Category Archives: Governmental

Governmental agency policy changes or discussions. City, county, state, federal, or judicial. Related to industrial operations or land use.

New 4-5.5% Transfer Tax for Properties Sold in the City of Los Angeles

Measure ULA, commonly known as the “mansion tax,” would impose a new “Homelessness and Housing Solutions Tax” on transfers of residential and commercial real property in the city of Los Angeles valued in excess of $5 million.

Under the measure, sales of residential and commercial real property valued at over $5 million but less than $10 million would be subject to an additional tax at the rate of 4%, while sales of properties valued at $10 million or more would be subject to an additional tax at the rate of 5.5%. The new tax would apply to the entirety of the sale value, not solely the amount in excess of the $5 million and $10 million thresholds, and regardless of whether the property is sold at a gain or a loss. The thresholds would be adjusted each year based on inflation. The tax would apply to property sales occurring on or after April 1, 2023.
The new tax would be in addition to the existing documentary transfer tax imposed on property sales in the city of Los Angeles, which is imposed at a combined city and county rate of 0.56%.

This tax will have a negative impact on property sales, especially industrial real estate sales given they are generally sold at a higher value than many other types of properties. The tax could possibly make properties in the City of L.A. less attractive to buy.

Who will end up paying the new real estate transfer tax? Below are the percentage of sales based on recent data for each property type.

  • Single-Family Residences and Condos: 2.6%.
  • Multi-Family Apartment Buildings: 6%
  • Commercial (office buildings, retail, etc.): 11%
  • Industrial: 19%
  • Other (vacant land, utilities, etc): 1.9%

Above data from An Analysis of Measure ULA, by UCLA Lewis Center.

Initiative Ordinance ULA: A 4-5.5% tax on real estate sales in L.A.

This freshly approved City of Los Angeles ordinance will impose a one-time 4% tax on property sale transactions above $5 million that would rise to 5.5% on transactions above $10 million. A $5-million sale would generate a $200,000 tax bill.

This will negatively impact the sellers of all property types including residential and commercial such as retail, office, apartments, and industrial.

New Zoning Code – City of Los Angeles

Below is a good summary by the city of its new zoning code and how they think it will be better than the current legacy code.

City Planning is modernizing Los Angeles’s Zoning Code to align with contemporary planning needs. This is the first comprehensive update to the Code since 1946 and marks a major shift from strictly Euclidean zoning—the most common form of land use regulation in the United States—to a hybrid, or modular, zoning approach. 

This shift responds to the desire for zoning that focuses both on land use and buildings’ proposed mass, scale, and characteristics, allowing the Department to separate regulations governing the built environment from a property’s use. The creation of this new framework supports a wider array of options that reflect the cultural and demographic diversity of Los Angeles and its community neighborhoods.

This evolution in planning recognizes that a building’s physical character is equally as important as the uses permitted on-site. Conventional methods of zoning have traditionally focused more on prohibiting uses at a given site than on regulating the built environment. These planning methods reflected the priorities of an earlier period in Los Angeles’s history, when housing choices were limited and dominant interests sought to restrict all types of development other than single-family homes. As times have changed, so have the overall needs and priorities of our City’s communities. 

The proposed modular zoning structure consists of five key modules, or “districts”: Form, Frontage, Development Standards, Use, and Density. While Form, Frontage, and Development Standards regulate the built environment, Use and Density refer to the activities allowed on a site. The new Zoning Code is organized in a clear, consistent way that is easier to navigate than its predecessor and constructed to enhance desired outcomes through objective standards. 

Currently, zoning regulations are scattered throughout the Zoning Code, resulting in an ad hoc and incremental approach to zoning that hinders the Department’s ability to implement adopted plans more effectively.

The new Zoning Code is adaptable to current and future policy needs and will allow planners to implement a wide range of community visions that address the design of the public realm in balance with the local architecture and characteristics of our neighborhoods. Additionally, the new Code is easier to understand and navigate due to the unbundling of regulations for the built environment from activities allowed on a site, as well as other requirements.

Best of all, it consolidates the public benefits incentive programs into one place, including affordable housing, access to bonus FAR/height, and relief/waiver from regulations, thereby creating a predictable and adaptable incentive system.

To provide a framework for this comprehensive revision, the Processes and Procedures Ordinance, anticipated to go to a full Council vote this fall, will reside in Chapter 1A of the Los Angeles Municipal Code and establish a new home for the updated Zoning Code.

Draft Zoning Map of DTLA

The above map is a draft version of the Downtown Los Angeles Map of Land Use and Zoning. On the left is the Financial Distict and South Park while on the right is the Warehouse District and Arts District.

The City Planning Commission is updating the Downtown Plan for future growth and changes in land use. The new plan will set a new direction for the future of DTLA to guide the physical development of neighborhoods, and establish goals and policies for land use in addition to a range of planning topics, including streets and open space, urban design, mobility, and arts and culture.

Heavy Industrial zoning would be removed. A new Hybrid Industrial Zone would dominate in the Arts District.

In the upper right section the Cornfield Arroyo Seco Specific Plan (CASP) area encompasses a large area sometimes known as the North Industrial District. Older generations may refer to it as part of Chinatown or Dogtown.

