DTLA Activity Picks Up

As prices continue to creep up (even if slowly), gas prices remain high, LA traffic continues to be hellish and people return to the office, there's a return back to urban centers. 

Why else do the largest concentration of highest paid professionals live in cities like LA, SF, NY and DC?

While the media talks about an exodus out of urban centers, which is also happening, there's never talk about the influx and relocation of those between city centers, as well as those who are opting to reside in multiple cities. If people are leaving in droves, then why isn't there more housing inventory?

The answer, a lot of people are keeping their places in LA, and buying second homes or investment properties out of state, or keeping their high-rent LA place as the investment property and moving to another cheaper state. It makes sense, especially if you have equity in the property.

And why is DTLA a big rental investment area? 

• Because of when DTLA was developed and conversions were happening, there is no rent control, for now anyway.
• Rents in the area are high
• High concentration of singles and professionals that make it easy to rent out for landlords
• Ever-increasing public transportation, making it easy for transplants to navigate
• High concentration of walkable neighborhoods and amenities

Please Let There Be a Crash

Said the person who didn't buy in 2009-2012. 

And the person who didn't take advantage of the 3-4% interest rates of 2013-2020.

And the 2% interest rates of 2020-2021.

And the seller buy-downs of 2022-2023.

While some of those freakish events are long gone now, at least most people can agree that real estate is still a great hedge. Live in it, rent it out, short-term rent it out, rent it for filming, spruce it up to sell for a profit after 2 years (and avoid capital gains tax), use it as a work space and write it off. And as we know, over time, real estate always appreciates.

Do you know of anyone who said they wish they hadn't bought 10, 15, 20, 25, 30 years ago? I don't.

Top 10 Things Residents Love About DTLA

1. Walkability 

2. Metro/Dash/Union Station/General Public Transport access

3. Gorgeous rooftops everywhere, for lounging, dining, swimming etc.

4. Amazing dining options (Hayato, Rossoblu, Sushi Zo, Camphor, San Laurel, Girl & Goat, Bianco, Bestia, Redbird, Manuela, Cabra, Bavel, Oriel, to name a few) 

5. Amazing drinking spots (Apotheke, Golden Gopher, Death & Co, The Wolves, Agua Viva, to name a few)

6. Amazing coffee (G&B Coffee, Tilt, Civil, Earth Bean, Maru, Nice, IL Caffe, Boxx, No Ghost Bears)

7. Amazing DTLA original eats (Broken Mouth, Coles, Breadlam, Woodspoon, Nickel Diner, Grand Central Market, Localita Badasserie, Badmaash, Poppy & Rose, Holy Basil, Wurstkuche, Pie Hole)

8. Amazing venues (Orpheum, Moroccan Lounge, United Artists Theater at Ace, Globe Theatre, Regent Theater, Walk Disney Concert Hall, Dorothy Chandler Pavillion)

9. Amazing museums and art galleries (The Broad, MOMA, Hive, Geffen MOCA, A&D Museum, Hauser Wirth, FOLD)

10. Amazing architecture 

DTLA - Prices are Not Low Enough for Some Buyers

A lot of buyers have been waiting on the sidelines to buy once the market tanks in DTLA. Some units are about 5% below 2019 values, and some are even above. I know, 5% isn't low enough, but don't hold your breath. Things are already bouncing back, especially nice units in good buildings. And by nice, I mean upgraded, remodeled, staged, etc. Low inventory is helping prices stay afloat, and with the walkable amenities in DTLA, more buyers who are over the whole car thing are choosing DTLA as their area of choice. 

Amazing Deals in DTLA Right Now

SOUTH PARK

Flower Street Lofts #123

A double-story, 1423sf loft with 2 bathrooms and 2 parking spaces for $439/SF. 

Unreal, this is like 2012 prices. Asking $626K.

KW, Joseph Iulucci

ARTS DISTRICT

Barker Block Lofts #131

Double story 2+3, 2830 super loft with 2 parking spaces. Priced at $521/SF.

Asking $1.475M

Compass, Thomas Atamian

SOUTH PARK

Market Lofts #412

2+2+Den, 2 parking spaces, 1460SF

Within 2 blocks of The Bloc, Whole Foods, 10 min walk to Crypto.com Arena, etc.

Asking $799K

ReMax, Art Avaness

FASHION DISTRICT

Cornell Lofts #602

1+1, 740sf, 1 parking space, Mills Act

Calstar, Jasmen Vartanian

FASHION DISTRICT

Textile Lofts #901

2+2, 1 parking space, 1 private storage unit, 1370SF, Mill Act

Stunning corner unit with massive factory pane windows

KW, Pete Buonocore

It's Time to Get Real About 2023

Let's face it, selling as-is, 20% over asking and within 7 days, is so 2021. 2022 has been humbling to a lot of sellers, and the ones that were aware of the softening market, and the obvious outcome of doubling interest rates, still won out. These sellers priced accordingly, prettied up their properties, staged them, and still sold at or above list price before the market fell further. 

