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\n Bisnow\/Samantha D\u2019Angelo\n <\/p>\n
\n CIM Group\u2019s Alex Kolodziejczyk, Assemblage Works\u2019 Conor Wood, Stack Modular\u2019s Konstantin Daskalov, SL Equity\u2019s Samuel Landman, Arc Capital Partners\u2019 Gina Pfingston, Lam + Tea Engineering\u2019s Jerry Lam, Marx|Okubo\u2019s Jason Morris and RMG Housing\u2019s Mo Zahrawi.\n <\/p>\n
The ever-shifting rules have complicated some multifamily owners\u2019\u00a0plans, even midexecution.\u00a0<\/p>\n
Over the last 10 years, Champion Real Estate<\/a> purchased a lot of Class-C properties with the intention of upgrading them to high Class-B rentals, Champion Real Estate CEO Parker Champion<\/a> told attendees at Bisnow\u2019s Multifamily Annual Conference.\u00a0<\/p>\n \u201cThat’s been very difficult given the restrictions that cities have put on us with rent control,\u201d Champion said.\u00a0<\/p>\n Rent control has dogged multifamily landlords with new tenacity since the pandemic. Some property owners hoped that the efforts of landlords in New York<\/a> would bring the matter to the Supreme Court<\/a>, but others weren\u2019t waiting for relief and were instead getting creative.\u00a0<\/p>\n Champion said the challenges posed by rent regulations were partly why his company has pivoted to student housing.\u00a0<\/p>\n \u201cWe can count on those students moving out every year,\u201d offering the opportunity to raise rents, Champion told the room at the Hilton Los Angeles\/Universal City on Nov. 12 and 13.<\/p>\n Predictability is coveted but elusive, multifamily owners said, pointing to rising costs for everything from insurance to utilities and the difficulty in anticipating just how much those line items would increase. Measure ULA<\/a>, the real estate transfer tax on almost all transactions above $5M, was another source of headaches for multifamily owners.<\/p>\n<\/p>\n \u201cWe used to buy existing multifamily buildings and get them to pencil by just marking rents to market,\u201d LWK Partners partner Austin Nissly said. \u201cThat business plan really does not work anymore, because of higher costs, inflation.\u201d\u00a0<\/p>\n Now, to get deals to make financial sense, Nissly said his company has to take a different tack. \u00a0<\/p>\n \u201cWe need to be able to increase the density by at least 40% to make a deal pencil in this market,\u201d Nissly said.\u00a0<\/p>\n With all the restrictions and hurdles apartment owners said they faced trying to replicate business plans that used to work but don\u2019t anymore, many are looking for a path of least resistance, especially if that path can help them avoid Measure ULA.\u00a0<\/p>\n Some owners are looking to work within the parameters of LA real estate and the challenges posed by increasing regulations around rent-stabilized units. One option is the property tax welfare exemption, which exempts properties that provide affordable housing from paying property taxes.\u00a0<\/p>\n By partnering with a reputable nonprofit partner, apartment buyers agree to preserve or create new affordability in the income-restricted sense. By having that nonprofit partner, the buyer avoids paying the Measure ULA transfer tax and has an ace up its sleeve to present to the seller.\u00a0<\/p>\n It\u2019s a strategy Langdon Park Capital<\/a> has used to buy apartments in and out of Los Angeles proper, including an August transaction in Azusa<\/a> for an 84-unit apartment complex.\u00a0<\/p>\n