Officials Aim to Aid Affordable Developers, Eyeball Vacant Assets

Local governments in Southern California made several moves carrying implications for real estate investors over the past week.

In Los Angeles County, the Board of Supervisors is drafting the Community Opportunity to Purchase Act. The law would require multifamily property owners looking to sell their buildings to notify nonprofits, community land trusts and affordable housing developers of their intention to sell, with a right of first refusal for such groups under consideration for the final draft. Laws giving a right of first refusal for tenants and nonprofits have been made or are in the works in a number of markets across the country, with varied effects so far in Chicago and New York among other cities.

The idea is to give a competitive edge against institutional landlords in acquiring properties.

Supervisor Hilda Solis said the move would help combat rising rents in unincorporated areas of Los Angeles County overseen by the Board of Supervisors.

“The county is facing rising displacement pressures as rents outpace incomes,” Solis said. “We need to have tools to keep people in their homes.”

Landlords and brokers aren’t thrilled with the idea, saying it could cause delays and introduce uncertainty into transactions without producing new housing, while also discouraging deal flow in the impacted areas. The legislation, if passed by the board, would apply to East Los Angeles, City Terrace and Altadena, among other unincorporated areas.

Looking south to Orange County, the Orange City Council moved forward with an ordinance which would go after owners of vacant or abandoned properties across the city. If owners do not maintain and secure their empty buildings, they could be subject to thousands of dollars in fines.

Public safety and aesthetics were at the center of this effort, which the council will take a final vote at a later meeting. The city pointed to incidents of vandalism and trespassing, along with fears that buildings with overgrown vegetation and structural deterioration are discouraging investment in the city. The city identified 230 vacant or abandoned properties — and the ordinance would enforce maintenance for buildings vacant for more than 30 days.

“Over time, these conditions diminish property values, limit housing and commercial opportunities, deter investment and adversely impact the city’s economic development and tax revenue,” a staff report said.

Measure ULA mania

Over the last several months, the Measure ULA property-transfer tax has been a chaotic thread to follow. From ad hoc committee meetings to proposed (and rescinded) ballot measures at local and state levels, the future of the divisive tax is murky to say the least.

This week, The Real Deal took a step back, examining all things ULA since its passing in 2022.

Intended to generate funds for affordable and permanent supporting housing developments, as well as homeless services, tenant advocacy programs and more, the measure places a 4 percent tax on all real estate sales of $5.4 million or more and a 5.5 percent on those above $10.9 million.

Concerns over the tax’s impact on housing production and deal flow have weighed on the industry ever since its passage in 2023. They have more recently raised concerns among local elected officials as new research came to light last year.

A report from UCLA concluded that Measure ULA led to a 30 to 50 percent decrease in the number of commercial transactions in the city, among other findings. A separate UCLA research study also estimated that the transfer tax was reducing housing production in the city by “at least” 1,910 units per year which is an 18 percent decline from the two years prior to when ULA went into effect.

While there was criticism on the accuracy of these claims, the lean toward the industry’s point of view seemed to leave a mark on some members of the Los Angeles City Council. Mayoral candidate and 4th District Council member Nithya Raman in January began advocating for a 15-year exemption of the tax for new or “substantial rehabilitation” of multifamily, commercial and mixed-use projects.

Since then, proposals for ULA reform have snowballed. The Howard Jarvis Taxpayers Association was set to put forth a statewide ballot measure in November that would have nullified Measure ULA by raising the voter threshold for transfer taxes — but it instead struck a deal with a state which offered a similar measure with one caveat. Howard Jarvis’ proposal would have applied the increased threshold retroactively while the state’s would only apply to future legislation.

Then, in June, Assemblymember Buffy Wicks introduced AB 736 which would cap all transfer taxes in the state at 1.5 percent.

The L.A. City Council was the last to make a move when at a July 1 meeting, the 15-member body nixed a ballot measure they had drawn up which would have exempted new multifamily projects from the tax. Instead, they voted to have city staff draft a new ordinance for a pilot tax credit program that would lower the ULA rate for certain multifamily and mixed-use projects.