REAP is an LA Housing Department enforcement program that places buildings with serious outstanding code violations into mandatory rent escrow. Tenants pay rent to the city instead of the landlord.
When LAHD determines a building has serious habitability violations that the landlord has failed to remedy, REAP diverts tenant rent payments into a city-held escrow account. Funds are released back to the landlord only after code compliance is achieved. Also includes a rent reduction during the REAP period.
A REAP status is a sale-killing issue. Buyers walk from REAP buildings almost universally. Sellers with REAP exposure must remediate and exit REAP status before listing; there is no effective workaround. The cost of resolving REAP is almost always far less than the sale impact of marketing a REAP-listed building.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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