ULA Escape Hatch: Remodel Permits Up 46%

JordynWelcome to Listing Price. Okay, so get this. Bel Air, $28.5 million, and the driveway curves so long you could practically valet park in a different zip code.

DavidInfinity pool hanging right off the hillside too, I heard. Views straight out to the ocean.

JordynCute little starter mansion.

DavidSure. Anyway, I'm David.

JordynAnd I'm Jordyn. And that sale is just the opener today.

DavidRight, because the real story is what's happening behind the scenes with these luxury owners.

JordynPlot twist? A lot of them aren't selling at all anymore.

DavidYeah, the real deal's been covering this. Owners are choosing to remodel instead just a sidestep measure ULAs transfer tax.

JordynWait for it. We've got builder Oren Levy from Gesh Group whose whole business flipped because of it.

DavidThe thing is, though, does a studs-out remodel actually pay off when you go to sell later? I've got questions.

JordynYou always do. We're also getting... Getting into the neighborhood numbers, Brentwood, Beverly Hills, Bel Air, and how that city line messes with every comp.

DavidAnd later, the policy angle. ULA's haul isn't what City Hall promised.

JordynSo buckle in. Wait, no, don't buckle in. Just stick around.

DavidSmooth. Let's get into that Bel Air number first, because $28.5 million is just the headline.

JordynBefore we get to the tax, the deal: A gated compound on Nimes Road in Bel Air just closed at $28.5 million. Motor court, it's six cars, Infinity pool cantilevered right over the canyon, and get this, the buyer never toured the primary suite,

DavidWow.

JordynBought off drone footage.

DavidThat's either total confidence or total insanity.

JordynMaybe both, but here's the number that actually matters this week. This week, 46 percent.

David46% of what?

JordynRemodel permits. Attom Data Solutions compared 2018 and 2019, before Measure ULA kicked in, to the two years after it kicked in for high-priced L.A. homes. Permits jumped 46 percent.

DavidAnd mid-priced homes?

JordynBasically flat. No statistically significant change.

DavidRight. That's the part that makes it real. If everybody's remodeling more, that's inflation, contractor backlog, whatever. But if it's only the top tier moving,

JordynIt's the tax.

Davidit's the tax. Measure ULA is a four to five and a half percent transfer tax on any LA city sale over five point four million. The Real Deal reported three years ago, still top of mind.

JordynAnd The Real Deal's reporting this week says brokers are feeling it directly, clients hesitating to sign, choosing to rebuild instead of listing.

DavidSo walk me through the math on that Bel Air place. Say it sells at $28.5 million instead of getting remodeled.

JordynYou're looking at over a million four in transfer tax alone, just gone.

DavidA million four?

JordynYeah, versus pouring that into a full gut renovation where you keep the asset, keep the address, and never trigger ULA at all.

DavidDevil's advocate, remodeling isn't free. Permits, delays, living through construction dust for eighteen months.

JordynSure, but you're not handing seven figures to the city day one—that's the trade owners are making.

DavidThe UCLA Anderson Review had a researcher Yingru Pan looking at exactly this. Her read is that the tax pushed luxury owners towards retaining and upgrading instead of selling.

JordynWhich sounds boring until you realize what it does to inventory. to inventory.

DavidRight. Fewer listings at the top means fewer comps means pricing gets weirder across Bel Air, Holmby, the whole west side.

JordynSo a tax built to fund affordable housing.

Davidbasically turned into a subsidy for granite countertops.

JordynI mean, somebody's buying a lot of marble right now.

DavidAnd one guy's entire business flipped because of it. Not hypothetically, his permit mix actually changed.

JordynSo who is he and how much of his Most of his company is now just renovations nobody's supposed to notice.

Speaker 3So, we tease the builder living this shift-let's meet him-Oren Levy, Gesh Group.

DavidRight, and the flip is almost cartoonish-Levy told Therealedeal his shop was eighty per cent new construction, twenty per cent remodels before ULA

Speaker 3And now?

Davidsixty per cent remodeling, forty per cent new builds-that's a full business model reversal in three years.

Speaker 3Wait, wait-that's not a tweak-that's the whole company pivoting.

