Measure ULA and LA CRE: Q&A with Colliers’ Sean Fulp

On April 1, 2023, the “Homelessness and Housing Solutions Tax,” also known as Measure ULA, came into effect, impacting the city of Los Angeles. This measure levies a tax on real estate sales in excess of $5 million, with the proceeds used to fund affordable housing projects, among other issues. In preparation for the upcoming Connect Los Angeles 2023 conference on May 3, Connect CRE spoke with one of the panelists, Colliers Vice Chair Sean Fulp, about Measure ULA and other issues.

Connect CRE: You recently helped arrange financing for the Waterbridge purchase of Union Bank Plaza in DTLA. How did the impending Measure ULA transfer tax affect negotiations? 

Sean Fulp: Measure ULA impacted the Union Bank Plaza transaction as it did other market transactions. The additional 5.5% transfer tax had been underwritten since the measure passed. But overall, the law motivated sellers to get organized and put their properties on the market. As April 1 approached, sellers started to bridge the bid/ask spread enough to close transactions during a volatile capital market environment.

Connect CRE: How will Measure ULA impact commercial real estate in the city of Los Angeles?

Sean Fulp: Unfortunately, Measure ULA significantly impacts property values. Most real estate capital stacks comprise approximately two-thirds debt and one-third equity. The additional 5.5% transfer tax comes directly from the equity, which could be 16.5% of an investor’s proceeds after they repay the loan. In many cases, this represents most of the gains. Therefore, we expect development and value-add investment opportunities to be most impacted. We also anticipate that all transaction activity will decline, at least until property values account for the additional cost.

Connect CRE: How is Colliers navigating the recent turbulent economic conditions? Has it impacted your company’s plans or operations?

Sean Fulp: My team focuses on selling and financing office properties throughout the Western United States. The rising interest rate environment, lower office utilization and rising costs means we’ve been busy assisting clients where they need us the most—to help retain as much value as possible. We expect the office market to find a bottom faster than other product types, but there will likely be a lot of pain and losses along the way. We hope the market will use this time to figure out a better formula for using and capitalizing office buildings.

Don’t miss Connect LA on May 3 at the Hotel Indigo, where you can connect with California CRE experts including Colliers Vice Chair Sean Fulp.