Retailers, Watch Out for These Government Regs

There was tremendous positivity at ICSC Western States in Los Angeles this week about the state of the retail market, but there are proposed regulations and legislation that could impact retail owners. At the conference, Rex Heim, president and CEO at the California Business Properties Association, talked about the government regulations impacting retail owners and operators, naming split roll property tax as one of the biggest threats to retail owners.

Earlier this year, non-profit Housing California collected and submitted enough signatures to rollback Proposition 13, current property tax legislation passed in 1973 and limited property tax increases to 1% to 2% per year on all property types. Currently, commercial properties have the same protections as single-family residences, and the current proposed rollback of Proposition 13 would tax commercial and industrial properties at fair market value. The proposal has been approved for the 2020 ballot.

“Split tax roll has always been a threat, but it is a bigger threat than it has ever been,” Heim said in his address at ICSC Western States. He said that one of the biggest concerns is that the legislation will allow the government to reassess the value of the property every three years, making future property taxes volatile. This of course would affect both owners as well as triple net lease tenants. Housing California, however, says that the proposed property tax plan for commercial properties would $6.5 billion to $10.5 billion in additional tax revenue per year.

Heim was also concerned about Proposition 10, which is on the ballot in November. While Proposition 10 is focused on expanding residential rent control for both multifamily and single-family rental properties, Heim said that commercial rent control would be next, if this were to pass. “It is outrageously bad,” said Heim. “If it gets passed, we will be the next target and there will be commercial rent control in the state of California.”

While Heim had many concerns about upcoming legislation and the impacts on retail, he also said that the industry and ICSC made a lot of progress this year. Specifically, he said the dual agency ban, which would have prohibited brokers from acting as “dual agents” for both buyers and sellers, was defeated. Additionally, he said that they stopped seismic retrofit disclosure requirements.

While all of this legislation impacted California specifically, the state tends to be a trendsetter for real estate legislation, according to Peter Jacobson, manager of state and local government relations for Western Division at ICSC. “Always important to keep an eye on California politics,” he said. “They migrate north and east, but California is always a trendsetter.” Jacobson closed the discussion on government regulations, saying that ICSC is focusing on ADA reform this year as well as addressing the issue of homelessness and what the industry can do to help.