Century City-based Universe Holdings is among the owners and developers of multifamily housing seeking business outside of Los Angeles, citing a difficult legislative environment including Measure ULA as a reason.
The company maintains 4,000 units nationally, with about 1,500 of those in L.A., chief executive Henry Manoucheri said. A core part of the company’s business is rent-controlled units, of which it has about 1,000 in L.A. County, Manoucheri said.
He blamed both local politics and the rising cost of doing business for his gradual exit from Los Angeles markets.
And his company is far from the only one looking to leave. Following the enactment of Measure United to House L.A., or Measure ULA, last year, which increased the tax on all real estate sold at or above $5 million in the city, sales have plummeted.
Sales are down across all real estate assets, according to data from brokerage Colliers. In the last two quarters of 2023, multifamily properties above $5 million sold for roughly $320 million combined, far lower than the $2 billion in combined sales before Measure ULA was passed.
Passing Measure ULA prompted many developers to flee the area almost immediately in search of savings in the form of lower tax breaks in other cities.
“When you’re in an expensive market, you don’t get to just sit around and wait,” said Sonnet Hui, general manager and vice president of downtown-based real estate consultancy firm Project Management Advisors. “The developer mindset is pretty straightforward: They’re there to make money, and the more risk they are to overcome the more it cuts into their bottom line, and that’s not their business model.”
Greener pastures in redder states
Universe Holdings owns properties in the counties of Santa Barbara, San Luis Obispo and Orange. It also maintains units in San Diego and the San Joaquin Valley alongside its properties in Los Angeles, Manoucheri said.
“Probably today 85% of what we have under ownership is still in California, and the rest is other states,” including New Jersey and Florida, Manoucheri said.
“We are still actively bidding in all subcategory markets except L.A.,” he added. “We have been a net seller lately in L.A., but we continue to be a big believer in buying in (California).”
Manoucheri, who’s lived in Los Angeles for 46 years and currently resides in Beverly Hills, is eagerly looking to enter markets where governments are friendlier to business.
One blue state Manoucheri mentioned as being ripe for development was New Jersey. Others included southern states like Texas, Florida and the Carolinas, he said. He noted that since Measure ULA was passed in the City of L.A. only, the county and surrounding areas still present opportunities, including in Orange and Santa Barbara counties.
“We want to make sure that for the next 15 years we have a property that is not subject to further legislative risk,” Manoucheri said. “We’ve been less bullish on L.A. because of that legislative risk.”
Manoucheri called the ULA tax “something we hate,” and added, “we’re basically trying to avoid that.” He noted that the larger real estate development industry opposed it.
“Because of this ULA tax, all this negative legislation, less and less developers are going to build here,” Manoucheri said. “There are people that are still building, but the numbers are few and far between, it’s nowhere near what it should be to meet the demand.”
Universe Holdings isn’t alone in looking for regions where taxes are lower to do business. Hui said she’s noticed “certain businesses going out (of L.A.) because there’s just more profit to be made in Texas, Arizona, Colorado or somewhere like that because there’s just less hurdles to overcome.”
But doing so leaves a dearth of developers in an area that is already sparse on housing. L.A.’s residential market is the opposite of some areas – such as Florida –where supply of housing exceeds demand and renters are being offered incentives to move in, including months of free rent, Manoucheri said.
“If you don’t have enough supply but there’s a huge demand, now the landlords can jack up the prices and it makes it more unaffordable for renters,” Hui said. “If there were more options and they (couldn’t) charge high rents, I think the market (would) correct itself.”
Hui added that “an increase in housing developments will make the market just a little bit more reasonable” in Los Angeles. “Housing prices are extremely expensive, because there’s a demand and very, very short supply.” Combined with rising interest rates, there’s little financial incentive to buy a home in L.A., so many people remain renting, she said.
Selling its local portfolio
Universe Holdings hasn’t bought a California property in the last 15 months, Manoucheri said. Instead, the company is actively selling off much of its residential multifamily portfolio in Southern California.
“If the pendulum swings more and more to the left, and it gets less hopeful, we will probably dispose slowly of certain assets,” Manoucheri said. “We’ll hold on to the ones we had a long time – assets we’ve had for 30 or 20 years that we have a low basis and we still make the cash flow, we’re not going to sell those.”
Even with the ULA tax levied in, Universe Holdings still sells at a gain, Manoucheri said. He noted that even with the 5.5% tax on sales over $5 million, he hasn’t sold at a loss.
“Basically we have to decide right now, there’s some assets we’re thinking of selling and we’ve got to make a decision very soon here to get out of those, because we haven’t maximized our rents” Manoucheri said. “We’ll just move on, we’ll take our money and probably park it outside of L.A.”
Lower-income housing, including rent-controlled units, are a sizable portion of Universe Holdings’ portfolio. Before Covid-19-era renter protections (which expired Feb. 1), that segment of multifamily was a favorite of some profit-hungry developers and owners looking for gains.
“The draw was you had a tenant in a building for 25 or 30 years, they were paying $700 a month for a simple two bedroom, and then the tenant vacated, you renovated the building and you spent $20,000 to $30,000 in that unit, you basically remodel it and you rent it for $2,500,” Manoucheri said.
But he pushed back on the idea that Universe Holdings is “flipping” rent-controlled units. As a long-term holder, he said “what we do is enhance value, we raise our rents, and then every few years we refinance and we return capital to ourselves and our investors and then we keep the assets,” he said.
Hui said that she is “a firm believer in L.A.” and its value to renters. She cited the film industry, weather and unique culture as reasons for renters to still remain in the city, or move to it. Hui said the 2026 World Cup and the 2028 Summer Olympic Games coming to L.A. could drive investment into housing for athletes or fans that could be used by the public later.
“There are a lot of reasons why people want to be here, and L.A. has a way of working things out,” Hui said.
