Real Estate Investors & the AEC Industry: How Did the 2020 California Election Affect You?
The November 3rd election is done and over with, and while the results of the Presidential is still ongoing, there is still a lot of information to gleam from the results here in California. The election had many different local and statewide propositions and ballot measures, so I thought it would be best to give you a rundown of the various measures and how they impact you.
This article is mainly written for:
- Companies contemplating a construction or real estate project or acquisition
- Real estate and private equity investors (LPs and GPs)
- Building operators
- The architecture, engineering and construction (AEC) community
So, if you fall into any of the above, I hope this is helpful for you.
Let's get started!
California Proposition 15: Tax on Commercial and Industrial Properties for Education and Local Government Funding
What Does It Say? Would increase funding sources for K-12 public schools, community colleges, and local governments by requiring commercial and industrial real property be taxed based on current market value, instead of the purchase price.
Did It Pass? TBD. As of November 5, the count is 51.7% NO and 48.3% YES. The ballot requires a simple majority (50% + 1) to pass. As of 2020, California accepts ballots up to November 20, so we may not find out closer to Thanksgiving.
How Does This Affect You? The ballot proposed assessing property taxes on commercial and industrial properties' market value in lieu of purchase price. This is only on business owners who hold $3M or more in holdings, phasing in during fiscal year 2022-2023 (slight modifications if 50% of occupants are small businesses as well). Due to the booming California real estate market, this proposed change had a ton of tax implications for commercial and industrial property holders. This is likely to not pass, but if the winds change closer to the final ballot counts, it's recommended to call your tax accountants immediately to understand the implications for your investments and potential acquisitions.
California Proposition 19: Changes Certain Property Tax Rules for Certain Property Owners
What Does It Say? Would allow homeowners who are over 55, disabled, or wildfire/disaster victims to transfer their primary residence tax base to a new residence, change taxation of family property transfers, and establish a fire protection services fund.
Did It Pass? TBD. As of November 5, the count is 51.5% NO and 48.5% YES. The ballot requires a simple majority (50% + 1) to pass. As of 2020, California accepts ballots up to November 20, so we may not find out closer to Thanksgiving.
How Does This Affect You? Right now, parents or grandparents can transfer primary residential properties to children or grandchildren without the tax assessment resetting to market value. This ballot measure would eliminate this exemption in cases where the child or grandchild does not use the inherited property as a rental house or second home. This measure is also likely to not pass, but if it does as more ballots are counted, this will have potential ramifications for retirement and estate planning, especially for individuals who maintain moderate or significant real estate holdings.
Los Angeles Measure RR: Los Angeles Unified School District Infrastructure Bond
What Does It Say? Would authorize the Los Angeles Unified School District (LAUSD) to issue $7 billion in bonds to update classrooms, labs, and technology for 21st century learning; reduce asbestos, earthquake, water quality hazards; and replace/renovate aging school classrooms and buildings, with independent audits, citizens’ oversight, and no funds for administrative salaries.
Did It Pass? Yes. As of November 5, the count is 70.8% YES and 29.2% NO. The measure required 55% of voters to pass.
How Does This Affect You? The entire AEC industry should gain a boost in the Los Angeles County areas with significant projects occurring in the coming years for LAUSD. The industry is already busy, so already tight labor markets may be squeezed even further as projects are pipelined.
San Diego Measure A: City of San Diego Affordable Housing Bond
What Does It Say? Would authorize the City of San Diego to issue up to $900 million in general obligation bonds to provide permanent and supportive housing for extremely low- to low-income individuals and families, including supportive mental health and substance abuse services, for populations including veterans, seniors, the disabled, youth, and the homeless.
Did It Pass? Likely not. As of November 5, the count is 57.4% YES and 42.6% NO. The measure required 2/3 of voters to pass.
How Does This Affect You? San Diego County was planning its own alternative to Los Angeles' Proposition HHH, which gave the City $1.2 billion to subsidize low-income housing. If passed, this would have been good opportunities for private equity and AEC businesses to have funds to build housing, however, it is likely to not. Fear not, however, there are still funds in existing California branches, such as the California Department of Housing and Community Developments' "No Place Like Home" program.
San Diego Measure E: Removing 30-foot Height Limit in Midway-Pacific Highway Community Plan Area
What Does It Say? Would amend zoning regulations to exclude the Midway-Pacific Highway Community Plan area, which includes the Sports Arena, from the 30-foot height limit on buildings in the Coastal Zone, with any further development still required to comply with other governing laws.
