The $10.9M Cliff: ULA Resets July 1

Jordyn: Welcome to Listing Price. I'm Jordyn. David: And I'm David, and oh man, do we have a show for you today. Jordyn: Okay, so get this. A $12 million Bel Air compound in escrow right now, and the seller is staring down a $660K transfer tax before they see a single dollar of profit. David: $660K, that's the math on Measure ULA, and it's the number that's haunting every high-end deal in this city. City right now. Jordyn: That's our deal of the week, and trust me, the numbers only get more painful from there. David: In the best possible way for us. Jordyn: Exactly. David: So we're going to walk through the exact ULA threshold mechanics, the LA Office of Finance just confirmed the July 1 triggers, and the pricing strategies sellers are actually using to survive them. Jordyn: Five-point-four million, Ten-point-nine million-those are your new cliff edges, and we'll show you what falls off of them. David: And then there's the political story-the ad hoc City Council committee that was supposed to fix this? It just held its final meeting. The chair shut down the reform proposal on the spot. Jordyn: Real talk: Sellers are getting zero relief from City Hall. The only off ramp anyone's talking about is a Howard Jarvis ballot initiative in November, and CalMatters is reporting that... that over 57% of likely voters currently oppose it. David: Hmm, so the off-ramp has a traffic jam. We'll stress test that. Jordyn: Plus, Jordan and I actually disagree on one of the segments today. David: We do, and I'm right. Jordyn: Sure, David. David: The Bel Air compound is waiting. Let's go. Jordyn: Okay, Bel Air Stone Motor Court Canyon Views Infinity Pool with a 270 degree sightline, $12 million in escrow right now, and sitting on top of that deal, a $660,000 ULA bill. David: $660,000 just on the transfer. Jordyn: Just the transfer. 5.5% on the full $12 million, not the profit, the gross price. And get this. The seller bought in twenty twenty one for eight million. Paper gain is four million dollars. David: So out of a four million dollar gain, they're handing back six hundred sixty thousand before commissions, Jordyn: Wow! David: carrying costs, capital gains, any of it. Jordyn: Sixteen and a half cents of every dollar they made-gone, before the escrow officer finishes her coffee. David: Okay, but why didn't they just close before July first? The thresholds reset after June third. Can't they time this? Jordyn: Right, that's the first thing everyone asks, and look. Speaker 3: In theory, yes. In practice, escrow takes 30 to 45 days minimum. If you're not already in contract, that window is gone. David: So the sellers who didn't move in April or May. Speaker 3: Are stuck, and the neighbor's spec house at $14.9 million has been sitting unsold for 180 days. That's the comps picture. David: Wonderful neighborhood meeting. Speaker 3: Right? And this isn't one seller with bad luck. According to CoStar data cited by Matthews Real Estate, more than 1,000 active LA listings sit at or near current prices. near current ULA push holds right now. Speaker 4: A thousand. That's not a data point. That's a market condition. Speaker 3: The real deal ran apiece in May. Councilmember Ysabel Jurado, who chairs the ad hoc ULA committee, opened their final meeting by saying she doesn't believe the city should move forward with a ballot measure amending ULA right now. Reform is dead at the council level. Speaker 4: Wait. The committee chair killed her own committee's work. Speaker 3: Essentially. So Sellers aren't getting relief from City Hall. And the Howard Jarvis ballot measure that could gut the whole tax? That's a November vote months away. Speaker 4: So what does $660K actually buy you in Bel Air? Speaker 3: Dryly, about two-thirds of a guesthouse, maybe the motor court. Speaker 4: The driveway. You bought a very expensive driveway. Speaker 3: The math is what's making people freeze. So how does that $660K actually get calculated? And where does the July 1 reset move every threshold line on the Westside? Okay, so let's talk about the actual math behind that bill, because the thresholds are about to move. Speaker 4: Right. The LA Office of Finance just confirmed the new numbers. After June 30th, the lower tier triggers at $5.4 million. That's 4% on the full sale price. Minimum bill, $216K. Upper tier kicks in at $10.9 million, 5.5%. Minimum $599.5K. Speaker 3: And those aren't marginal taxes on the slice above the threshold. threshold. They're on the whole price. Speaker 4: The whole gross. That's the part people keep missing. A $6 million sale? $240K owed at close. A $12 million sale? $660K. More than most brokerages collecting commission on the same deal. Speaker 3: So the city is in some cases literally the highest paid party at that closing table. Speaker 4: Filed away. Speaker 3: Now wait, how did the thresholds actually move? Because last year they were different. Speaker 4: Yeah, so the mechanism is chained to CPI. The city indexes the thresholds annually. Really. This year, the lower end moved from five point three million to five point four million; upper end went from ten point six to ten point nine million. Speaker 3: A 100K shift at the lower end, and here's what that actually means for a seller. Say you're at $5.35 million right now. You can't close until after July 1st. Speaker 4: Wait, walk me through that. Speaker 3: Under the current threshold, you're above the $5.3 million line, $214,000 tax bill due, if you wait one day past June 30th. The new line is $5.4 million. You're below it. $214,000 saved by doing nothing except reading a calendar. Speaker 4: That is genuinely the best return on inaction I have heard in a while. Speaker 3: Real talk, I'd wait. Speaker 4: Okay, but I want to push back slightly. A 100K threshold move on a $10 million deal? That's, I mean, that's a rounding error. The seller at 5.35 million benefits enormously, sure. But at the upper tier, 10.6 to 10.9 is barely moving the needle. Speaker 3: I'd argue the opposite. The July 1st calendar game is the most underreported story on the West Side right now. It's not just 5.35 million dollar sellers. Look at how agents are pricing in BHPO. Speaker 4: Oh, the narrative's doing trap. Speaker 3: Beverly Hills Post Office. Same zip code as the Flats 90210. Different jurisdiction. Because BHPO sits inside LA city limits, it gets hit with the full ULA bill. Jordan Pollack published an analysis on this. Experienced agents are listing BHPO homes at At $4,995,000, deliberately, not $5.1 million. Speaker 4: So a $105,000 haircut on the listing price. Jordyn: To dodge a $204,000 tax bill. The math works unless the buyer outbids you past the cliff. David: But isn't that leaving real money on the table? If the market says $5.1 million is the correct price... Speaker 3: Is it the correct price, though? Because the buyer knows the seller faces a $204K. 4k tax hit. That changes the negotiation. The seller priced to net more by listing less. It's not irrational, it's strategic. Speaker 4: I'll grant you that; two buyers fight Speaker 5: for one another. Jordyn: Fighting over a $5 million BHPO listing can easily push it to $5.05 million. And suddenly you've got $202,000 in ULA liability your agent didn't underwrite. David: Plot twist? The bidding war cost you more than the discount saved you. Jordyn: That is a specific kind of luxury problem. David: And the city's not losing sleep over it, which is exactly why sellers are on their own here. No legislative fix, just calendar management and very careful ask prices. Jordyn: Which raises the obvious question: how did we get to a place where the only reform on the table just walked out the door empty handed? Speaker 3: Oh! David: So City Hall had its chance, the ad hoc committee, three members unanimous council approval back in March, met, took testimony and then nothing. Jordyn: Nothing. David: According to the Real Deal, Councilmember Ysabel Jurado opened the final session by saying she didn't believe the city should move forward with a ballot measure amending ULA. That was the chair. That was the opening statement. Jordyn: Right. So walk me through what was even on the table before she killed it. Speaker 4: Okay, so Councilmember John Lee put forward a proposal to cut multifamily and mixed-use transfer tax rates from 4 and 5.5 percent down to 2 and 3.5 percent. Temporarily, not a repeal, a haircut. The committee voted 2 to 1 to set it aside. Jordyn: A two-to-one vote to block a temporary rate cut on multifamily. Speaker 4: Yeah, yeah, and Cityview CEO Sean Burton, who's been one of the loudest voices on this. told the Real Deal the decision was disappointing but not surprising. Then he said ULA is the number one factor why new housing isn't being built in L.A. Jordyn: Hmm. I