CRE Keeps Wary Eye On California Election's Big-Ticket Items

California commercial real estate is keeping tabs on a number of items the state's voters will decide come November, ranging from changing local transfer tax hikes to the groundbreaking $10B-plus "split roll" initiative.

Here are state and local ballot measures California CRE is watching most closely, starting with one that's given CRE the jitters for decades. 

Proposition 15: Increases funding for public schools, community colleges and local government services by changing the tax assessment of commercial and industrial property. 

Also known as the split roll initiative, Prop. 15 would have commercial and industrial properties valued at over $3M reassessed to current market value, generating at least $10.3B in tax revenue, according to a University of Southern California study. 

To do so, the measure, which is supported by the Schools and Communities First campaign, would repeal part of Prop. 13, which has capped reassessment increases at 2% per year since voters passed it in 1978. 

People on both sides of the issue have already come out in full force. California Business Properties Association President and CEO Rex Hime, one of four No on Prop 15 campaign executive committee members, said he hasn't seen anything quite like it.

“I’ve been running CBPA since 1984, and I can tell you this is the most organized and committed I have seen this industry," he said. “It’s our No. 1 target. We’re making sure that this thing gets defeated, and we believe it will be defeated.”

Opponents like Hime and the CBPA say the effects of Prop. 15 would go well beyond the CRE industry, impacting tenants and consumers. 

“That tax increase is going to be almost entirely paid by the tenants leasing spaces in a building," said Liz Wilgenburg, an LA-based partner at Allen Matkins.

Advocates say reassessments for many properties across the state are long overdue and that funding shortfalls for public schools make the need even direr. 

"California has been falling behind on how we fund schools and local governments for a long time," Schools and Communities First Communications Director Alex Stack said. 

If it passes, reassessments would be phased in starting in the 2022-2023 fiscal year. 

Proposition 19: Changes certain property tax rules through a legislative constitutional amendment. 

Prop. 19 would give eligible homeowners the ability to transfer their tax assessments elsewhere in the state and allow assessment transfers to a more expensive home to have an upward adjustment, among other changes to property tax rules. 

As it stands now, homeowners over 55, people with severe disabilities, or victims of natural disasters and hazardous waste contamination can transfer their taxes within counties and to homes of equal or lesser value.

The proposition is supported by the California Realtors Association and opposed by the Howard Jarvis Taxpayers Association. Hime said the CBPA has not taken a position on the measure.

Proposition 20: Restricts parole for nonviolent offenders and authorizes felony sentences for certain offenses currently treated as misdemeanors.

In a partial reversal of measures last decade that were designed to reduce California's inmate population, Prop. 20 would add to the list of crimes prosecutors can charge as a felony as well as the list of violent felonies that are not open to early parole.  

The CBPA hasn't taken a position on Prop. 20, but Hime said some of its members strongly support the association addressing the measure as a potential deterrent to shoplifting in California, which has risen, according to some reports. The measure would establish serial crime and organized retail crime as new types in state code and make them both chargeable as either a misdemeanor or a felony.

Prop. 20 is supported by the Association for Los Angeles Deputy Sheriffs and other law enforcement groups and is opposed by the ACLU of Northern California, among other groups. 

Proposition 21: Expands local government authority to enact rent control on residential property.

Prop. 21 resurfaces a perennial California CRE issue: rent control. It would allow cities to apply rent control laws to units that are at least 15 years old, something cities currently can't do under 1995's Costa-Hawkins Rental Housing Act.

The measure follows the 2018 defeat of Prop. 10, but, unlike Prop. 10, it excludes newer units. It also excludes units owned by landlords who own no more than two single-family properties. Prop. 21 would allow rent increases of up to 15% over three years at the start of new tenancy for buildings over 15 years old. 

The measure is backed by Housing Is A Human Right, the housing advocacy division of AIDS Healthcare Foundation. In late May, Housing Is A Human Right campaign director René Christian Moya said the coronavirus pandemic makes the measure necessary now more than ever.

"The longer the economic damage caused by the pandemic lasts, we are going to have an even greater need for tenant protections," he said.

Rent control measures tend to have the enduring opposition of CRE. Hime said the CBPA is against it, as are some of the state's biggest multifamily owners, like AvalonBay Communities and Essex Property Trust, according to campaign finance filings. 

San Francisco

Proposition I

Prop. I would double the city's real estate transfer tax on deals of $10M or more, making those types of deals in S.F. the most heavily taxed in the nation. Rates for property transactions between $10M and $24.99M would rise from 2.75% to 5.5%, while deals at $25M or greater would see rates go from 3% to 6%. 

