After more than 30 years of managing, leasing, buying and selling commercial properties in Downtown Los Angeles, I’ve learned that some of the most important factors affecting a building’s value aren’t always obvious from the rent roll or offering memorandum.
Right now, two issues deserve particular attention: mandatory seismic retrofit requirements and Measure ULA.
Seismic Retrofit: It’s More Than a Construction Cost
Los Angeles established its mandatory retrofit program for certain older non-ductile concrete buildings because of the serious life-safety risks these structures can present during a major earthquake.
The program generally covers concrete buildings designed under older building codes, before the significant code changes that took effect in the 1970s.
For an affected property, the compliance clock is tied to the date the City served its Order to Comply:
- Within 3 years, the owner must complete the required initial evaluation/checklist process.
- Within 10 years, the owner must submit proof of an acceptable prior retrofit, an analysis showing compliance, plans for a retrofit, or plans for demolition.
- Within 25 years, the required retrofit or demolition must be completed.
Importantly, selling the building does not restart that clock. The compliance dates remain with the property.
From a brokerage perspective, that’s important. From a management perspective, however, there is another side to the story that doesn’t get discussed enough.
I manage Downtown buildings that have received these notices, and we have met with engineers and contractors about what compliance could actually involve. On some properties, we’re potentially talking about millions of dollars of work.
But construction cost is only part of it.
How do you reinforce columns and walls while tenants are operating businesses around them? Can tenants remain in place? If they have to leave, what happens to their leases? How long will portions of the building be unavailable? Will those tenants return? And how does an owner finance the construction while potentially losing rental income?
These are real questions that owners of older Downtown buildings are facing.
At the same time, a building that has already completed the necessary structural work presents a very different situation. A buyer may be looking at substantially less uncertainty and future capital exposure.
Neither situation automatically makes a property a good or bad investment. But it absolutely belongs in the valuation and underwriting.
Measure ULA: A Transaction Cost That Changes the Math
The second issue is Measure ULA.
Approved by Los Angeles voters, Measure ULA created an additional real estate transfer tax intended to fund affordable housing and programs for tenants at risk of homelessness.
For transactions closing after June 30, 2026, the current thresholds are:
- Over $5.4 million and under $10.9 million: 4% ULA tax
- $10.9 million and above: 5.5% ULA tax
Those rates are in addition to the City’s regular real property transfer tax.
Put that into actual dollars: a $6 million transaction would generate $240,000 in Measure ULA tax alone, before considering the regular City transfer tax and other transaction costs.
That is a material number.
Again, I’m not making an argument for or against the policy. I’m looking at it from the standpoint of someone who works with these properties every day. Owners, sellers and buyers need to understand the economics before they make decisions.
The Numbers Behind the Numbers
Downtown Los Angeles has an incredible inventory of older commercial buildings. That’s part of what makes the market unique.
But when evaluating those properties today, looking only at price per square foot, rents, cap rate, location and tenancy isn’t enough.
You also have to ask:
- What structural obligations come with the building?
- Where is it on the City’s compliance timeline?
- What could the retrofit actually cost—not only in construction, but in tenant disruption and lost income?
- Has the work already been completed?
- And what will Measure ULA and other transaction costs mean when the property is eventually sold?
After three decades working with Downtown Los Angeles properties, I’ve found that local knowledge often comes down to understanding issues like these—the things that don’t necessarily appear on the first page of an offering memorandum.
I’ll be writing more about these issues and sharing what we’re seeing firsthand in the Downtown market.
K2 Investments | Downtown Los Angeles Commercial Real Estate
This post is intended for general informational purposes and is not legal, tax, engineering or financial advice. Property owners and investors should consult the appropriate professionals regarding a specific property or transaction.