In a June 14, 2021 letter by the Chinatown Stakeholders to the Planning Commission, CASP was addressed per the below excerpt which is somewhat critical.

In the Cornfield – Arroyo Seco Specific Plan (“CASP”) adopted in 2013, City Planning attempted to promote infill development in the CASP area but also sought to limit the percentage of residential space in the floor area of new projects. This had the unintended effect of discouraging new development even at a time when other parts of the Central City were experiencing a development boom. The only project within the CASP area that has been approved since adoption of CASP (1457 N. Main St., with 244 live/work units) moved forward only as a result of the Central Area Planning Commission granting (in May 2020) an exception from CASP’s limitation of residential uses not exceeding 15 percent of the floor area. The City Council subsequently approved Councilmember Cedillo’s motion (Council File No. 13-0078-S2) directing City Planning to review the land use incentives in CASP to determine whether they had the net effect of discouraging the production of mixed-income housing.

In addition to the above commentary, the Shimoda Design Group submitted its criticism of the draft plan as per below excerpt:

The draft plan website states “Several years ago, City Planning set out to create a modern and efficient zoning system for Los Angeles. The proposed approach aims to establish a new Zoning Code that is more responsive to the needs of Los Angeles’s neighborhoods, in addition to being easier to use.”

These are noble goals, but the current draft of the code does not show itself to be more responsive to local needs, nor is it easier to use. We believe that the zoning sections regarding Form, Frontage, Standards & Use and Density are too prescriptive and need to be revised to allow for creativity and diversity in aesthetics and construction. As it stands this document is too granular and contains many contradictions in its prescription. The density and the complexity of the current version will create an administrative nightmare for the city in its implementation and interpretation. Many of the prescriptions for dimensional minimums and maximums are not reflective of real market conditions and place unnecessary limitations on creativity. The code will inadvertently create requirements that will effectively neuter Los Angeles as a competitive and desirable place to invest in. The result will negatively impact the future of Los Angeles.

We strongly believe that the current draft needs further revisions and input from the professional design and development community prior to adoption. The draft analysis of the Downtown, Arts District, Little Tokyo, and Chinatown districts in particular need to be reconsidered and not be defined by transitory cultural associations, a form-based code or by prescribed use requirements that will not evolve over time to reflect the community that it serves. We strongly believe and support the up zoning of all of these areas to increase density and affordability.

The CASP is a land use document that governs a 600-acre industrial area interspersed with clusters of residential neighborhoods, commercial activity, City-owned land, affordable housing developments, and open spaces, such as the Los Angeles State Historic Park (the “Cornfield”). The area contains 3.7 million square feet of industrial space—the most
prevalent use in the CASP—of which 74 percent is used for warehousing, storage, or distribution. There are about 1,800 dwelling units in the CASP, three-quarters of which are in multi-family buildings, totaling about 6,200 residents.

Changes to ASTM Standards for Environmental Due Diligence in 2021

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There is a big change on the horizon that will significantly impact commercial real estate transactions, especially for industrial manufacturing properties with suspected contamination in the building or soil. ASTM E1527-13, entitled Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, is the nationally recognized standard for evaluating environmental risk at a commercial property during acquisition or financing.

First released in 1993, the standard has been revised in 1994, 1997, 2000, 2005, and most recently in 2013. The ASTM standards expire every eight years, and ASTM E1527-13 is scheduled to sunset on December 31, 2021.  Therefore, the new standard, ASTM E1527-21, must be finalized and published sometime in 2021.

The ASTM subcommittee in charge of this process is considering updating certain key components to the standard. These changes are sure to have an impact on future commercial real estate transactions. While numerous changes are being proposed, most are relatively minor, aimed at reinforcing the current standard.  A few, however, will have a significant impact on the standard.

If you have been involved in the procurement, preparation, review, or use of a Phase I ESA Report, you know the biggest concern many environmental professionals, buyers/sellers of commercial property, and lending institutions struggle with is “Are there one or more Recognized Environmental Conditions [RECs] at the subject property?”. Just what defines a REC has progressed through revisions to ASTM E1527 in an effort to clarify this most critical concern. The forthcoming ASTM E1527-21 standard will likely update the definition of a REC.

To heighten awareness, E1527-21 proposes to include Per- and polyfluoroalkyl substances [PFAS]  and other emerging contaminants in Non-Scope Considerations that some environmental professionals and end-users may want to evaluate as part of a Phase I ESA report.

How long is a report good for? EPAs All Appropriate Inquiries [AAI] Rule mandates specific components to be conducted within 180 days of the date of the property purchase or intended transaction. These components are 1) interviews with owners, operators, and occupants; 2) environmental cleanup lien research; 3) visual inspection of the property and adjoining properties; 4) review of government records; and 5) declaration by an environmental professional. After one year, the entire Phase I ESA report must be updated to meet the AAI Rule.

The above text was excerpted from Omni Environmental Group.

If you own and wish to sell a suspected environmental impacted property in Southern California then please contact us so we can present it to a buyer that specifically seeks this type of commercial real estate acquisition opportunity.