Prop. I is sponsored by San Francisco District 5 Supervisor Dean Preston and supported by four other supervisors who expect it to address San Francisco's pandemic-induced $1.7B projected budget deficit. CRE organizations like the Building Owners and Managers Association of San Francisco have come out against it, calling the hike and newly proposed rates too large and unfair. 

Proposition F

Supported by every San Francisco supervisor and Mayor London Breed, Prop. F would make sweeping changes to the city's business tax structure, including breaks for small businesses, increases to gross receipts business tax rates across the board and repealing the city's payroll tax.

The city controller estimates Prop. F would result in additional annual revenue of about $97M per year. It would also impose temporary rate reductions from 2021 to 2023 for coronavirus-impacted industries like hospitality, restaurants and retail. BOMA San Francisco is advising members to vote no on both Prop. I and Prop. F. 

Alameda

Measure Z

Measure Z gives Alameda voters the chance to overturn the city's long-standing ban on multifamily housing development. In 1973, voters passed Measure A, which declared that "there shall be no multiple dwelling units built in the city of Alameda" and set maximum density for residential development at one unit per 2K SF of land. 

San Leandro

Measure VV

San Leandro voters will be asked whether the city should nearly double its property transfer tax rate. Measure VV would raise real property taxes from $6 per $1,000 of the purchase price to $11 per $1,000.

The hike would fund street improvements, support families, businesses and seniors impacted by the pandemic, and go toward general city services, among other targets. It has the support of San Leandro Mayor Pauline Russo Cutter.

Sacramento

Measure C

Sacramento's Community Stabilization and Fair Rent Charter Amendment would bar landlords in the city from increasing rents more than 5% annually. Now known as Measure C, the initiative was proposed by tenant advocates in 2018, prompting the city council to pass its own less restrictive rent control law.

One proponent of the original measure did not authorize the city to remove it from this year's ballot, leading to a lawsuit from the city, and now the matter is being decided by the 3rd District Court of Appeal, the Sacramento Bee reports. 

San Diego

Measure A

Measure A would secure up to $900M in bonds for affordable housing through an increase in property taxes. A city analysis found that if it passes, the measure would create an estimated additional $3.14 per $100K of a property's assessed valuation in taxes in the fiscal year 2022 and rise to a maximum total of $20.85 per $100K of assessed property value by 2028.

Measure E

San Diego voters will decide whether to remove a 30-foot height limit applied to the city's Midway District, where two developers have competing mixed-use plans that are both taller than that. Both Brookfield Properties and a group including Toll Brothers are vying for city approval to build over 1,000 units of housing.   

Santa Monica

Measure SM

One of two Santa Monica ballot measures deals with transfer taxes in much the same way San Francisco does. Measure SM would double the tax paid on property sales of $5M or more, raising it to $6 per $1,000 of sale price as a way to generate $3M to counteract the pandemic's impact on the city's budget.

The measure would exempt affordable housing projects and go to essential services like cleaning, small business recovery and homelessness. 

Culver City

Measure B

Measure B would require voter approval of any interim or permanent rent control measure in Culver City. It comes as an interim rent control ordinance put in place by city council is in effect until Oct. 31, and it is a result of signatures gathered by Protect Culver City, a group of businesses and landlords that pushed for the issue to be decided by voters, the Culver City Observer reports. 

Measure RE

Culver City voters will also vote on relatively steep real estate transfer tax hikes in a measure to fund city services. A 0.45% tax on property sales will get a 1.5% addition on amounts of $1.5M to $2.99M, 3% addition on amounts from $3M to $9.99M and a 4% addition on amounts of $10M and above.

Sales under $1.5M of affordable housing and the first transfer or new multifamily properties are exempt from the measure, which is expected to raise about $6M annually. 

Burbank

Measure RC

Burbank's lone ballot measure would add an ordinance with just-cause eviction provisions and relocation fees as well as rent control and a new five-member Landlord-Tenant Commission. Allowable rent increases under Measure RC would be tied to inflation and never exceed 7%, with the ordinance applied to units built before Feb. 1, 1995. 

Orange

Measure AA

The city of Orange's Measure AA would allow the city to amend its general plan to allow developer Milan Capital Management's 128-home development on Santiago Canyon Road to move forward. The development received an OK from the city in October but is staunchly opposed by a group of residents that qualified the project for a vote, the Orange County Register reports.