I’d like to wish everyone a Happy New Year! I don’t want to seem trite but, search 2011 should be a much better year that 2010.
I remember back in 1993 and 1994 when the mantra in the Real Estate Business was to stay alive until 1995. I’ve been searching for another mantra or rhyme for this cycle. The best I’ve heard so far is: “It will be heaven in 11”. When I first heard that in 2008 I was thinking that it was optimistic, cialis one that it will be heaven and two that it would occur by 2011. I believe that 2008 will go down as the year of the crisis, buy viagra 2009 was the year of the panic and 2010 was the year of fear.
Being realistic, I do not believe that it will be heave in 11. However, it will be significantly better than the last several years. A recent survey of apartment managers across the country finds that most of the property mangers are more optimistic now, than they were last year. ¾ of the managers have said that the rents either remained the same or increased since last year. On the Westside and Santa Monica in particular, we have seen rents increase and vacancy rates drop.
I recently called a client who I sold a building on 4th Street in Santa Monica to three years ago. He stated that of all his properties across the Los Angeles area, his one building that he bought from me had the virtually no down turn in rents and remained full throughout the last several years. He remarked that this was his best apartment in his portfolio. Similarly, I talked to a long time real estate syndicator and investor who decided 25 years ago to start diversifying away from Santa Monica and the Westside and started buying triple net lease properties in other parts of the country. He’s done well with those because of the cash flow from those properties. However, he says in hind site looking back on his portfolio that the properties that he had owned in Santa Monica have far our performed the other real estate assets because of the appreciation and security that these have received as well as the income stream in Santa Monica.
I can say in my own portfolio, my assets in Santa Monica have far out performed those in Venice or other parts of the state. In Los Angeles, the current Rent Stabilization Ordinance has a rent increase floor of 3%. The Tenant Organizations are attempting to eliminate the floor, in order to minimize rent increases for rent controlled tenants in Los Angeles. To date, California Apartment Association and the Industry Coalition have been able to preserve and protect the 3% floor. It is important, while it may not affect us directly in Santa Monica immediately, if the floor is removed it could cause the rent control board to reevaluate their rent increase methodology. We always know that the Santa Monica Rent Control Board likes to keep up with anything that helps tenants in other parts of the state.
The Los Angeles Housing Department (LAHD) was audited by City Controller, Wendy Greuel. The audit revealed that the LAHD has accumulated over $11 Million dollars in Rent Stabilization Ordinance (RSO) inspection fees and scep fees over the last 5 years. The Systematic Code Enforcement Fund (SCEP) was created in 1998 in order to pay for the LAHD to inspect the nearly 780,000 rental units in the City of Los Angeles every 3 years, in order to ensure that they are in compliance with city codes. The RSO Fund was created in 1979 in order to administer the Rent Stabilization Ordinance in Los Angeles.
In addition to the $11 Million dollar surplus LAHD has failed to collect over $37 Million dollars in fees. This brings potential surplus to almost $50 Million dollars. California government codes states that the government may not charge fees that exceed reasonable expenses. Thus, LAHD should refund the money to owners. However, the reality is that won’t happen. We will use the audit to show that there is no need to increase SCEP and RSO fees. We will also continue to be active in protecting the annual rent increase floor of 3%.
In an amazing turn of events in Washington D.C., the Bush era tax incentives have been extended through 2012. Apparently, Obama and the Democrats felt the heat from the last election and realized that they were in danger of loosing more support in the next Presidential election in 2012. Therefore, they opted to extend the Bush era tax cuts for 2 more years. This means that capitol gains will remain at 15% and top tax rates will remain at 35%. In the State tax arena the unified exemption credit is now $5 million or $10 million for a married couple and the top tax rate is 35%. While we might have a 2 year window with some relief, I fully expect that if Obama gets reelected then all the tax incentives will disappear in 2013. We have to realize that the only reason Obama extended these tax incentives is it was a way to appeasing the middle of the road voters in order to bolster his chances for reelection in 2012.
I hope that you find Heaven in 11. And if you can come with a rhyme in 2012, I’m open for suggestions. Happy New Year!!