Did It Pass? Yes. As of November 5, the count is 57.2% YES and 42.8% NO. The ballot required a simple majority (50% + 1) to pass.
How Does This Affect You? This impacts the 30-foot height limit in the Coastal Zone, which was set in a 1972 ballot measure, specifically to exempt the Midway-Pacific Highway Community Plan area. While this does not approve any specific development, it does further the community and government support for a 1,234-acre parcel of land that will accommodate future mixed-use developments. If you are a real estate developer and/or LP/GP looking at San Diego for future investments, this is a promising development for additional growth.
San Diego Measure V: La Mesa-Spring Valley School District Bond Measure
What Does It Say? To repair old, outdated classrooms and school facilities, fix deteriorating roofs, plumbing and electrical systems, improve student safety and campus security, and upgrade classrooms, labs, facilities and technology to support achievement in science, math, reading, technology, arts and engineering, shall the La Mesa – Spring Valley School District measure authorizing $136,000,000 in bonds
Did It Pass? Yes. As of November 5, the count is 62.9% YES and 37.1% NO. The measure required 55% of voters to pass.
How Does This Affect You? If you are a specialty Mechanical/Electrical/Plumbing (MEP) subcontractor or engineer specializing in Science & Technology (S&T), this should give you nice opportunities in the future to track.
San Diego Measure W: Oceanside Unified School District Bond
What Does It Say? To protect quality schools and upgrade aging facilities, shall Oceanside Unified School District’s measure to: upgrade classrooms for science, technology, engineering, arts, math instruction; address school earthquake, fire, health and safety standards; modernize computers and technology; and repair or replace deteriorating roofs, plumbing, electrical, heating and cooling systems; by issuing $160,000,000 in bonds.
Did It Pass? Yes. As of November 5, the count is 61.1% YES and 38.9% NO. The measure required 55% of voters to pass.
How Does This Affect You? If you are a specialty Mechanical/Electrical/Plumbing (MEP) subcontractor or engineer specializing in Science & Technology (S&T), this should give you nice opportunities in the future to track.
San Francisco Proposition A: Health and Homelessness, Parks, and Streets Bond
What Does It Say? Issues $487.5 million in general obligation bonds for capital projects for: mental health, substance abuse and homelessness programs; parks and recreation facilities; and street improvement, maintenance and repair.
Did It Pass? Yes. As of November 5, the count is 71.1% YES and 28.9% NO. The measure required a supermajority (66.67%) to pass.
How Does This Affect You?
San Francisco Proposition I: San Francisco Real Estate Transfer Tax
What Does It Say? Would increase the property transfer tax rate on transactions valued between $10 million and less than $25 million from 2.75% to 5.5%, and the rate on transactions valued at $25 million and above from 3% to 6%.
Did It Pass? Yes. As of November 5, the count is 58.0% YES and 42.0% NO. The ballot required a simple majority (50% + 1) to pass.
How Does This Affect You? This ballot measure will effectively double the transfer tax on sales (or leases of 35 years or more) of commercial and residential real estate larger than $10 million. If you are looking to acquire and/or sell major pieces of property as an investor, this has major tax implications. You may also be interested in expediting the timeline of sales prior to when the tax goes into effect. Note this does not affect property sold to the City or to qualified affordable housing nonprofits. I recommend sitting down with your CPA if you feel you may be affected.
San Francisco Proposition K: San Francisco Affordable Housing Authorization
What Does It Say? Would authorize the City by ordinance to own, develop, construct, rehabilitate, or acquire up to 10,000 residential units of low rent housing projects within the City for the purpose of providing affordable rental housing.
Did It Pass? Yes. As of November 5, the count is 74.2% YES and 25.8% NO. The measure required a supermajority (66.67%) to pass.
How Does This Affect You? San Francisco County requires a major boost to low-income housing, so this is an important step in the right direction. There may be opportunities here for investors, consultants, and contractors alike, so if you are in one of these industries looking for opportunities in San Francisco, this could be important to you in the future - I would recommend keeping an eye on this as the exact rules and regulations are further defined.
Conclusion
This election could have some major implications to the California real estate and construction industry. I hope this was of some benefit to you. I would also love to hear from you - how do you feel about any of the above ballot measures? Are there any ballot measures in your community I may have missed in the above list?