Award-winning 2021 property trades at 33 percent below 2021 appraisal as buyer pursues tax strategy
Los Angeles multifamily sales have shifted toward transactions driven by tax planning rather than rent growth expectations, with value declines creating opportunities for strategic buyers willing to absorb near-term market uncertainty. Glen Scher and Filip Niculete of Marcus & Millichap’s LAAA Team represented the buyer in the acquisition of Magnolia Nineteen, a 19-unit apartment building with one retail space at 11700 Magnolia Blvd. in Valley Village. The property sold for $8.52 million, or approximately $448,600 per unit, at a 6.19 percent capitalization rate. Public property records show the seller was a Los Angeles-based entity.
The buyer, a technology executive who recently completed a business sale, structured the purchase to maximize bonus depreciation benefits before year-end tax deadlines. Brokers point out that a cost segregation study is expected to generate roughly $2 million in first-year depreciation, offsetting capital gains from the executive’s company exit.
Designed by Brooks + Scarpa, an architecture firm that won the American Institute of Architects’ Gold Medal, the building features loft-style units with 18-foot ceilings, corrugated metal exteriors and rooftop common areas. Completed in 2021, the building is not subject to rent control, consistent with regulations for newer multifamily construction. Originally priced at $11.25 million, the listing saw several reductions and was offered at $8.6 million when the buyer engaged in September. The final closing price represented a 33 percent discount from the property’s July 2021 appraised value of $12.7 million, reflecting broader valuation pressure across Los Angeles County multifamily assets.
According to Marcus & Millichap, the buyer secured $5.4 million in financing at a 5.61 percent fixed rate with three years of interest-only payments, producing a projected 7.19 percent cash-on-cash return in the first year. The interest-only structure improved initial cash flow while the buyer executes the depreciation strategy. Brokers add that transaction volume for newer apartment properties in the San Fernando Valley has declined sharply over the past two years. Magnolia Nineteen is only the third building constructed after 2010 to sell above Los Angeles’s Measure ULA threshold—which triggers a 4 percent to 5.5 percent transfer tax on sales exceeding $5 million—in the Valley submarket during the past 24 months.
The ULA transfer tax, approved by voters in November 2022, applies regardless of whether sellers record gains or losses and cannot be offset through depreciation recapture. UCLA research estimates the measure has contributed to a 50 percent reduction in high-value property sales citywide and delayed or canceled more than 1,900 planned multifamily units.
Marcus & Millichap noted that multifamily construction starts have dropped 74 percent from 2021 peaks as higher interest rates and the transfer tax combine to reduce development feasibility. While this supply contraction may eventually support rent increases, current market conditions favor buyers who can structure acquisitions around tax benefits rather than immediate income returns. For sellers, the transaction underscores the pressure created by higher interest rates and ULA obligations.
