Reform of historic ownership rules could impact real estate brokers

Bill Cooper, Matthew Berkley and the Clock Tower for Eastern Columbia Lofts (Bill Cooper, Matthew Berkley, Andrew Asch from The Real Deal)

Proposed changes to tax breaks for historic homes could impact residential brokers in Los Angeles.

The Los Angeles City Planning Department recently released a study that proposes changes to the implementation of the Mills Act in the city. Recommended changes include the non-automatic renewal of Mills Act contracts, which offer property owners property tax reductions in exchange for investing property tax savings in rehabilitating a historic building. A first public comment period is scheduled to end on September 1.

Cities throughout California run Mills Act contract programs independently. Los Angeles administers approximately 948 Mills Act contracts.

Ken Bernstein, a senior city planner for the City of Los Angeles, said the city’s share of lost property tax from Mills Act contracts is currently $2.1 million a year. The planning office is considering changes in part because the LA City Council imposed a $2.1 million limit on lost revenue from the Mills Act program. Also, after working with the law since 1996, the planning department wanted to see if it could administer Mills Act contracts more efficiently and fairly, Bernstein said.

A change in the way the Mills Act is administered in Los Angeles could change the way Douglas Elliman’s Bill Cooper does business.

While showing condos in downtown Los Angeles, Cooper tells potential buyers about the tax breaks they can get through California’s Mills Act, which was passed in 1972. In Los Angeles, every Mills Act contract is administered for homes or condos located in a cultural historic landmark or in neighborhoods designated as a Historic Preservation Overlay Area, such as University Park in the West Adams neighborhood of Los Angeles.

It’s possible for new homeowners to save up to 50-70% on their property taxes if they secure a deal for a unit in a historic downtown building, like the 92-year-old Eastern Columbia Lofts which stands out for its clock tower and unique turquoise tiles, Cooper said. The property is listed as a Los Angeles Historic-Cultural Landmark.

“It will make it much more difficult to sell historic buildings,” Cooper said. “You are always competing with new buildings. Ultimately, you’re looking at a lot more monthly expenses without the Mills Act. »

Cooper argues that the Mills Act was the sweetener that convinced many people to move to downtown Los Angeles over the past decade.

“If you want to see downtown stumble and fall, take away the Mills Act,” he said.

Cooper has focused on downtown condos for the past 20 years. But the reform could also affect how agents sell single-family homes when working with Mills Act contracts.

Matthew Berkley of DPP brokerage, headquartered in Pasadena, focuses on single-family homes with historical and architectural significance. Berkley said most of his clients are wealthy enough to afford a home that costs $10 million. A Mills Act contract may not mean as much to preservation-minded Berkley clients as a first-time condo buyer.

In his 22 years of selling real estate, he can’t remember a single instance of a Mills Act contract being revoked. However, he thinks the market could change if the Mills Act contracts are changed. For example, Mills Act guidelines discourage speculators looking to flip an architecturally unique home.

“The houses would be in danger. Properties would be at greater risk of destruction,” Berkley said.

Bernstein of the City of Los Angeles said his department was evaluating the report’s recommendations and considering what changes he would suggest to the city council.

“There are tradeoffs,” Bernstein said. “But the city is strongly committed to expanding the program.”

Compromises include phasing out contracts that have lasted more than a decade. Bernstein said landlords whose contracts are being phased out will have a soft landing where they will work with a property tax assessment based on their Mills Act contract for a nine-year period before their taxes return to market rates.