mean, I get the frustration, but follow the money here, Jordan. Gerardo's counter isn't just ideology. She's saying this program funds eviction defense, rental assistance, tenant services. She framed it as keeping people housed, not handing breaks to developers. Speaker 4: I hear you, and that's a real argument. But real talk, the leading reform wasn't a giveaway; it was a temporary rate trim on the exact property types the city desperately needs more of. You can't say you want housing production and then spike the one reform that might move the needle. Jordyn: That's the tension, though. City Journal reported there's basically an ecosystem. Non-profits, labor groups, tenant advocates, all drawing from the ULA revenue stream. Reform threatens their funding. That's not a conspiracy, that's just institutional inertia. Speaker 4: Which is why this is a political story, not just a policy story. And Bloomberg reported back in January the council had already failed to get the two-thirds vote needed to fast-track changes to the June ballot. So by the time this committee formed in March, the clock was already running out. Jordyn: And now the committee is dissolved. No ballot measure from City Hall. The only off-ramp left is November, and that's the Howard Jarvis statewide initiative, which would cap transfer taxes across all states. Across all of California, not just Fix ULA. Speaker 4: Which sellers are not going to vote for? I mean, they will, but it doesn't close their escrow in July. Jordyn: No, it does not. Speaker 4: So what does this mean practically? Sellers got locked out of City Hall for the summer. Calendar management, timing that close around July 1, that's the only tool left on the table. Jordyn: And even that has limits we talked about. But here's what's wild. The academic data on what ULA has actually done to property... property sales, the committee heard it and still folded. That research is the part of the story that makes the revenue argument for keeping ULA intact really hard to defend. Speaker 4: That data is coming up next, and it's not subtle. OK, so let's get into the actual math, because the committee heard this data and ignored it, and the numbers are pretty damning. Jordyn: The UCLA-Lewis Center analyzed four years of L.A. real estate transactions-over three hundred thousand sales-and what they found cuts right to the core of ULA's whole premise: commercial, industrial, and multifamily transactions dropped 30 to 50 percent inside L.A. city limits. Neighboring cities, stable. Speaker 4: And parcels with high redevelopment potential. The land developers actually need to build housing sales of those dropped by half. You wanted a housing solution, you got a development freeze. Jordyn: Half! So the tool you built to fund affordable housing is stopping the transactions that produce affordable housing. Speaker 4: Right. And then Harvard comes in. Jordyn: Yeah, so researchers at Harvard Business School, UC San Diego, and UC Irvine ran the full fiscal picture. They found that ULA reduced eligible property transactions. The action's by thirty eight per cent., and here's the kicker-between sixty three and a hundred thirty eight per cent. of every dollar ULA raises gets wiped out in future property tax losses! Speaker 4: Wait, so the floor is sixty three cents lost for every dollar collected? Jordyn: Under the conservative case, yes, and the reason connects directly back to Prop 13. Under Prop 13, a property only gets reassessed at current market value when it sells-no sale, no reassessment. no property tax bump, so every transaction ULA kills is also a reassessment that never happens Speaker 4: So ULA and Prop 13 are both punishing the same behavior, selling. Jordyn: Two taxes, same behavior, same freeze. Speaker 4: Okay, now the spending gap, because this is where I push back on you a little. Jordyn: Go ahead. Speaker 4: ULA has collected about $1.2 billion over three years, real money against projections of $600 million to $1.1 billion. billion per year; so already underperforming. But of that one point two billion, only around one hundred and twenty million has actually been spent. Speaker 6: Wow. Speaker 4: And David, before you call it a holding account, that one hundred and twenty million went to real units, real eviction defense, real people housed. Jordyn: I don't dispute that. But one point zero eight billion dollars sitting