Monday Morning Quarterback

At sunrise last Tuesday, Alejando Diaz was startled out of bed with crashing sounds outside his makeshift shelter. Alejando rolls over trying to sleep a little longer. But the sounds grow louder. First the clanking of metal and then the loud rumble of trucks. Soon the sound is overwhelming with jack hammers and battering rams. Alejandro leaps out of bed just as a huge crane crashes through his wall. He runs outside, horrified by what he is seeing. Los Angeles city maintenance workers are tearing down his shelter and his neighbors' shelters. The noise is shattering. Alejandro had received warnings that the city would destroy his home if he didn’t vacate, but he never thought it would ever happen. After all, why would the city bother with his homemade structure built on a thin strip of land between the Golden State Freeway (#101) and the Arroyo Seco flood channel. But on this morning it was indeed happening. Alejandro broke down in tears as workers broke down his home plank by plank. Five years to construct, it took only hours for city workers to destroy it. Alejandro’s “homemade” home in the channel went viral last year, with news stories highlighting his skills in adding windows, bamboo fencing and a garden framed in bright yellow siding. His colorful shelter is a structural delight. He has repurposed items and materials he’d found on streets or in trash bins, incorporating ropes, fencing, window shutters and metal buckets. A set of French doors covers the entrance next to a red refrigerator powered by a solar panel and a battery that are just strong enough to keep a carton of almond milk chilled. The channel below serves as a sink for people living along this strip of concrete, who use the murky water to wash their hands and clothes. A gnarled tree branch functions as a clothesline. Between adjoining shelters is a rope hammock and a drum set for video games. Alejandro’s shelter appears just above the flood wash like a broken down seaside cottage plucked from a coastal town.

“It’s an injustice,” Alejandro, 29, screams in Spanish with tears streaming down his face. “The city doesn’t care about anything other than destroying our lives even though we don’t bother anyone.” Those who live in these shelters along the arroyo watch motionless in shock. Like many others living next to the flood channel, Alejandro works in construction, but cannot find steady work. He occasionally finds odd jobs as a day laborer in the parking lot of the local Home Depot, but does not earn nearly enough to rent or buy a home. Alejandro is among tens of thousands of people experiencing homelessness in Los Angeles County. These sweeps are disruptive to these unhoused people who have created community, mutual support, and neighborliness along the Arroyo Seco against all odds. These sweeps are also an obscene waste of city resources, and they accomplish nothing. After all, Angelenos are facing a staggering housing crisis, and it makes little sense to destroy homemade shelters and communities that have carved out a shred of stability amidst an untenable situation. In a fit of frustration, Alejandro punches a broken down doghouse until his knuckles bleed and cries out as he thinks about all the work he put into this slice of land that he has called home for the last five years. With tears streaming down his face, he watches as workers throw his personal belongings down the flood channel.

Audit Reveals L.A.’s Failure to Track Billions in Homelessness Spending. Millions are spent every year by Los Angeles city and county on the homeless and yet every year we have more and more homeless (see story above). It is an utter disgrace! This was confirmed last week by an independent audit commissioned by U.S. District Judge David O. Carter (champion of the homeless) that shows how L.A. city officials have neglected tracking homelessness spending. Our city has failed to collect accurate data on its vendors, relying mostly on outsourcing from an agency. This highlights another frustrating case of taxpayer dollars becoming misallocated, after auditors reviewed $2.4 billion in city funding. The global consulting firm Alvarez and Marsal audit highlights inadequate financial oversight that paints a lack of accountability for taxpayer dollars. "Insufficient financial accountability led to an inability to trace substantial funds allocated to the City Programs," the report states. "The lack of uniform data standards and real-time oversight increased the risk of resource misallocation and limited the ability to assess the true impact of homelessness assistance services." Most of the discrepancies were found at the Los Angeles Homeless Services Authority (“LAHSA”). The problem is that the government agency has outsourced management of much of the city's homelessness funding (including sheltering, feeding, and serving people). Tracking the spending became impossible when auditors reviewed the poor documents provided by the agency. Auditors also found that LAHSA “failed to verify whether the services invoiced were provided.” Elizabeth Mitchell, an attorney for the L.A. Alliance for Human Rights whose lawsuit prompted Carter to order the audit, said in a statement: “These findings are not just troubling — they are deadly." She emphasized the failure of financial integrity, programmatic oversight, and dysfunction of the system resulting in devastation on the streets for both housed and unhoused. "Billions have been squandered on ineffective bureaucracy while lives are lost daily. This is not just mismanagement; it is a moral failure.”

