Prop 15 Fails to Pass California Voters

This has been a year of tight political races. While most have had their eyes on the Presidential Race, California commercial real estate players have closely followed Proposition 15, which would increase taxes for commercial properties. Mirroring the presidential election, Prop 15 was a tight race, and while votes are still being counted, it looks like the no’s have it.

While the opposition seems to have prevailed, the race was close with fervent support. This has come at a time when, thanks in part to the pandemic, income disparities are at all-time highs with growing animosity toward business owners. “I cannot pinpoint the various reasons for those votes,” Fernando Landa, a partner at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. “Undoubtedly, supporters of Proposition 15 have laid the need for Proposition 15 on the pandemic’s feet in television ads over the last several months, but the split roll tax that underlies Proposition 15 is years in the making.”

The tight race prompted landlords to prepare in advance for the tax increase. Landa had been guiding clients through the process, recommending that they educate themselves on the nuances of the law. [Property owners] should educate themselves regarding Proposition 15′s phase in timetable,” he explained about how landlords should prepare. “Tax increases would have begun in the 2022-2023 fiscal year, so landlords and tenants could have used the next fiscal year to prepare for the tax increase by estimating potential tax increases if their properties are reassessed at their current market value.” In the meantime, he also said that it could be possible for tenants to revise lease contracts in the interim.

Had it passed, the proposition would have had significant consequences for the commercial real estate market in California. In addition to raising property taxes, the measure could have also put downward pressure on property values. “Proposition 15 would have increased property taxes across the commercial real estate sector, property values may decline if Proposition 15 prevails,” says Landa. For landlords, this would have meant contesting property value reassessment.

The proposition could also have had significant implications for tenants, in addition to increased property taxed paid through triple net leases. Following the pandemic, many tenants might not be able to afford increased taxes. This could have also had a significant impact on an owner’s portfolio and tenant base.

Again, while the results are not yet official and the race remains close, proposition 15 has been called defeated by many outlets. However, this is one of many recent ballot measures in the past few years with the intent of legislating the real estate market. It likely won’t be the last effort.