Selling a Los Angeles Hotel in 2026? The Measure ULA Cliff Changes the Math Before You List

When the Fairmont Century Plaza sold out of foreclosure for $760 million, the transaction carried a tax bill that had nothing to do with profit. At 5.5 percent, the transfer tax alone ran roughly $41.8 million, due at closing regardless of whether the lender recovered its loan or lost money on the deal. That is Measure ULA in its purest form: a tax calculated on what a property sells for, not on what anyone made from owning it.

Most owners of Los Angeles hospitality assets already know Measure ULA exists. Fewer have sat down and modeled what the tax actually does to a specific sale at a specific price point, especially now that the thresholds have moved again and the political fight over repealing the tax has quietly ended for this cycle. If you own a hotel inside city limits and a sale is anywhere on your three-to-five-year horizon, the number that matters most right now is not your expected sale price. It is which side of a very narrow line that price falls on.

The cliff, not the rate, is the problem

Measure ULA imposes an additional real property transfer tax on sales within the City of Los Angeles, on top of the existing city and county transfer taxes. The thresholds adjust every July 1 based on the Chained Consumer Price Index, and the current fiscal year brought another increase. For closings after June 30, 2026, the tax runs 4 percent on the gross sale price for transactions above $5,400,000, and 5.5 percent above $10,900,000. The Los Angeles Office of Finance confirms both figures directly.

The design detail that catches owners off guard is that the tax applies to the entire sale price once a transaction crosses the line, not just the portion above it. A hotel that sells for $5,400,000 owes nothing. The same hotel sold for one dollar more owes roughly $216,000. There is no phase-in and no marginal bracket the way income tax works. Cross the threshold and the full 4 percent applies to every dollar of the sale, not just the sliver above $5.4 million.

That structure turns pricing near the threshold into a six-figure decision rather than a rounding exercise. A hotel broker who prices to the top of a range without running the ULA math first can cost a seller more in transfer tax than the extra pricing was worth in the first place.

Hospitality assets absorbed this harder than most property types

Hotels are not incidental to this story. They have been one of the asset classes most visibly affected since Measure ULA took effect in April 2023. Atlas Hospitality Group, which has tracked California hotel sales for more than two decades, documented the shift in real time. In the third quarter before the tax took effect, Los Angeles County saw thirteen hotel sales priced above $5 million. In the same quarter the following year, only two closed above that mark, one in Glendale and one in Lennox, both outside city limits. No hotel sale subject to Measure ULA closed that quarter at all.

The pattern held the following spring. Los Angeles County recorded twenty hotel sales above $5 million in one quarter before the tax; a year later, the only sale above that threshold inside the city was the Fairmont Century Plaza, and it came out of foreclosure rather than a voluntary listing.

The 2025 hotel sales record for the county tells a similar story. Among the year's five largest hotel transactions, including Corten Real Estate Partners' $68 million purchase of The Line in Koreatown, Pebblebrook Hotel Trust's roughly $44 million sale of the Montrose in West Hollywood, and Chrome Hearts' $37.5 million purchase of the Surfrider in Malibu, not one triggered Measure ULA. Each deal either closed outside the city or came through a foreclosure structure. That is not a coincidence. It is a pattern of sophisticated buyers and sellers routing around a specific tax line, whether by geography or by transaction structure.

Alan Reay, president of Atlas Hospitality Group, has described the effect in blunt terms, telling the Los Angeles Business Journal the tax has "really hurt sales." Lenders have taken notice too. Reay has flagged that a foreclosure on a loan over $5 million still triggers the ULA tax, which changes how some lenders think about underwriting large hotel loans inside city limits in the first place.

The tax does not check whether you made money

Measure ULA is calculated on consideration, meaning the price paid, not on gain. That single design choice explains why the tax lands so unevenly. A commercial building that lost most of its value and sells at a loss still owes the tax on whatever it sells for, while a property held for decades and sold at a large profit but under the threshold owes nothing at all. RAND Corporation researchers laid out the mechanics plainly in an April 2025 commentary, noting that an office building that plunged in value and sold for $15 million could still generate an $825,000 ULA bill despite an overall loss for the owner.

