Top 6 Takeaways from the Real Estate Development Law Update

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Allen Matkins

Allen Matkins recently hosted its 2021 Real Estate Development Law Update program to provide insight into economic factors, cases, and regulations impacting the industry. The program opened with an analysis of the current state of the real estate industry and trends expected to continue into the near future from Ali Wolf, Chief Economist at Zonda. Allen Matkins land use attorneys John Condas, Matt Fogt, and Andrew Lee then shared updates of recent cases with implications for real estate developers.

The following are six takeaways from the presentation:

1. SOME SECTORS OF THE MARKET HAVE THRIVED DURING THE PANDEMIC

COVID-19 has had an overall negative effect on the economy, but the pandemic and related shutdowns disproportionately impacted some sectors of the economy more than others. Businesses within the trade, transportation, utilities, and professional business services sectors have grown during the pandemic. Some even added jobs over the last year. Those that have not fared as well, notably leisure and hospitality, are dealing with what feels like an economic recession or depression. The result is a K-shaped recovery process that will not take place uniformly across all industries.

2. IT SEEMS LIKE 2021 WILL BE A GOOD YEAR FOR RESIDENTIAL REAL ESTATE

Residential housing is the strongest sector of the economy, seeing some of the highest growth since the mid-2000s. In December 2020, new home sales were up 36% YOY, with significant movement in Riverside, San Diego, and Los Angeles. Factors like limited inventory, low-interest rates, and the work-from-home economy are largely driving this growth as buyers seek out more space in their homes. These factors will likely be in play for at least another five to 10 months until employees start returning to their worksites.

3. LOOKING AHEAD TO POST-PANDEMIC REAL ESTATE

The pandemic accelerated several real estate trends that were already in place, including repurposing unused retail space and demand for well-executed housing. Industry analysts expect activity in the suburbs to grow even after employees return to offices. This is due, in part, to Millennials moving to the suburbs as their families increase in size. Gyms and business travel will eventually return, but they may not reach previous levels as people rely on some of the solutions they’ve turned to during quarantine. One notable prediction is that city life will return, including an interest in living near city centers and having access to cultural attractions.

4. CEQA UPDATES

Two recent California Environmental Quality Act (CEQA) cases stand out and are worth additional consideration. In Martis Camp Community Association v. County of Placer, the court ruled that developers cannot add an addendum to an environmental impact report (EIR) for an action that is not actually related to the original project. Although this is a common-sense ruling, its application in future cases may call into question the use of an addendum for an activity outside the geographical boundaries of what was studied in the original EIR. In Sierra Club v. County of Fresno, the court held that partial decertification of an EIR is not an available remedy; if any portion of an EIR is held to be inadequate, the entire EIR must be decertified.

5. SCAQMD TO CONSIDER PROPOSAL AFFECTING WAREHOUSE OWNERS AND OPERATORS

On April 2, the South Coast Air Quality Management District will consider a proposal that might create a significant cost burden to owners and operators of industrial warehouses. If passed, it requires them to collect and calculate truck data annually. Warehouse owners and operators will need to earn WAIRE (Warehouse Actions and Investments to Reduce Emissions) points through activities like using zero — or near-zero-emission trucks and installing solar panels on buildings. The proposal uses a broad definition of warehouse space, applying it to structures with at least 100,000 SF of indoor floor space. Meeting these requirements might be impossible for some owner-operators.

6. DEFINING MINISTERIAL AND DISCRETIONARY PERMITS

In Protecting Our Water and Environmental Resources vs. County of Stanislaus, the California Supreme Court determined that defining a permit as discretionary or ministerial depends on the circumstances. If the public agency has the option to approve or deny or condition the permit, it is discretionary. The permit is ministerial if the issuing agency only applies facts to standards and must approve the permit if the standards are met and cannot otherwise condition the approval. Developers should not assume that all permits for building, grading, or wells are ministerial.

For much of the pandemic, real estate businesses have been able to continue operating. Even during a shutdown, policymakers made decisions that can have a lasting impact on the future of the industry. As the course of the pandemic shifts and the executive orders are lifted, it will be time to deal with details like eviction backlogs, decisions about how to handle unpaid rent, and how best to move forward.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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