Quote:
Originally Posted by Easy
Several large projects have broken ground since ULA passed, so saying to not expect any projects to proceed for a decade is definitely off. I wasn't a fan of ULA but in the end it's a pass-through cost as most costs are. People are more likely waiting due to the uncertainty. Why pay a tax now that you may not need to pay in a few months? Once that's resolved it will be the cost of doing business just like it already is in NYC, Philadelphia and SF.
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I'm not aware of a single private large scale project breaking ground since then in the City of LA that didn't have their capital raised before the tax was implemented. It is NOT a pass-through. If a developer plans for 20% profit and this tax takes away 5.5% of total sales price, that's a 27.5% additional tax (5.5%/27.5%). That's on top of the previously existing transfer tax and income taxes. You can't pass that on - you just have to wait a very long time until rents increase 27.5% (relative to costs, which are also increasing). You can't just increase rents 27.5% to make up for it, the market dictates what rents are. If you just increase rents unilaterally, you won't lease up.
Take this from someone underwriting and directing development at a very large developer you've heard of, this is a major barrier to new development. I will outright have to cancel several large projects if the tax isn't overturned.
By the way, New York's mansion tax is truly for "mansions" and does not hit commercial buildings. Philadelphia's is high (top rate of 4.27%), but not nearly as high as LA's now - a top rate of 6.06%. And not a whole lot of development has happened in San Francisco since the transfer tax increase occurred in 2020.
If you care about new development, you should be extremely anti ULA. Unlike interest rates (which are a big barrier to development right now), this doesn't fluctuate, so if it isn't overturned it becomes a permanent barrier.
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