Los Angeles updated its revenue expectations for its new real estate transfer tax, Measure ULA, approved by voters last year.

An estimate from the Office of the City Administrative Officer now forecasts the tax might generate roughly $672M in the fiscal year ending June 2024, The Real Deal reports.

Though that's just an estimate for the first year, it is on the low end of what the city anticipated at election time, when it said the measure could raise between $600M and $1.1B, depending on market conditions.

Even on the low end, Measure ULA would generate roughly $433M for affordable housing programs in the city — four times the capital budget it has at its disposal for affordable and supportive housing programs now — and boost production, according to a joint report from the CAO and the housing department published on Friday. Of that $672M, $185M would go toward homelessness prevention programs.

The report doesn't include a breakdown of the city's estimate and what factored into it, but a spokesperson for the CAO told Bisnow that when their analyst looked at past transactions to project what the tax would yield in the first year, the office did see a huge increase in property sales in the price range that would have been affected by the tax, leading them to believe that owners will find ways to exit the market or otherwise subvert the tax. That led them to anticipate the tax generating revenue on the lower end of their estimate.

Commercial real estate property owners and industry professionals have also anticipated that the implementation of the measure itself, slated to go into effect April 1, will dampen sales. The tax would add a 4% tax on transactions of more than $5M and a 5.5% tax on transactions over $10M.

Property owners are also trying another way to avoid the tax: They are suing to have it invalidated. There are two pending lawsuits, one in Los Angeles Superior Court and one in the local federal district court. There is also a proposed state ballot initiative, backed by Kilroy Realty, that is aimed squarely at invalidating the tax, TRD has reported.

The report notes that the pending litigation and the ballot measure create some tough decisions for Mayor Karen Bass and for city council. The CAO says that if the city were to lose the litigation or if the statewide measure were to pass, any money it collected from Measure ULA would have to be given back. The mayor and council will have to decide whether to accept that risk and spend any money that comes in immediately or to collect but not spend any revenue from the tax until the legal issues are settled.

"Given the pending litigation and uncertainty surrounding the future ballot measure, the City must balance the need for immediate action to comply with the provisions of Measure ULA with the need to carefully plan for its long-term implementation," the report states.