L.A. County Moves to Cap Rent Hikes at 3%, Landlords Pushback

The Los Angeles County Board of Supervisors has proposed limiting rent increases for rent-stabilized units in unincorporated parts of the county.

Jordan B. & Han-Gwon Lung
June 10, 2024

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Good morning. The Los Angeles County Board of Supervisors has proposed limiting rent increases for rent-stabilized units in unincorporated parts of the county. Plus, SL Green is preparing to deploy its $1B debt fund, expecting to exceed its target due to high investor demand.

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WORKPLACE

L.A. County Moves to Cap Rent Hikes at 3%, Landlords Pushback

A new proposal to cap rent increases at 3% for many renters in unincorporated parts of LA has sparked a heated debate between supervisors and landlords.

The vote: The L.A. County Board of Supervisors voted 3-2 to draft changes to rent stabilization rules. If passed, the new rules would prevent most landlords in unincorporated areas from raising rent by more than 3% annually. Small property owners could increase rent by up to 4%, while luxury unit owners would be capped at 5%. The proposal requires another vote before becoming law.

Behind the proposal: Supervisor Holly Mitchell, who spearheaded the motion, stressed the need to maintain affordable housing and prevent the corporatization of rental properties. High housing costs are forcing residents to move to more affordable areas, leading to extreme commutes for many workers. In LA County, some residents spend over 90% of their income on rent. The cap would apply to approximately 51,700 rent-controlled units built before 1995, primarily in East L.A., South L.A., and the San Gabriel Valley.

Temporary measures: The Board also extended a temporary 4% cap on rent hikes through December. If the new proposal passes, the permanent 3% cap would take effect in 2025. This change follows a series of temporary caps introduced during the pandemic to prevent homelessness.

The opposition: Supervisors Janice Hahn and Kathryn Barger opposed the proposal, citing concerns about overburdening small property owners. Landlords argue that rising insurance costs and strict rent limits could force them to sell. The California Apartment Association criticized the proposal as “draconian,” warning it could discourage investment and worsen the housing crisis.

➥ THE TAKEAWAY

Big picture: The debate over rent control in L.A. mirrors challenges in New York’s multifamily market, where rent stabilization laws have led to vacant units and financial strain for landlords. Just as L.A.’s proposed caps could hinder small landlords, New York’s stringent regulations have discouraged investment in rent-stabilized buildings, exacerbating the housing crisis.

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✍️ Editor’s Picks

Ready to spend: SL Green is preparing to deploy its $1B debt fund, expecting to exceed its target due to high investor demand. It has a pipeline of $300M+ in deals for 2024 and early 2025.
Leadership expansion: Caisson Capital Partners promoted David Friedland to partner and welcomed Hunter Philbrick as a strategic advisor following his investment in the company. (sponsored)
Liquidity coming back: Blackstone’s Nadeem Meghji says liquidity is gradually returning, potentially ending the cycle of low transactions and warped valuations.
Loan review: Moody’s places six banks under review for high commercial real estate loan concentrations, highlighting systemic weaknesses in the banking sector.
Nonprofits see opportunity: Amid a down market, nonprofits are capitalizing on discounted commercial properties, purchasing offices and warehouses to create lasting legacies.
Risk management: Following regulatory probes by Freddie Mac and Fannie Mae earlier this year, Meridian Capital Group hired Melissa Martinez from CoreLogic as its first chief risk officer.
Major refi: JDL and Wanxiang secured a $415 million refinancing from Wells Fargo for One Chicago Towers, one of Chicago’s largest real estate loans since the pandemic.

🏘️ MULTIFAMILY

Feeling the pressure: Newmark’s Q1 2024 report highlights rising inventories and costs, negative rent growth, and $669 billion in loans maturing in a vastly different market environment.
Student Housing: The California Supreme Court has approved UC Berkeley’s plan to build 1,100 student housing units on the historic People’s Park site, ending a lengthy legal battle.
Upper East Side: Douglaston Development, led by Jeffrey Levine, acquired a 90-unit rental building at 1450 Third Avenue for $114.5M and secured $270M in financing for a mixed-use project.

🏭 Industrial

Deal flow: With stable interest rates, investors are spending again, leading to a significant rebound in industrial loans despite rates being at a two-decade high of 5.3%.
Lewisville project: Transwestern plans a $41 million industrial development, Valley Parkway Business Park, with two warehouses totaling over 800,000 square feet in Lewisville, North Texas.
More space: Sunshine Gasoline Distributors expands its portfolio by acquiring a 50,000-square-foot warehouse in Hialeah for $18.2 million, equating to about $364 per square foot,

🏬 RETAIL

SoFlo: South Florida’s retail rents are rising nearly 5% this year due to limited space, strong tourism, and high consumer spending.
Retail expansion: Walmart plans to build 150 U.S. stores in the next five years, with at least four in Texas, including three in Dallas-Fort Worth.
Santa Monica sale: Federal Realty Investment Trust sells eight buildings on Santa Monica’s Third Street Promenade for $103M, totaling 185,000 square feet at $556 per square foot.

🏢 OFFICE

Up for lease: Co-owner Paramount Group lists 14 floors of One Market Plaza for lease despite Google’s contract until April 2025, offering nearly 320,000 square feet.
Loan outlook: Fitch Ratings predicts further weakening of commercial real estate office loan performance due to increasing market pressures, per the June 2024 U.S. CMBS Office Dashboard.

📈 CHART OF THE DAY

NAIOP’s report predicts negative office space absorption through 2025, with a gradual slowdown by late 2024, as Q1 2024 saw a worse-than-expected negative absorption of 13.4 million square feet nationally.