The Flight of the Office Worker, Transfer Tax, Regulations: Fodder for Connect LA Panels
The panels appearing at Connect Los Angeles 2023 conference at the Hotel Indigo in downtown Los Angeles Wednesday, were a Who’s Who of LA commercial real estate. And given the current times the industry finds itself in, it was the perfect lineup for the more than 500 attendees at the one-day event.
For the first panel discussion, “Industry Leaders: A View from the Top,” the panel consisted of Bill Frame, CEO, Kidder Mathews; Robert Hart, president and CEO, TruAmerica; Stanley L. Iezman, chairman and CEO, American Realty Advisors; and David Waite, partner, Cox, Castle & Nicholson, who served as moderator.
The discussion ranged from what the repercussions of the Fed rate hike could mean, maturing loans, the unwillingness of lenders to step up, managing client expectations and the need to get people back into the office, which some agreed is leading to a declining LA. However, how to do that, and the realities of the mindset of today’s worker, are not the same as pre-Covid. As Hart explained, the workplace has been forever changed since the pandemic and companies will need to find a way to be flexible where people work and live.
The second panel, “Multifamily Capital Markets: Buy, Build, Sell,” included Cushman & Wakefield’s Marc Renard, who served as moderator; Jeffrey Jaeger, co-founder and principal of Standard Communities; Malcolm Johnson, CEO, Langdon Park Capital; Michael Regan, managing director, investments, CIM; and Chris Tourtellotte, managing director, LaTerra Development.
While multifamily is not in the same boat as office, the industry still has its issues. With fewer transactions, there needs to be a readjustment, with a focus on property management. There was also an issue with regulations, as more lenders look outside of California at places where red tape is scarce and states like Texas and Florida are reaping the benefits of less regulation. In a political sense, there seems to be a Red State vs. Blue State mentality, with business warming up to the Red States, where regulatory issues are more friendly toward business.
Bryan Shaffer of George Smith Partners, who was the monitor, joined Gary Bechtel, Red Oak Capital Holdings; Taylor Callaway, AllianceBernstein; Felix M. Gutnikov, Thorofare Capital; Brad Ross, Parkview Financial and Jesus Suarez, KDM Financial, on the third panel, “Financing in Today’s Climate.
For some on the panel, the trend is to focus on the asset that the company is most interested in. For example, industrial, multifamily and public storage. However, there was a clear hesitancy to focus on the office market. It was also pointed out that an overall contraction of traditional lenders, banks and credit unions, rate increases, cap cost increases and a lack of investor demand for the issuances of those securities business has actually been good for their business.
Additionally, with the void created by the banking situation and fear by lenders to invest, these voids are getting filled in a large part by the non-bank alternative lenders, which most on the panel were. So business is not too bad. A Notes was also a subject that came up with Thorofare indicating that A Notes have increased in activity and have provided a positive outlet.
The final panel, “Los Angeles Power Players: Getting the Deals Done,” was moderated by Craig S. Coan of Greenberg Glusker, joined by Clare De Briere of Skanska USA Commercial Development; Sean Fulp of Colliers; Jason Gremillion of Wonderful Real Estate; Kayce Hawk of Rising Realty Partners and Jessica Lall of CBRE.
The subject of the newly enacted LA transfer law was a subject as some on the panel explained they will not be doing business in LA with this new tax law in effect. The ULA transfer tax of 4% is now levied on the sale or transfer of real property when properties are valued above $5 million and is increased to a 5.5% tax for real property valued at over $10 million. The money raised by this measure is designated for the production and acquisition of affordable housing, as well as homelessness prevention measures in the form of rent relief, income support for rent-burdened seniors, and legal counsel for tenants facing eviction. Currently, there is a legal challenge and a ballot initiative that will be on the 2024 ballot.
On the positive side, LA’s mass transit has become brighter as accessibility has become much more efficient. Again, there was a call for workers to come back to the office. On the office side, tenants are downsizing, but are looking for smaller but good fits. In LA some on the panel saw a landscape where the lower tier office building could be facing demolition as more tenants downsize.
In addition, it was stressed there must be communication with city officials, as all agreed that working with city officials is crucial, including with the upcoming Olympic Games, which most agreed will bring the community together. All agreed, Los Angeles had a bright future, but it will take everyone’s efforts to right the ship.