Great news from the ballot box in CA

Great news for apartment & other commercial real estate owners in CA: Prop 21 (rent control) FAILs with nearly 60% voting NO.

Prop 15: 52% NO votes w/ 82% counted. Prop 15 sought to raise property taxes on most commercial real estate (Prop 15 DOES NOT include apartment buildings so would not impact ESS/EQR/AVB) but did include almost all other CRE.

With Prop 21 failing, this is great news for the CA heavy apartment REITs ESS, EQR, and AVB.

CA 15 also looks set to fail. While would not impact apartments directly, its failure would show the commitment of CA voters to Prop 13 (limits prop tax hikes to 2% per year).  Prop 13 provides CA commercial property owners with one of the most stable/transparent property tax outlooks in the US.

Rejecting this tax hike is good for businesses. This is another positive for the CA economy and CA businesses which in turn is beneficial to the CA apartment REITs.

There were numerous examples of CA apartments transacting in the high 3s/low 4s cap rates prior to elections and I suspect we may see both increased deal volumes and even better pricing now that 15 & 21 have failed.  

While CA heavy apartment REIT share prices have moved up a bit this week, they remain well below their private market value.  The private market is THE MARKET for apartments (only 5% of apartment assets in the US trade publicly as REITs - the rest is in private hands).  Thus long term investors would be wise to ignore the 'entertainment only' nonsense put forth by the likes of Goldman Sachs, Baird, Jeffries, etc.