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Birthday Blessings For Everyone 🎉 – TBG Update 2/15/2023

Birthday Blessings For Everyone 🎉 – TBG Update 2/15/2023

 

We have two new leases that just went live this week.  530 N Bronson is a townhouse in a side-by-side 2 story duplex that has high ceilings, extra deep windows, and very large scale rooms.  There’s such nice energy in the space because so much sunlight comes in through the windows and the views out of the windows are lush and green.  The converted garage is included with the north townhouse, the unit for lease.  Every time this space comes up for lease, we get so many applications and it rents immediately.  This time is no different; the lovely owners are already considering multiple applications.

Our second new lease is at 4539 St. Charles Place.  It’s a renovated 3 bed + 2 bath unit in a gated Mid City Fourplex with a shared front courtyard that includes a fountain, a cute little shared al fresco dining area in the middle of the building, and lots of parking in the back.  The whole space is remodeled in good taste.  It’s a really good deal to rent 3 beds and 2 baths in a remodeled building for under $4000 so this space will be rented very soon too.

As interest rates stay relatively stable and people adjust to the change, the market is slowly and surely coming back.  In our world, the biggest hurdle to people selling their houses is taxes.  Sellers who have owned their house a short amount of time face ordinary income taxes on the gain from their sale, and sellers who own their house a long time face capital gains taxes upon sale, on all the equity they built in the long time they owned their house.  The new hurdle to cross is sellers not wanting to give up the low interest rate they secured when interest rates went to historic laws during Covid.  To preserve their interest rate, sellers are choosing to lease their houses instead of sell.  And so last year we did 54 leases. This year, we’re up to 10 leases so far, and we’re only 6 weeks into 2023. 

An attorney called me to share his workaround for Measure ULA. The Measure ULA Ordinance establishes an increased4% tax on all real property sales priced or valued from $5 million up to $10 million, and a 5.5% tax on real property sales priced or valued at $10 million or greater.  The attorney explained that since Measure ULA is an increased transfer tax driven strictly by sales price, he proposes to create multiple entities for a buyer setting out to buy a property over $5M, and then to divide the >5M sales price into fractions so that each entity purchases a fraction that’s below the threshold to trigger the increased transfer tax.  He’s engaging escrow and title companies who are open to doing fractional sales to entities controlled by a single buyer.  I have reservations on this proposal.  First, big box banks mostly only lend to individuals and not to entities.  Second, appraisers are accustomed to setting value for a whole and not necessarily to setting value for arbitrary fractions of a whole.  Third, transfer taxes were historically paid by sellers and not by buyers and this arrangement would put a burden on the buyer.  I don’t see this attorney’s idea as a slam dunk workaround.

In the media, Measure ULA was described as an easy way to raise so much money for the homelessness problem.  In the real estate world, Measure ULA is a hindrance to investors, developers, and lenders choosing to invest in the infrastructure of our city.  The Measure ULA tax is levied against the entire sales price at the time of sale, irrespective of profit or loss on the sale.  It’s a hefty tax and at that price point, a sizable amount of money, enough to create increased risk for lenders to lend on projects, especially during this transition period, and too much loss of profit (especially in an increased interest rate environment) to entice investment.  It doesn’t feel genius for our city to discourage developers and investors from continuing to build in our area, even while we face a legitimate problem with homelessness.

A new state ballot initiative is hoping to invalidate Measure ULA. Proponents of the initiative gathered enough signatures, more than 1 million in total, to place the new proposal on the 2024 ballot.  Under the proposed initiative, all new taxes passed by the California State Legislature would have to be approved by voters. And for any local special tax increases, voters would have to approve the measure by a two-thirds vote, rather than a simple majority as at present. While the ballot initiative does not mention Measure ULA, it states that any local tax imposed after January 2022 but before November 2024 that “was not adopted in compliance” with the two-thirds requirement will be voided.  Measure ULA was approved by less than ⅔ of the voters so if the new initiative passes in 2024, that will invalidate Measure ULA and it will go away.  

I’m feeling all the feelings today on my 50th Birthday! As my birthday treat, Seth and I flew to celebrate with our kids in Israel and then with our kids in NJ.  Spending time with the kids was the best birthday gift ever; I miss them all so much the instant we leave!  In NJ, Seth and I spent a memorable day at Essex County Turtle Back Zoo bonding with our 2 year old grandson, Eliyahu.  After the Zoo, we dropped Eliyahu off at his other grandparents’ house while all the adults met up for dinner.  As we exited the highway, Eliyahu recognized that we were headed to his grandparents’ house and he started squealing with excitement.  As we continued to drive, and he spotted a landmark even closer to their house, he started to plan his “huggies.”  And when we pulled up on their block, he could barely contain the anticipation of arriving.  As soon as he was unbuckled from his seat, he raced up the walkway, opened the screen door, and loudly announced his arrival, “YAYU’S HERE.”  My birthday blessings for all of us is for our lives to be filled with reciprocal love that we fully embrace and announce with exuberance and excitement!

Wishing everyone an incredible week ahead!

Xoxoxo,

Sheri

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