unspent while the City's ad hoc committee couldn't even advance a modest rate cut-you can't call that a delivery system. system that's just a balance sheet both Speaker 4: So your problem is infrastructure and execution, not the revenue itself? Jordyn: if you're collecting less than projected because the tax suppresses transactions and then you're barely spending what you do collect you have a program that's shrinking its own base to fund a pipeline that barely moves follow the money it leads to a holding account Speaker 4: I mean, the deployment gap is real. I won't pretend $120 million out of $1.2 billion is a great ratio. Yo! Jordyn: And the Harvard research gives you the other side-the property taxes that didn't get collected because those sales never happened. That's not a reimbursement to any housing fund-that's just gone-to schools, to fire departments, to the county. Speaker 4: So the tax is raising less money by existing and spending less than it raises on top of that. Jordyn: It's doing two things badly at the same time. The academic case against ULA's structure is basically air tight now. Now-the Committee had this data in front of them in May and voted to hold. Speaker 4: Which tells you this was never really a fiscal debate in City Hall. Jordyn: So if you're a seller sitting on a Bel Air compound right now, what are your actual moves? David: Oh Jordyn: So sellers right now have exactly one off-ramp on the horizon, the Howard Jarvis Local Taxpayer Protection Act, certified for the November ballot on May 3rd. Speaker 3: And the math on that is staggering. Jordyn: Wow. Speaker 3: A $12 million sale right now costs $660,000 in ULA. If that initiative passes, the statewide cap drops to 0.05%. Same sale, $6,000. Jordyn: 6,000 from 660,000. Speaker 3: Yeah, yeah, yeah. That's the number sellers are holding on to. Jordyn: Okay, so three things are actually happening in the market right now. One, agents pricing just under $5.4 million or $10.9 million to dodge the trigger entirely. Two, off-market deals where sellers control the timing. Three, people just not listing, sitting on it, waiting for November. Speaker 3: The third one gets expensive fast. You're carrying property taxes, insurance, post-wildfire, that number is real, maintenance, opportunity cost on the equity, five months on a $10 million Bel Air property, you're talking six figures in carry. Jordyn: Easy, which means the wait for November play only makes sense if you believe the initiative actually passes. Speaker 3: And CalMatters found over 57% of likely voters... Critics opposed it when shown the ballot title. That is not a comfortable margin. Jordyn: Right. And ULA originally passed with 58% of LA city voters. California's electorate does not have a history of siding with real estate interests over affordable housing funding on a ballot title alone. Speaker 3: I'll say this. The self-defeating revenue data we covered is probably the strongest argument the Jarvis side has. If you can show voters the program isn't actually housing anyone. anyone. That moves people. Jordyn: Maybe, but the opposition is going to run one message wall to wall. Kill this tax and the homeless count goes up. That is a hard image to beat. Speaker 3: So if you're holding a $10 million Westside property through November? Jordyn: You're either patient, lucky, or November's problem. And that is a wrap on today's episode. The Bel Air deal, the $660,000 tax bill sitting on top of it, I keep coming back to that number. Speaker 3: It's a lot. And the thing that stayed with me is the committee moment. Gerardo literally shut the door on any legislative fix. The real deal had the quote, and it was not subtle. Jordyn: Not even a little. So here's the thing, though. November is now the only real off ramp, and CalMatters reported over 57% of likely voters Voters currently oppose the Howard Jarvis initiative. That's not a sure thing. Speaker 3: Not close. Follow the money and follow the calendar. That's the whole framework for sellers right now. Jordyn: Hey, $614,000 saved by reading a calendar. I stand by that. Speaker 3: Hard to argue with. Jordyn: If this episode had you rethinking a close date or a list price, share it. Someone you know needs to hear it. New episodes every Tuesday. Follow Listing Price wherever you listen. And if you've got a deal we should cover, drop us a line. Speaker 3: We'll see you next week.