LA Multifamily Minute No. 105: Emergency Rent Freeze & Vacancy Control (AB-246)
This week we have some extremely important information to share regarding AB-246, a pending piece of Statewide legislation that would create serious waves for landlords within LA County.
In the wake of the utterly devastating fires experienced across our community over the past few weeks, both the State and City are considering sweeping, knee-jerk policy pieces that have the potential to be severely detrimental to our already stressed & damaged housing market.
Our local apartment market has many dynamics at play as we head into 2025:
Potential forced rent growth from destruction of supply (fires).
Insurance difficulties & costs further exacerbated (fires).
Rate cuts on the horizon for 2025?
Do long term owners finally decide to sell as a result of the fires? Supply increases, but it also provides the chance to finally free up deal flow.
Despite the despair, we're hearing lots of people betting on a complete political shift in LA towards logical, moderate governance post fire catastrophe.
General economic optimism around Trump presidency.
Fears of looming stock market crash with everything “overvalued” on a P/E basis. Typically, this is good for real estate.
And now, here's this week's update for the LA apartment market.
AB-246: Proposal for 12-Month Rent Freeze & Vacancy Control
This week, Governor Gavin Newsom proposed Assembly Bill 246 (AB-246), which is set for a vote in the Assembly on Feb 15, 2025.
This bill proposes a temporary and more restrictive version of the recently failed Proposition 33, specifically for Los Angeles County in the wake of LA fires.
If AB-246 passes, it will impose a 12-month period of frozen rents and vacancy control on rental properties throughout all of LA County that were rented or offered for rent within the past year.
Rents will freeze at the level charged on January 7, 2025.
New rental rates will be locked in at the rent paid by previous tenant (for properties occupied within the last year).
Prevents rent increases for vacant units tied to long-term rent controlled levels.
Other Key Highlights:
Vacancy Control & Rent Freeze: Applies to all LA County landlords, overriding AB-1482 and other existing rent control laws.
DA Enforcement: The District Attorney for the State of California will enforce price gouging and improper rent increases, with potential civil penalties of up to $10,000.
12-Month Term: The rent & vacancy controls will last for 12 months following the end of the declared state of emergency. Keyword here is "end". The term of this bill has the potential to last longer than the 12 months outlined.
Immediate Effect: If passed, this bill will take effect immediately via an "urgency statute".
It's important to note that this bill has not yet been voted into law, but we believe that there is a very strong chance of it passing. While we of course sympathize deeply with those displaced by the fires, we do not believe that vacancy controls are a logical solution to our problem, as they disincentivize owners to lease up their units, further exacerbating the housing shortage.
If you’ve already issued notices for February 1st rent increases, we suggest that you consult with your attorney to ensure compliance. Because this bill is set to be decided after the date of any Feb 1st increases, there is no clear answer to whether or not you may be liable to legal penalties.
For landlords, especially those with turnover of low-paying tenants in 2025, this could be a brutal outcome. Rising costs from inflation, wildfire-related insurance spikes, and increased expenses for utilities & labor make it harder to absorb these restrictions. With revenues effectively frozen, it’s essential to plan carefully and consider how to sustain operations & manage your portfolio during this challenging period.
So, what can you do to help? Call your local assembly member who will be casting their vote on the matter on Feb 15th.
Assembly Member: Isaac G Bryan (Introduced AB-246)
District: 55
Pico/Robertson, Mid Wilshire, Mid City, Culver City, Mar Vista, Palms, West Adams
(310) 641-5410
Assembly Member: Rick Zbur
District: 51
Counties: Los Angeles
Santa Monica, Beverly Hills, West Hollywood, West LA
(323) 436-5184
Assembly Member: Jessica Caloza
District: 52
Los Feliz, Glendale, Eagle Rock, Highland Park, East LA
(213) 483-5252
Assembly Member: Jesse Gabriel
District: 46
Encino, Tarzana, Woodland Hills, Reseda, Canoga Park
(818) 380-2460
Assembly Member: John Harabedian
District: 41
Alta Dena, Pasadena
(626) 351-1917 or (909) 624-7876
Assembly Member: Jacqui Irwin
District: 42
Pacific Palisades, Brentwood, Malibu, Simi Valley, Thousand Oaks
(805) 370-0542 or (424) 238-2421
Assembly Member: Mark Gonzales
District: 54
Central LA, Downtown LA, Boyle Heights, East LA
(213) 620-4646
Assembly Member: Nick Schultz
District: 44
Burbank, North Hollywood
(818) 558-3043
Assembly Member: Celeste Rodriguez
District: 43
Van Nuys, Panorama City, Sun Valley, San Fernando
(818) 504-3911
Assembly Member: Sade Elhawary
District: 57
South LA
(213) 744-2111
You can read the full text of the proposed bill here.
Capital Markets Update (by Greg Kavoklis)
The benchmark 10-Year Treasury yield has remained steady on a quiet data week, sitting at 4.63% this morning. On the inflation front, it was all good news last week, as CPI inflation data was cooler than expected across all measures.
It seems as if the battle with inflation has been contained enough for the Fed to put a larger focus on the labor market. A 90-Day Federal hiring freeze was put into effect, which will make the results of the next jobs print very interesting. A large portion of the recent jobs reports have consisted of government hiring. A miss on the next expected headline figure could send bond yields down and would suggest a weaker labor market than what mainstream media outlets are reporting.
All eyes on the Fed for its upcoming meeting on January 28th next week. No rate cut is expected at the upcoming meeting next week, but there is a 28% chance of a rate cut in March. That will round out the Fed's last meeting for Q1.
There's a slim chance we see a cut this quarter, but if inflation concerns remain elevated and we see deterioration inthe labor markets, expect a Fed rate cut to be in play.
--
Gregory Kavoklis
(818) 206-5835
Lyon Stahl Agent Spotlight Interview
I was interviewed this week in a Lyon Stahl Agent Spotlight video, where I had the chance to discuss some successes & lessons learned from 2024.
Feel free to give it a watch below! (You can also view it on Instagram here).
Weekly Market Activity – Beverly Hills & Pico Robertson
1/24/24, Last 7 Days, 4+ Units
New Listings:
1. 344 S Doheny Dr [90211] - 4 Units for $2.79MM, $698K/unit, $393/SF, 17.00 GRM, 4.90% Cap Rate (1965)
4-Plex located in prime Beverly Hills, 1/2 block north of Olympic. Mix of 3+2 and 2+2 units. Upstairs 3-bed unit delivered vacant. 10-car parking & community laundry. Central A/C.
2. 308 S Reeves Dr [90212] - 8 Units for $3.89MM, $486K/unit, $694/SF, 14.54 GRM, 4.53% Cap Rate (1939)
8 Units Prime Beverly Hills, north of Olympic. $400K+ in recent upgrades. Studios and 1+1s. 5 of 8 units renovated. 6 parking.
3. 847 S Sherbourne Dr [90035] - 13 Units for $7.75MM, $595K/unit, $664/SF, 5.10% Cap Rate, 13.60 GRM (1957)
13 fully renovated units, Beverly Hills adjacent. In-unit laundry and gated parking. 12 of 13 units vacant.
If you are considering offloading an apartment building or exploring a 1031 exchange in 2025, reach out and we'd be happy to see how we can help. You can also request a complimentary property valuation here.
Just upload a rent roll and we'll handle the rest.
Until next time.. And as always, thank you for reading.
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