three years ago, per CoStar.
“It’s a needle in a haystack to find an opportunity that makes financial sense to build today,” developer Cliff Goldstein told the Times. “A developer without investors would be like a king without clothes. I am an optimistic developer who wants to develop, but the investment community won’t participate.”
Developers have shelved projects and taken their business to other municipalities.
“We haven’t bought a site with the intention to develop it in over two years,” Kahan told the outlet. “I don’t know when we will be building in L.A next”
The Real Deal’s Building Back L.A. roundtable revealed similar sentiments last month.
“Buyers and sellers are absolutely disgruntled over ULA, and it is not going away. It’s actually getting worse every day,” said Aaron Kirman, CEO of Christie’s International Real Estate Southern California. “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.”
Cityview CEO Sean Burton said city council members and other officials don’t get that Measure ULA is a problem for housing production.
“They think it’s interest rates. They think it’s ICE raids. They think it’s tariffs,” he said. “They don’t believe that it’s slowing housing. And we’ve been working to provide data [to show that].”
The latest wrench is the Los Angeles City Council’s study on increasing the minimum wage for residential construction workers.
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