DavidExactly-and it's not paint and carpet remodel. Carpet remodeling either. Therealedeal reported these jobs are stripping homes down to the studs.

Speaker 3So a total rebuild that just doesn't get called a sale?

DavidSame crews, same finishes. The Realdeals put the cost on these Gesh Group remodels at $1 million to $6 million for homes over the ULA line.

Speaker 3Six million for a house they already own!

DavidOne project in Brentwood the owners wanted to sell then realized tax plus commission would eat about eleven percent of the proceeds.

Speaker 3So they just kept the house and rebuilt it instead.

DavidInvested that money into the walls instead of handing it to the county.

Speaker 3Okay, real talk though, does the remodel actually pay off at resale? Because a studs out job doesn't guarantee you get that value. value back!

DavidFair! Nobodys tracking resale on these yet because most owners aren't selling-that's the point.

Speaker 3Right, but eventually somebody does sell, and then what? Did this six million dollars work?

DavidYeah, that's the question sitting in front of us right now.

Speaker 3Your house is not broken, it's just expensive to prove that on paper.

DavidThis isn't a citywide thing-it's single-family only. West End Construction's Trent Klatte told The Real Deal: multifamily owners are way more cautious.

Speaker 3Because.

DavidThey're actually calculating whether adding units pushes their building's value over the ULA line before they build.

Speaker 3So apartment owners do the spreadsheet math. Mansion owners just call a contractor.

DavidBasically, different risk tolerance, different asset class.

Speaker 3And speaking of risk tolerance, what happens when a whole tier of the west side just stops moving?

DavidThat's the inventory question. If everyone's remodeling, modeling instead of listing,

Speaker 3The top of the market just freezes.

Davidwhich is exactly where the actual dollar math gets ugly.

JordynOkay, so numbers time. Building on that remodel talk, let's do the actual transfer tax math.

DavidThis is the part I've been waiting for.

JordynSo the L.A. Office of Finance says after June 30th of this year, it's 4% on any sale above $5.4 million, and it jumps to 5.5%. sent once you cross $10.9 million.

DavidAnd it's not on profit. It's on the gross sale price. So even if you bought the house for more than you're selling it for?

JordynYou still owe the city a check, yeah.

DavidWait, that seems almost punitive for anyone near the line.

JordynIt is. RAND actually flagged this. A sale that lands at $5.39 million under the prior threshold owed roughly $215,600. dollars.

DavidOne dollar under zero tax, one dollar over, six figures gone.

Speaker 3Wow.

JordynExactly-it's a cliff, not a slope.

DavidOkay, so run the countermath with me: a studs out remodel on one of these West Side places; two years of construction, permits, carrying costs on a mortgage you're not living in.

JordynRight, and no guarantee you get more at exit-that's the part people skip.

DavidBut you also skip the tax entirely if you never sell.

JordynSure; but you're betting years of your life against a number that might not even be true any more when construction wraps.

DavidI don't know; I'd take a known six figure cliff over an unknown renovation budget any day-at least the tax bill is fixed.

JordynFixed, but permanent. The remodel, if it goes well, the house is just better forever.

DavidSure, if it goes well." Emil Hartoonian at the Agency told The Real Deal some owners are landing on the other

Speaker 4side.

DavidAnd on the opposite read, tying up money and years in a renovation carries more risk than just selling today,

JordynThat's the tension, though. Everybody's doing the same math and getting different answers.

Davidwhich tells you it's not really a spreadsheet problem anymore.

JordynNo, it's psychological. You're not deciding what your house is worth. You're deciding how much you hate writing that check to the city.

DavidFair. And for a lot of these owners, that number, $215,000, $300,000, $400,000 feels like it's coming out of nowhere.

JordynEven though it's been the law for three years now.

DavidDenial is a powerful market force.

JordynIt really is. Okay, but zoom out with me for a second. If thousands of individual owners are all making the same calculation,

DavidYou get a frozen top tier; fewer sales, less inventory turning over.

Jordynwhich is exactly what's showing up in the neighborhood dotnext. Brentwood, Bel Air, the Palisades, we've got the actual revenue numbers coming.

