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Sunday, Jan 29, 2023

Record Property Values

Assessed property values in cities within Los Angeles County combined for a collective increase of 6.6 percent to $1.57 trillion in calendar year 2017, driven in part by a booming industrial real estate market in City of Industry and the Los Angeles Rams’ stadium project in Inglewood.

Data from the property assessment roll released last week by County Assessor Jeffrey Prang showed City of Industry property values rising 12.1 percent in 2017. Prang credited a hot industrial real estate market driven by vacancy rates as low as 1 percent last year.

Next on the list was Inglewood, where a $5 billion L.A. Stadium & Entertainment District at Hollywood Park – which will include the Los Angeles Rams football stadium complex along with retail, commercial, hotel and residential developments –is under construction. Prang said a significant portion of the stadium project was added to the assessment roll on Jan. 1. That, along with increasing property values in the neighborhoods near the stadium project and the Crenshaw-LAX rail line, which is currently under construction, helped fuel the 10.1 percent increase in Inglewood’s assessed valuation, he said.

The double-digit gainers led the overall 6.6 percent increase in assessed valuation in the county, the year-to-year fastest growth rate since 2007. It also marked the eighth-consecutive year of total assessed valuation gains.

“Los Angeles County’s economic base is strong and continues to be on an upswing,” Prang said.

New construction

The 2018 assessment roll comprises 2.57 million real estate parcels and business assessments, including 1,874,588 single-family residences, 249,660 residential-income properties, 248,198 commercial/industrial properties, and 205,204 properties with business furnishings and equipment exceeding $5,000 in value.

Assessed valuation serves as the base on which property taxes are calculated. California law under Proposition 13 sets the baseline for property tax at 1 percent of the assessed value in the year a property changes hands (other charges can be added by local governments to finance various measures or programs).

The basic 1 percent charge, meanwhile, means a property valued at $1 million would carry a baseline property tax rate of $10,000 annually.

The rate of base charge can increase incrementally – a maximum rate of 2 percent per year, or the addition of $200 per year to the $10,000 baseline on the $1 million property– until the next change in ownership.

The structure means that major changes in assessed valuation typically occur when properties sell or when new construction adds significant value to properties.

Both of those factors applied in City of Industry, according to Prang’s office, which noted that a single new industrial project in that city added roughly $52 million to the assessment roll. About 10 other properties sold last year, adding at least another $200 million to the total assessed valuation.

But the tight industrial market could soon start acting as a brake on growth in assessed valuation in places such as City of Industry, Carson and Vernon, according to J.C. Casillas, vice president of research and marketing in the Encino office of NAI Capital.

“Demand for industrial space remains strong, but there just aren’t that many large parcels for new industrial space and redeveloping older properties is often quite difficult,” Casillas said. “So if there’s nowhere to go for more or new industrial space, many industrial tenants will simply have to make do with what they have. And that slows down transactions.”

Property sales were the primary driving force behind the nearly 10 percent growth in total valuation for Lynwood, which notched the third -highest rate in the county. Prang’s office listed two sales in Lynwood that added nearly $40 million to the assessment roll.

A limited number of deals can make a big difference in smaller cities. It takes many new projects or property sales to move the assessment needle significantly in the city of Los Angeles and some of the other larger municipalities in the county. Los Angeles, by far the county’s largest city saw, its total assessed valuation increase 7.6 percent during calendar year 2017, a percentage point higher than the countywide average increase. Prang said new residential and mixed-use construction in downtown and Hollywood was a major driver. Significant portions of the city, especially on the Westside, have also seen substantial increases in the sale prices of homes.

A local real estate boom now in its eighth year is now showing effects in areas that had previously been left behind. The city of Compton is one example: its growth in assessed valuation was 8.4 percent, led by two new industrial projects that added a combined $50 million to the assessment roll.

“A lot of communities that historically didn’t have growth that are starting to see more investment,” Prang said. “People are returning to old neighborhoods that had been previously overlooked.”

Wealthy smaller cities such as Santa Monica, Beverly Hills and Malibu routinely appear on the list of largest gainers in assessed valuation, and this past year was no exception. Santa Monica grew 8.9 percent, Beverly Hills rose 7.4 percent and Malibu climbed 7.3 percent.

“These have long been very desirable markets and that continued in 2017,” Prang said.

Santa Monica saw more than $200 million was added to the assessment roll from sales of commercial and industrial properties, while another $90 million or so was added from sales of multifamily properties.

Slower growth rates were largely confined to smaller cities with few properties changing hands to drive up assessments, such as Westlake Village, Rolling Hills and Signal Hill.

Recording transactions

While underlying trends in local real estate markets are usually the primary factor in changes in assessed valuation, Prang said the process of recording transactions also has played a role.

He said that as his department has converted to all-digital recordkeeping, the backlog of transactions has fallen from 30,000 construction permits two years ago to about 22,000 today.

“When we reduce the backlog, that means more transactions are getting on the books more quickly, which means more increases in valuations in a given time period,” Prang said. “That’s definitely a factor in the overall 6.6 percent increase in assessed valuation countywide,” he said.

A record-keeping technicality also a factor behind a sharp drop in the growth of assessed valuation in the city of Duarte. The small San Gabriel Valley city – it has a population of 22,000 –was the county’s biggest gainer in assessed valuation at 17 percent for 2016. The totals for 2017 peg it among the smallest gainers at 3.3 percent. The reason: the City of Hope medical center, by far Duarte’s largest employer, had a major construction project under way.

City of Hope is exempt from local property taxes under California law due to it status as a nonprofit medical center.

Prang said it took some time for the exemption for the construction project to be officially recorded. That finally occurred last year, and the value of the project was removed from the assessment roll, accounting for the dramatically lower overall increase for the city.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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