And there will be more slowdown in 2023. I don't think there will be a massive contraction, but unless there is a big interest rate cut, the housing market will stagnate. Don't get me wrong, there are still a lot of wannabe buyers out there, but the rates are hindering them, and the recent price slowdowns are not enough to get them to make the move just yet. 

So if you're needing to sell, upgrade to a larger house, sell to relocate, etc., it's time to get real. Be prepared to pay for rate buy-downs for buyers, spend a couple thousand on painting or staging, and at the very least, declutter. And be real about what's going on in the market. Just because your neighbor sold for $1M three months ago, doesn't mean that your similar property is going sell for the same or more 3 months from now. 

ULA or the "Mansion Tax" Passes, Effective in March and April 2023

Measure ULA has passed. It is called the "Mansion Tax" as it affects properties, residential or commerical, valued at more than $5M. 

Editorial: Measure ULA is the best gift Karen Bass could get as mayor - Los Angeles Times (latimes.com)

Here's what you need to know:

Beginning March 1, 2023, for City of Santa Monica property owners and April 1, 2023 for City of Los Angeles property owners, two new tax measures will have a significant impact on all Real Estate transactions valued at $5 million and above. Please take a quick moment to read the following information regarding these tax measures, which both passed during the most recent election in November. If you've considered selling and your property is valued at more than $5M, you might want to consider selling before these dates.

Measure ULA, a new tax law specific to the city of Los Angeles, will take effect on April 1st, 2023:

Properties sold at $5 million or above will incur a total transfer tax of 4.6% (additional 4% tax), and properties sold at $10 million or above will be taxed a total 5.7% (increase of 5.5%).

Measure GS, a tax law specific to the city of Santa Monica, will take effect on March 1st, 2023:

Properties sold at $8 million or above will be taxed a total of 5.7% (an 833% increase).

This tax is on the sales price, so it doesn't matter what you paid for it. For example, say you bought a multifamily building for $2M ten years ago. It's now worth $6M. If you sell after the measure takes effect, you'll now be paying an extra $276K. Yikes. Let's say it's worth $11M now. If you sold for that price, you'd pay $627K. Double yikes.

This applies to both residential and commercial real estate, but incorporated cities such as Beverly Hills and Malibu are not included. At the point of sale, the one-time tax will be deducted through escrow, regardless of whether the seller is taking a loss on the property or not.

For small landlords whose livelihoods depend on their apartment buildings, this is harsh.

The Net Worth Required to Be in the Top Wealth Tiers

 According to Kiplinger's recent research, these are the tiers of the Net Worth of households. Remember, net worth is all assets minus all liabilities. If you have a house worth $800K, a $600K mortgage, a paid off car worth $10K, and credit card debt at 5K, then your net worth is $205K. If you rent, lease a car, and have $20K in the bank, and $10K in credit card debt, you have a net worth of $10K.

Anyway, according to Kiplinger and the Net Worth of households here in the US:

Tier / Required Net Worth

Top 1%  / $10.8M

Top 2% /  $2.5M

Top 5% / $1M

Top 10% / $800K

Top 50% - $500K

And don't forget, that two-thirds all net worth comes from home ownership!

Buy Down Your Interest Rates and Get the Rate You Want

Once markets shift, people get creative. We're in a 6.75%-7.25% interest rate range right now. While this is WAY higher than last year, it's still only 1% higher than it was in 2007. That said, did you know you can ask the seller to buy down a mortgage rate? Yes, in this climate and depending on the house and the builder, you can ask the seller to pay a point or two. This is pretty damn amazing, and the little loophole that buyers can use to get rates from a few months ago. I just did this for a buyer recently, and the seller didn't even argue.

Some criteria:

- Must be primary residence

- Approved for condos, 2-4 units, SFRs

- 30 year fixed only (no ARMs)

- Borrower will still need to be preapproved and qualify 

Interest Rates Set to Rise to 9% in 2023

To those who are waiting and waiting and waiting...Given 2023 projections are even higher, this week's rates around 6.8% seem low. And don't forget that is is pre 2007 interest rate levels. The 30-year fixed is around 6.8%, while a condo 30-year fixed is more like 7.2%. It's interesting with the rate of inflation around 8.5% currently (lots of economists say it's more like 12%), housing is still considered a hedge at the moment, particularly income housing since rents are NOT dropping.

And remember, you can always refinance! Oh yeah...