DavidAnd they are not small. Small.

JordynBuilding on that frozen top, where did all this West Side inventory actually go?

DavidThe real deal broke down LA housing department numbers this week. Brentwood alone pulled in $105.4 million in ULA revenue.

JordynWait just Brentwood?

DavidJust Brentwood. Bel Air is at $78.9 million, the Palisades at $58.8 million. Combined, that's 424 transactions across three neighborhoods. neighborhoods.

JordynOkay, but that's still deals happening. People are still selling.

DavidSure. Though RAND's read on the bigger trend is rougher: high value city sales fell roughly fifty percent in ULA's first two years.

JordynFifty percent? That's not a slowdown, that's a freeze.

DavidIt's steeper than the rest of the county over that same stretch," RAND says, "and you can see it directly in Bel Air's listing numbers right now."

JordynGo on.

DavidMedian list sits around $7.49 million. Average days on market, over 100.

JordynSo sellers are waiting longer and getting less?

DavidPrice per square foot asking is down about 11% year over year. THE YEAR

Speaker 5Cute-real cute.

DavidAnd here's the parlor that trips everybody up: None of this touches Beverly Hills, West Hollywood or Santa Monica; outside city limits; outside ULA entirely.

JordynSo a house in the Bird Streets pays the tax, but cross into Beverly Hills, and you're clean!

DavidExactly; Holmby Hills feels the same freeze as Bel Air; Trousdale, three minutes away, never felt it at all.

Speaker 5Wait, so appraisers are comparing frozen comps to unfrozen ones right next door?

DavidThat's the distortion. Fewer sales means the few comps you get carry way more weight than they should.

Speaker 5Thin data plus nervous pricing

DavidAnd a market with this little turnover at the top isn't pricing risk anymore, it's guessing.

Speaker 5So the top of the west side right now isn't really a market, it's a waiting room.

DavidAnd City Hall's about to learn frozen inventory and disappointing tax revenue are the same problem, just seen from two different desks.

JordynShifting gears, what's City Hall actually doing about all this?

DavidNot much. Three years in, ULA's crossed $1.1 billion across almost 1,600 deals.

JordynWait, that's the total? Over three years?

DavidTotal. The city's own analysts projected $600 million to $1.1 billion a year. This is a full year's low estimate stretched across three.

JordynYikes.

DavidAlso, commercial property is carrying about 55% of that revenue. Revenue. Single-family owners, the ones everyone blamed, aren't even the main source.

JordynSo who's actually picking up the tab?

DavidWarehouses, office towers, apartment complexes, the big money movers.

JordynDidn't multifamily builders want an exemption for new construction?

DavidTherealdeals reported the City Council shelved a November ballot measure that would have exempted new multifamily projects.

JordynShelved, not killed.

DavidRight. So any real fix needs voter approval, and that's... And that's not happening before next year at the very earliest.

JordynSo nothing changes and Levy keeps remodeling.

DavidWhich is why I'd watch permit filings this fall, not closings. Permits move before deals do.

JordynAnd permits are public record. We'll see the trend before it shows up in any listing.

DavidWest Side supply frozen at the top and the builders quietly holding the leverage.

JordynThat's the signal to watch.

DavidSellers are stuck, buyers are stuck, but somebody's cashing checks every week. week and it's not City Hall.

JordynIt's the guys with the hammers.

DavidExactly. Measure ULA built a construction economy nobody voted for.

Speaker 5Okay, so before we go, that remodel pivot from Oren Levy still gets me.

DavidHonestly, same. A tax meant for affordable housing basically funneled money into granite countertops.

Speaker 5Cute, but unnecessary, some of these renovations.

DavidMaybe, but the permit filings this fall, that's the real thing to watch.

Speaker 5Real talk, the takeaway here, ULA didn't stop sales, it just changed what sellers...

Jordynor spend on;

DavidExactly watch the permits, not just the

Jordynand

Davidclosings.

Jordynthat Bel Air listing still sitting.

DavidStill sitting.

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DavidDrop us a line.

JordynThanks for hanging with us.

DavidSee you next week.