The same math applies to a hotel. If debt exceeds value, as CBRE Hotels' Michael DiPrima has pointed out is the case for a meaningful share of Los Angeles hotel assets right now, a forced or distressed sale can still carry a six or seven figure transfer tax obligation layered on top of a loss. The tax also applies regardless of whether the seller executes a 1031 exchange. A like-kind exchange defers federal and state capital gains tax, but it does not defer or eliminate Measure ULA, because the tax is a transfer tax rather than an income tax.

Why "wait for repeal" stopped being a plan this summer

For much of 2026, a real path to repeal existed. The Howard Jarvis Taxpayers Association had qualified a statewide initiative for the November 2026 ballot that would have capped municipal real estate transfer taxes at 0.05 percent statewide, effectively gutting Measure ULA overnight if voters approved it. That initiative was withdrawn earlier this year after a negotiated agreement with the Governor and legislative leaders. In its place, voters will consider Proposition 43 in November, which raises the approval threshold for future local special taxes starting in 2027. It does not touch Measure ULA as it exists today.

Separately, the Los Angeles City Council considered its own reforms in 2026, including a proposed multi-year exemption for new construction. The council pulled that measure from the ballot as well. The practical result is that Measure ULA enters the fall of 2026 unchanged and without a pending vote that would alter it. Any hotel owner who delayed a listing decision on the assumption that relief was coming this November is now working from the same rules that have been in place since 2023, just with a slightly higher inflation-adjusted threshold.

What this changes about how you plan an exit

None of this means a Los Angeles hotel cannot trade well above the threshold. It means the planning has to start earlier and go deeper than a standard listing conversation. A few questions are worth working through before a property goes to market, ideally with both a broker and a tax advisor at the table:

• Where does your expected sale price sit relative to $5,400,000 and $10,900,000, and how much room is there before the next July 1 CPI reset moves those numbers again?
• If the property is likely to land within a few hundred thousand dollars of either line, does the marketing strategy or timeline give you room to negotiate a final price on the more favorable side of that cliff?
• If the asset includes an operating hotel business as well as the real estate, does structuring the transaction as a business sale with real estate attached change the tax treatment compared to a straight deed transfer? This is a legal and structural question, not a pricing one, and it depends heavily on how the current ownership entity is set up.
• If financing is part of the picture, has your lender priced Measure ULA into their view of exit value, the way some California lenders now do for loans secured by Los Angeles hospitality assets?

This is exactly where a straight brokerage listing and a fiduciary advisory relationship diverge. A hotel with real estate and an operating business intertwined does not fit neatly into a standard purchase and sale agreement, and the tax consequences of getting the structure wrong can run into six figures before a single dollar of capital gains is calculated. Robert Rauchhaus works these transactions from both sides, the real estate and the business, precisely because hospitality assets in Los Angeles increasingly require that combined view.

Frequently asked questions

Does a 1031 exchange avoid Measure ULA? No. A 1031 exchange defers federal and California capital gains tax, but Measure ULA is a transfer tax due at closing regardless of whether the seller reinvests the proceeds in a replacement property.

Does the tax apply if a hotel is sold out of foreclosure? Yes. Measure ULA applies to qualifying transfers regardless of whether the sale is voluntary or the result of a loan default, as the Fairmont Century Plaza transaction demonstrated.

Does Measure ULA apply outside the City of Los Angeles? No. The tax follows the city boundary, not the county line. Hotels in Beverly Hills, Santa Monica, Glendale, and unincorporated Los Angeles County are not subject to Measure ULA, though some of those cities have their own separate transfer tax rules.

Are there any exemptions for hospitality sellers? The exemptions under Measure ULA are narrow and limited to specific categories such as qualified affordable housing organizations, community land trusts, and certain government entities. There is no general exemption for hotel owners, family transfers, or hardship circumstances.

If you own a hospitality, vineyard, or commercial asset in the City of Los Angeles and a sale is somewhere on your horizon, the time to model Measure ULA is before you set a list price, not after an offer arrives. Hospitality Realty Partners works directly with owners on this kind of pre-listing strategy, combining brokerage execution with the business and tax structuring judgment these transactions require. Schedule a confidential consultation to discuss strategy and valuation.