THE MORNING RANT: Los Angeles’ Punitive “Mansion Tax” Has Become Law, Next Up Will Be the Consequences

Last November there was a referendum in the city of Los Angeles for a “mansion tax” that would impose a new transaction tax on any real estate sale in excess of $5 million. The referendum passed with 58% of the vote. The tax is steep and punitive – a flat 4% on properties selling for $5 - $10 million, and 5.5% on properties selling for more than $10 million.

The citizens of L.A. were presented the opportunity to go to the polls and vote to seize somebody else’s money, and that’s just what they did. It’s mob rule democracy at its finest…not unlike the three wolves and two lambs voting on what to have for dinner.

On the other hand, rich Angelenos vote heavily Democrat, and they contribute crazy money to left-wing causes, so it’s also kind of funny to see the left-wing party that they’ve nurtured and funded turn on them and attack. Blue-on-blue political warfare in deep blue states is kind of entertaining to watch.

The “mansion tax” law went into effect on April 1.

So, for a house that sells for $5,000,000 there is now an additional tax due at closing in the amount of $200,000. For a $10,000,000 property, the tax would be a staggering $550,000!

For what it’s worth, houses are not cheap in LA, in Dec 2022 the median sales price was $810,000 and in March 2023 the median price was $978,000.

It caused a wild scramble in the month of March, with sellers of mega-million dollar homes desperate to close before April 1.

LA’s Rich and Famous In Wild Scramble to Sell Homes Ahead of Mansion Tax [NY Post – 3/31/2023]

Celebrities like Jim Carrey and Mark Wahlberg, not to mention a slew of lesser known multimillionaires, have all rushed to dump their homes in the last few months.

After 30 years in his 12,700 square-foot home in Brentwood, Carrey made the big decision to list it in February for $29 million. So far, there are no takers. Same with Jennifer Lopez, who put her Bel Air place up for sale in February.

James Corden is willing to slash and burn the price of his Brentwood Park house, recently cutting it from $22 million to $17.95 million. But that’s nothing compared to Mark Wahlberg. The “Ted” actor had put his 30,500 square-foot estate on the market months prior to the measure’s passage, at an eye-watering $87.5 million. But he ended up selling the Beverly Park property for $55 million — a 37% price drop — in February.

Multiple brokers told The Post they felt Wahlberg could have done better, if not for the looming deadline of that multimillion dollar tax bill he would have faced starting this April Fool’s Day.

Some sellers were throwing in exotic cars as enticement to close by March 31, because a Lamborghini is still cheaper than the mansion tax.

The “mansion tax” has led to quite a few “Hail Mary” marketing approaches, said Tatiana Derovanessian, a luxury agent with Keller Williams in Beverly Hills.

Take the developers selling a five-bedroom, eight-bath Mulholland Drive mansion in the coveted 90210 zip. For $16.5 million, you can get the “the luxury home and the luxury vehicle of your choice, within the fleet that we have through O’Gara Coach Co., a Beverly Hills luxury car dealer.” The deal includes vehicles priced up to roughly $400,000, including an Aston Martin Vantage, Aston Martin DBX 707, McLaren GT or Bentley Bentayga EWB.

The “mansion tax” on that $16.5 million dollar property if not sold by April 1 would be over $900,000.

By the way, this tax isn’t just on mansions, it is on any real estate, including apartments and office buildings. $5 million is not a lot for an office building or multi-family housing.

Here's the Challenge for Los Angeles Buildings That Didn't Sell Before Mansion Tax Deadline [CoStar – 4/10/2023]

More than 200 properties were recorded as selling between March 26 and March 31 with a combined sales price of $1.3 billion, according to CoStar data. The sales volume was more than five times the $231 million the prior week. And the deals that week were roughly one-tenth of all the commercial sales in the city of L.A. in 2022, which totaled $11.8 billion.

But not every Los Angeles property on the market traded hands last month, and real estate analysts say the new transfer tax is a new obstacle to completing commercial real estate sales this year. Some high-profile properties in the city of Los Angeles that didn't sell include downtown's third-tallest tower, the 62-story Aon Center, along with the roughly 1.2 million-square-foot 601 S. Figueroa St. and the historic 464,000-square-foot PacMutual buildings at 523 W. 6th St., to name a few.

When the left embraced Covid as a religion and work-from-home as a sacrament, office vacancies exploded, especially in blue cities. This tax is yet another gut-punch for commercial real estate.

Under the new tax, "we will continue to see sales decrease, and more businesses and investors will set their sights outside of the city of Los Angeles for future business," said Phillip Sample, senior vice president at brokerage CBRE.

Early in my career, I was relocated for a short while to Los Angeles, and although I was a fish out of water there, it’s a fascinating place that I am glad to have experienced before the Chavistas took control of the California Democrat Party and decided to inflict a nasty combination of both tyranny and anarchy on its cities.

One of the guilty pleasures my wife and I enjoy is watching “Million Dollar Listing Los Angeles.” It’s not terribly political, other than some cliched selling points about “green” amenities in the mega-mansions that are being sold, which is always good for an ironic chuckle.

I decided to check on how the celebrity real estate agents on that show are responding. Josh Altman has been very vocal.

‘Million Dollar Listing’ Star Warns CA Mansion Tax Will Deliver ‘Hardest Hit’ to Market Since 2007 [Fox Business – 3/20/2023]

"The way that this ULA measure was passed is just mind-boggling to me," Altman added, "and I think it's one of the most ridiculous bills that I have ever seen in my entire 20-year career."

"Think about these people that bought houses three years ago for $5 million and they want to sell now," Altman hypothesized. "The market's down, rates are up, that happens. But now they got to cut a check for $200,000 out of their own pocket because there's no profit on that. So it's really going to rock the real estate market that we're in here in Los Angeles."

Altman also discussed the mad rush to close deals before the end of March. He had a $28 million dollar listing that would have a mansion tax of over $1.5 million if it didn’t sell until after March 31.

"I'm seeing deals get done that should never have gotten done," the L.A. agent said. "I've even done as much as, on a $28 million listing that I have, we have offered a $1,000,000 bonus for anybody who buys and closes before April 1."

"People who voted who said, ‘Oh, I don't have a $5 million house,’ which by the way, is not a mansion in L.A., we're talking about a four-bedroom, 4,000 square-foot house in L.A. is $5 million, so this isn't a mansion tax," Altman said. "This isn't a $30, $40, $50 million house tax – these are regular people that work bill to bill, that have to pay their mortgage just like everybody else, and now they're being penalized here."

Civilizational decline is a choice, and most of California seems to be voting strongly in favor of it.

[buck.throckmorton at protonmail dot com]

posted by Buck Throckmorton at 11:00 AM

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