LOS ANGELES—“Without water, your project is dead,” said John Condas, partner at Allen Matkins, in kicking off the Regulatory Environment and Its Effect on Development panel at NAIOP‘s I.CON conference last week. (NAIOP is a GlobeSt.com Thought Leader.) Condas moderated the panel with speakers Troy Briggs, northeast regional director at Goodman Birtcher North America; Fran Inman, SVP Majestic Realty Co.; John Magness, SVP and Western regional director at Hillwood Investment Properties; and Michael Murphy, chief development officer at Center Point Properties. Panelists delved deep into regulatory issues, but were clear that the ongoing drought in California presented some real challenges for developers.
“If you are looking to buy a piece of land, you really need to do your due diligence with your water district to ensure that there is aggregate water supply, because I think there is going to be a potential moratoria on water hookups,” added Condas.
Magness agreed that the drought is a major issue, but said that there are ways to fix it. “It really isn’t a water shortage; it is a water allocation problem. 50% of the water coming into California goes out into the ocean, so there are ways to fix that,” he said on the panel. “Interesting enough, though, the Governor’s mandate of a 25% reduction in water uses excluded businesses and industrial properties.” He added that his company has been able to use the water reduction mandate to their advantage by reducing the number of trees that they are required to plant. In one city, they were able to plant 25% fewer trees because they argued that the trees were “water-thirsty plants.” “I am sure that the green house gas people won’t like that, but it is a trade off,” he said.
Inman added that businesses didn’t get a free pass, but that the government recognized that there wasn’t a one-size-fits-all solution to the water issues, so they began regulations on the residential side. However, as Condas warned, there could be restrictions set in place soon. Magness did note, however, that developers are already required to do a water supply assessment of a site during the entitlement period to ensure the site will have water for the next 20 to 30 years.
Water wasn’t the only regulation on panelists’ minds. Magness also noted that the air and the litigation environment were also issues that they were facing as developers. In terms of air, he says that the agencies in California, which exist to ensure industrial facilities have clean breathable air, are “here to put you out of business.” However, he added that the air is getting cleaner and that private organizations are working “somewhat” with the government. Despite these issues, though, he did say that the returns in California on these developments are better.
Briggs explained that his company has found success engaging the community in townships and burrows because “most of the city leaders were elected by those people. That is our strategy and we get better at it every time.” Inman agreed that engaging the community is important to get through the regulations without additional pushback. “It is important to really get engaged in your community,” she said. “We have to be sensitive to what is happening in our communities.”
In the end, all of the panelists agreed that the predevelopment process was perhaps the most involved. As a result, it is incredibly important to have a strong law firm and consulting team, which will save you money in the long run.