Cash For Keys? Tenant Buyouts?

LA Controller Office Releases Tenant Buyout Data

The City of LA’s strict Rent Stabilization Ordinance (RSO) imposes rent control on all multi-unit properties built before October 1, 1978. This RSO code also includes many tenant eviction protections, making it quite difficult to relocate low-paying tenants and capture rental upside on new or existing RSO assets.

Given the RSO environment, tenant buyout or “Cash for Keys” arrangements have become increasingly popular, as they are one of the only legal ways to relocate a tenant in the City of LA. For the sake of transparency for both tenants and landlords, the LA City Controller Office has released a detailed data set for Tenant Buyouts from 2019-2023, breaking down # of buyouts by zip code and average buyout amounts.

Here’s a look at some of the most interesting data points:

• 4,869 Buyouts were filed between 2019-2023

• The average buyout amount was $24,704

• Number of buyouts over $100,000: 35 (Wow).

• Top 5 neighborhoods/zip codes for buyouts:

  1. Koreatown (90004) – 370 Buyouts

  2. Echo Park (90026) – 250 Buyouts

  3. Mid-Wilshire (90019) – 228 Buyouts

  4. Pico-Union (90006) – 198 Buyouts

  5. West Adams (90016) – 163 Buyouts

Taking a look at these Top 5 neighborhoods, the trend seems to be that the most buyouts are taking place in what we would consider B+ / A- neighborhoods. These are areas where there are many RSO buildings, very high transaction volume, and where the market rents are high enough to support paying out a low-paying tenant $25K to relocate.

If you have additional questions about tenant buyouts, feel free to reach out. You can view the full Cash for Keys data set here. 

Major CRE Announcement: New Tax Bill Includes 100% Bonus Depreciation

A new bipartisan tax bill proposed by Congress, the Tax Relief for American Families and Workers Act of 2024, includes the restoration of bonus depreciation back to 100% from what is now phased down to 60%. This would allow qualified investments, including commercial real estate acquisitions, to receive and apply 100% of the depreciation in its first year. 

The bill would retroactively allow taxpayers to claim 100% bonus depreciation for an investment property placed into service between Jan 1, 2023 and Dec 31, 2025. Property placed into service after Dec 31, 2025 and before Jan 1, 2027 would be allowed 20% bonus depreciation.

This is huge news for small-mid size American businesses, including commercial & rental property investors like ourselves. If you have not taken advantage of the tax benefits of claiming 100% bonus depreciation up until now, I would highly suggest exploring your options with CPA. While the strategy may not apply to each investors unique situation, the potential tax benefits of claiming 100% accelerated depreciation on new acquisitions are phenomenal. 

You can read more about the proposed Tax Relief Act here.

Weekly Market Activity – East Hollywood & Los Feliz

1/19/24, Last 7 Days, 4+ Units

New Listings:

1. 1572 Myra Ave [90027] – 4 Units for $2.55M, $1053/SF, $638K / Unit, 5.23% Cap, 15.13 GRM (2023)

   • Fully renovated 1920s Spanish duplex with two new ADUs. Each unit with large private, renovated yard. Two units vacant, extensive upgrades.

      

2. 4351 Normal Ave [90029] – 12 Units for $2.6M, $272/SF, $216K / Unit, 11.48 GRM (1918)

   • Up and coming Virgil Village location near Silverlake. Major work done to systems including foundation bolting and new paint. Ten of twelve apartments updated.

      

3. 1554 N Alexandria Ave [90027] – 12 Units for $4.5M, $426/SF, $375K / Unit, 5.05% Cap, 14.20 GRM (1955)

   • Two contiguous lots with 6-unit building, 12 units total. Mid Century buildings, 50% vacant. First time on market in 50+ years.