In Altadena And Pacific Palisades, Burned Lots Are Already Hitting The Market. The first vacant lot in Altadena went up for sale in late January. The listing promised “great opportunity to build” after the Eaton fire destroyed the home previously on the site. A few weeks later came half a dozen more listings. Now the floodgates appear open. “There is so many to choose from,” said Jeremy Hardy, a real estate agent with Craig Estates & Fine Properties. Two months after fires that tore through Los Angeles County and destroyed or seriously damaged more than 12,000 homes, property owners in Altadena and Pacific Palisades are increasingly selling their burned lots rather than undertake a time-consuming and costly rebuilding process. Last week, there were 49 burned lots for sale in Pacific Palisades, according to Zillow. In Altadena, there were 32. Real estate agents say their clients who chose to sell, or are debating it, are doing so for a variety of reasons. Some doubt they have the money to rebuild. Others are elderly and don’t want their last years consumed by construction. A few had owned rental properties and decided keeping them was not worth the hassle. Many (if not most) of the people interested in buying burned lots have been developers and investors, according to agents. It’s perhaps not surprising. Vacant land is typically bought with cash. Construction is time consuming, stressful and expensive in normal times, let alone in a disaster zone with toxic waste. Objectively, the developer influx could help communities build back quicker. But it’s also raising fears about gentrification and whether longtime owners are getting a fair price. Those concerns are particularly high in middle-class Altadena where residents have proclaimed that “Altadena is not for sale” through signs and rallies. Nevertheless, at least eight burned lots have been sold in Altadena, with most selling in the $500,000 to $600,000 range, according to Zillow.

Tariffs Could Raise Prices For New Homes. Last week, President Donald Trump followed through and installed tariffs on goods imported from Canada, Mexico and China (and then withdrew them, then reinstated them, and then withdrew them again, and then…), tariffs expected to raise prices for new homes, according to a Corelogic report. Chinese goods now come with a 20% tariff, while imported goods from Canada and Mexico are subject to a 25% levy. For now, certain products from Canada and Mexico are exempt, a move that’s set to expire April 2. Should the full complement of tariffs go into effect then, construction costs could increase by 4% to 6% over the next 12 months and add roughly $17,000 to $22,000 to the sticker prices for new homes, according to CoreLogic. That’s because two key materials used in home construction, softwood lumber and gypsum products including lime, are largely sourced from Canada and Mexico, respectively. Nearly 70% of U.S. softwood lumber imports come from Canada, while 71% of gypsum and lime imports come from Mexico, according to the National Association of Home Builders. Should homes become more expensive to build, they’ll become more expensive to purchase, says Matt Saunders, a senior vice president at John Burns Research & Consulting. “As builders pass these extra costs on to homebuyers, housing will become less affordable.”

State Farm Seeks 22% Emergency Rate Increase. Last week, State Farm General, California’s largest home insurer, asked state officials for an emergency rate hike averaging 22%, saying the Los Angeles County fires have put the company in dire financial straits. The insurer, a subsidiary of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., says the company has already received at least 8,700 claims and paid more than $1 billion to customers. It expects to pay out “significantly more,” with the fires being the costliest natural disasters in its history. “As the insurance commissioner, you can have a very significant impact on [State Farm General’s] ability to continue operating in California by immediately approving the requested interim rate changes,” the company said in a letter to state Insurance Commissioner Ricardo Lara. The company is also asking for rate hikes of 38% for rental dwellings and 15% for tenants, with the rates taking effect May 1. State Farm says the latest request is necessary to rebuild the company’s capital base so it will not have to “further constrain” the company’s ability to provide home insurance in the state. Insurance industry ratings agencies have said they expect premium increases due to the fires. The California insurer says it has lost $2.8 billion over the nine-year period ending last year, including gains from investment income. It also noted State Farm’s financial rating was downgraded last year by AM Best. The company says it will access reinsurance it acquired from its parent to pay claims from the Los Angeles-area fires. State Farm General, which had about a 20% share of the homeowners insurance market in 2023, insures about 1 million homeowners in the state and has 1.8 million other policies in force. The proposed rate hike is likely to be controversial. In June, the company filed for a 30% rate increase for its homeowners polices, a 36% increase for condo owners and a 52% increase for renters. That request took state officials by surprise, with Lara saying it raised “serious questions about its financial condition.”

L.A. Temporarily Bans Evictions For Renovations. Landlords, are you sitting down? L.A. “reno-victions” are done — at least for now. The LA Times reports that last week the Los Angeles City Council voted 12 to 0 to temporarily block landlords from evicting tenants in order to remodel their properties. The interim ordinance, which lasts until Aug. 1, was designed as a stopgap while the city explores permanent legislation for renters to keep their tenancies when landlords implement substantial remodels. Under previous rules, substantial remodels (including structural, mechanical or plumbing work) were “just cause” for evicting a tenant. The ordinance also applies retroactively, barring renovation-based evictions that were pending before the vote took place. It’s a win for tenant advocates, who argued Friday that the “substantial-renovation” clause is a loophole that allows landlords to kick out long-term renters to raise rents under the guise of property improvements. “There are tenants here today who will be evicted if this does not pass as amended,” Chelsea Kirk, policy director at the nonprofit Strategic Actions for a Just Economy, said on Friday. It’s a blow for landlords and developers, who claim the ordinance ties the hands of homeowners and prohibits them from upgrading the city’s aging housing stock. “This ordinance is a result of a witch hunt by extremists that want to force mom-and-pop owners out of business,” David Kaishchyan, of the Apartment Assn. of Greater Los Angeles, said at the meeting on Friday. The ban was put into motion after a unanimous City Council in October 2024, when the council ordered the Housing Department and city attorney to draft recommendations to remove substantial remodels as a just cause for eviction.

