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Mansion Tax Generates Lower-Than-Expected Revenue for Los Angeles

Despite Slow Start, Latest Sales Expected To Increase Funds in Upcoming Financial Reports

Mansion Tax

A 37-unit multifamily property at 827 S. Manhattan Place in Koreatown sold in June for roughly $7.4 million — and triggered a mansion tax of $329,300. (CoStar)

By Jack Witthaus CoStar News

July 12, 2023 | 3:40 P.M.

A new tax on commercial and residential properties in Los Angeles has fallen far short of expectations in generating revenue in its first two months, a finding that could have implications for other parts of the country considering imposing a similar levy.

The city of Los Angeles has collected $15.5 million in revenue in April and May through the so-called mansion tax, a levy on nearly all residential and commercial properties selling or transferring above $5 million, said Sharon Sandow, a public information office for the Los Angeles Housing Department. That's behind the pace needed to reach the $600 million to $1.1 billion the tax was expected to generate annually.

The lackluster mansion tax figures follow a flagging year of commercial real estate sales in Los Angeles and across the U.S. Rising interest rates, economic uncertainty and lending fears have created a difficult environment for investors to land financing, which has resulted in fewer sales.

The tax monies raised are aimed at promoting housing construction and alleviating L.A.'s worsening homelessness problem. However, opponents say the tax would curtail investment in Los Angeles.

The city of Angeles has not released mansion tax revenue figures for June yet, but all signs point to higher collections. For example, a $97 million sale of a federally subsidized senior housing complex in downtown Los Angeles' Chinatown neighborhood in June triggered a nearly $5.8 million mansion tax levy, according to public records.

That transaction may be the largest commercial property sale in L.A. since the mansion tax passed.

L.A.'s passing of the mansion tax has emboldened other cities across the nation to look at crafting similar levies, including in the city of Chicago. The city is exploring a levy on sales of homes and commercial real estate of $1 million or more.

The mansion tax had implications on commercial and residential sales in L.A. before it took effect. A surge of buying and selling was observed ahead of of the mansion tax's April 1 deadline.

The drop is particularly evident in office sales. Roughly $82 million in office sales were recorded in Los Angeles in the second quarter, down nearly 90% from the $788 million of office properties that traded in the first quarter, according to research by Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles.


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