L.A.’s Home Sales Slowdown Sparks Increase in Luxury Rentals
As interest rates soared and Measure ULA (aka the mansion tax) scared off potential sellers, 2023 became the year of the luxury rental in Los Angeles. Celebrities have hopped on the train, with Rashida Jones, Leeza Gibbons, Maria Bello, System of a Down’s Serj Tankian and podcaster Bill Simmons all offering up homes for rent. Even Walt Disney’s former Tudor mansion is up for lease. And the rent (no doubt bumped by star cachet) can be pricey. This month, NBA star Tyson Chandler put his Newport Beach mansion up for rent at a whopping $70,000 a month.
But it’s not just celebrities who are choosing to rent. According to Nourmand & Associates, between January and Nov. 30, 2022, its residential leases increased from 291 to 490 leases in 2023. The Agency saw L.A. leases increase from 719 in 2022 to 884 in 2023, while Douglas Elliman saw a 13 percent jump in L.A. County.
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“Interest rates got so high, and then there was so much buyer fatigue,” says Kevin Krakower of Douglas Elliman. “People just got exhausted, and they decided just to lease.”
Uncertainty not only scared off buyers but also potential sellers. “All you heard was that there was a recession coming, the yield curves inverted, all these tech layoffs are happening, there’s an entertainment strike,” says Nourmand & Associates president Michael Nourmand. “So, you have all these things squeezing everybody, and leasing becomes a little bit more of a temporary thing to see how things go.” (Current luxury rentals at Nourmand & Associates include a 1923 Spanish-style compound above the Sunset Strip, listed with Levi Freeman for $27,500/month.)
This wait-and-see approach meant leasing for both high- and mid-end properties made sense for many owners. Many would-be sellers in the luxury space were also waiting out court cases challenging the new ULA tax (which have failed to overturn the law). However, leasing has also caused some headaches for owners. “The problem becomes no one’s going to treat a house like you would as a landlord,” says The Agency’s Zach Goldsmith. “So, your house can get trashed. There could be damage. People may not want to get out. We have that instance right now where we’re doing a sale … and the guy who’s leasing won’t leave.”
Regardless, real estate brokers are seeing a new glut of luxury rentals from $20,000 and above, with the many of the highest-end homes sitting empty, waiting to be rented out. “So many owners of luxury property have decided not to sell because of the mansion tax and maybe they have a good loan, so they have put their properties on the market for lease instead,” says The Oppenheim Group founder and Selling Sunset star Jason Oppenheim. “So you’ve got an oversupply of properties available to prospective tenants in the luxury space.”
Leasing can also be a pain for brokers. Looking out for the best interest of their clients often means brokers make a small token fee when securing leases, as opposed to the large commissions that come when homes are sold. “My goal is long-term relationships. That’s how I built my business,” Goldsmith notes. “So, if I don’t make any money on you leasing but if that’s better for you to do right now, then that’s what I’m going to recommend.”
Many agents also don’t like to do leases, which have ballooned in the past decade from two pages to over 30 pages because of renter protections. But some have mastered the art. “I have a template in place and I can usually draft things up pretty quickly,” Krakower says. “As new disclosures are added every quarter or every six months, I can just add those into the template. But that’s why most agents stay away from the leases. But for me, it’s been a very lucrative business.”
Leasing may increasingly become a way of life for many people, who have simply decided to focus on travel and extracurriculars as home prices have risen. “For some people the idea of home ownership, it’s just become too expensive,” Nourmand says. “It’s too far away, it’s not attainable. So, I think that there is going to be a larger portion of, a larger percentage of the population in areas like L.A. … where there’s going to be more renters.”
Granted, Los Angeles has always been a unique ecosystem, with actors, directors and crew often renting homes while working on projects in the city. (And conversely sometimes renting out their homes when they jet off for long shoots in other parts of the world.) “People are always driven here for the weather, for the entertainment business and for tech now,” says David Parnes of The Agency.
But what goes up must come down: With interest rates lowering, brokers expect rental rates to fall in 2024. “I expect that leases will be down this year, especially maybe the second half of the year,” Nourmand says.
And already, some potential buyers who held out are now reaping the benefits of their caution and finding their forever home. Says Parnes, “People are already coming back into the market because rates have already gone down.”
A version of this story first appeared in the Jan. 26 issue of The Hollywood Reporter magazine. Click here to subscribe.
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