Los Angeles Encouraging Starter Homes On City-Owned Vacant Lots. The city of Los Angeles is launching a new initiative to encourage the construction of starter homes on small lots, an effort to provide relatively lower-cost for-sale housing and show how Los Angeles can densify without turning into Manhattan. The initiative, called “Small Lots, Big Impacts,” kicked off last week with a design competition for architects and others to craft innovative plans for multiple small homes on one lot, with the hope those units will be less expensive than larger options being built by developers today. Winning designs are meant to eventually serve as preapproved city templates that all developers could use. Government officials also plan to start selling off a handful of small, city-owned lots to builders to demonstrate (in real life) what is possible with the designs. “Angelenos should be able to buy their first home and raise their families in our city,” Los Angeles Mayor Karen Bass said in a statement. “The launch of Small Lots, Big Impacts is a step toward that future.” The initiative is a partnership between the city, the public-private program LA4LA and UCLA’s cityLAB research center, which found that there are roughly 24,000 vacant lots in Los Angeles smaller than a quarter of an acre where housing is currently allowed. The city owns about 1,000 of these lots and plans to sell off about 10 of them as part of its demonstration project. Today, depending on the neighborhood, builders on lots of this size often construct large single-family houses or three to five large townhomes. Other times, nothing is built, because high construction costs mean developers won’t make enough money unless they combine adjacent lots to build one large apartment building, said Azeen Khanmalek, who formerly worked in the mayor’s office and is now executive director of the advocacy group Abundant Housing. The goal of Small Lots, Big Impacts is to provide another option: for-sale homes that are smaller and less expensive than a McMansion or a 2,000-square-foot townhome. To get there, designers are encouraged to use innovative construction materials and methods that would protect against fire and bring down the cost of overall construction. The city would use proceeds from the lot sales to fund down payment assistance for home buyers who would purchase the new units.

Renée Zellweger's Former Topanga Ranch Is On The Market. A Topanga Hills retreat (within minutes of Calabasas, Malibu and the Valley) is on the market for $7.995 million. The Los Angeles property is a gem for its nine-plus acres of land and location atop a hillside mesa. But what also makes it a standout is its starry past as the former home of Academy Award-winning actress Renée Zellweger. Following a recent rebuild, the Hillside Drive home showcases Spanish ranch charm without losing its luxurious, Hollywood-approved touch. Beyond the private gates, the driveway leads to a gravel motor court for parking at the canyon-surrounded property. Inside, the contemporary hacienda spreads across 4,414 square feet. Modern flourishes like state-of-the-art chef’s kitchen appliances and an infinity-edge pool provide lifestyle together with Venetian-plastered arches, Spanish tiles, wood-beamed ceilings and wood-burning fireplaces (crafted by a European stone mason). One of the fireplaces can be found in the great room, which directly opens up to the backyard where you will find another fireplace. Elsewhere in the home, there are four bedrooms with white walls, oak touches and an abundance of natural light. Among the five bathrooms, the primary bath includes a marbled rainfall shower with a polished freestanding tub. Meanwhile, the backyard embodies a desert resort with stone tiling, a spa-accompanied pool with mountain views, string light-lined roofing and a variety of succulents. A media room, dining room and secondary space complete the home, which can be used as an office or mudroom, (fitting for homeowners to explore the nearby meadows and private hiking trails). But, if you’re interested, don’t call me. This listing is held by Carl Gambino and John Bercsi of The Gambino Group at Compass.

FIX & FLIP WORKSHOP. Saturday, March 29, 2025, 9:00 am to 6:00 pm. (and bonus session on Sunday at an actual rehab.) Learn how to find, finance, fix, and flip houses. Los Angeles County Real Estate Investors Association, at the Iman Cultural Center, 3376 Motor Avenue, Los Angeles, CA 90034. The cost of the workshop is $249.00 per person if paid before March 22, 2025. After March 22, the price jumps to $349.00! Gold members can attend for free. Register: www.LARealEstateInvestors.com.

This Week. Investors will continue to watch for additional information about tariff policies. The next Fed meeting will take place this Wednesday. No change in the federal funds rate is expected, and investors will be looking for additional guidance on future monetary policy decisions. For economic reports, Retail Sales will be released on Monday from the Census Bureau. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will come out on Tuesday from the Commerce Department. Existing Home Sales will be published on Thursday from the National Association of Realtors.

Weekly Changes:

10-Year Treasuries: Flat 000 bps

Dow Jones average: Fell 1,600 points

NASDAQ: Fell 700 points

Calendar:

Monday (3/17): Retail Sales

Wednesday (3/19): Fed Meeting

Thursday (3/20): Existing Home Sales

For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

Lloyd@LARealEstateInvestors.com

310-792-6404