Blog: Real Estate Legal Updates

Though Halloween has come and gone, a real-life scare continues to linger: the office sector of commercial real estate. Office has been the slowest sector to recover from COVID, as companies wrestle with remote/hybrid work policies in determining their future office needs. While some businesses have relinquished their office space completely or downsized to maximize the efficiency of square footage in highly amenitized buildings, others are making efforts to bring their staff back in and negotiating the inevitable reluctance from employees who got comfortable working in their loungewear. The future of office is uncertain, to say the least.

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It is rare for the commercial real estate industry to be the target of legislative reform.  Even for a progressive state like California, real estate-focused initiatives tend to focus on promoting housing policies, residential tenant rights, and environmental protections.  This year, however, there are three pending bills which could significantly disrupt the commercial real estate sector, potentially causing substantial increase in operating costs that will either undermine already-thin margins for landlords and owners or place more stress on tenants through passed through expenses.  The three bills, each of which has passed its house of origin (either the Assembly or Senate), are summarized below.  We encourage all of our clients to contact their state legislators to provide feedback regarding the dangers of these initiatives, which we will continue to monitor through the remainder of the legislative session. 

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We’ve all read the headlines recently.  From Big Lots to Joann’s to Express, many retailers which were staples of popular retail centers at the turn of the century have succumbed to the pressures of online shopping, higher interest rates and rising costs, and called it quits (or are significantly reorganizing their companies).  So is the retail market suffering, destined to face continuing failures and leave us with empty, decaying retail centers and shopping malls?

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The Downtown Sacramento Partnership (DSP) and the Urban Land Institute (ULI) recently convened a Technical Advisory Panel (TAP) of distinguished third-party analysts from around the country to analyze and recommend growth opportunities for downtown Sacramento. The TAP’s recommendations were made public this month. As a member of ULI Sacramento’s Executive Committee, I believe in downtown Sacramento’s potential and the power of the built environment to transform the community. In case you missed it, I wanted to share a few highlights of the TAP’s findings and recommendations with the hope that its vision for downtown Sacramento will inspire us in the commercial real estate sector to embrace the opportunities ahead.

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The classic fable of The Tortoise and the Hare is well-known across mainstream culture. Yet despite the story’s reliable and surprisingly universal thesis, it appears to have become commonplace for investors to look for faster and bigger results in lieu of slow and steady returns. And with recent high rates of return triggered by sustained low interest rates and pent up demand following the Great Recession, the commercial real estate sector seems to be no exception to this hare-like approach. It should therefore come as little surprise that, given high interest rates, increased construction costs, and political turmoil, many commentators on the 2024 commercial real estate market predict negative results for the upcoming year.[1]

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There are not many things in life that are truly “one size fits all.” We certainly don’t take this approach when it comes to our clothes, our TV shows, or our lunches. Yet for some reason, we regularly employ this method in our commercial real estate transactions. Almost daily, I am asked to comment on an AIR or CAR form, usually with the caveat that one of the parties really wants to use the form and “keep it simple.” While simplicity may have its benefits, this is rarely the wisest course of action in a transaction involving multi-million-dollar assets. A custom form will more accurately reflect the parties’ agreement and, in my experience, actually be cheaper and easier for the parties to negotiate.

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Every spring, usually on the first weekend of good weather, I rush to the local nursery and spend what feels like a week’s worth of wages on new plants, soil, fertilizer, and irrigation lines. I can’t wait to get the seedlings in the dirt, connect the water, and watch the home-grown, organic produce flow from Mother Earth based only on my sweat equity. And every summer, usually around the Fourth of July, I face the cruel realization that my green thumb was apparently lost at childbirth.  The return on investment for 12 cherry tomatoes, 6 strawberries and a shriveled zucchini just isn’t there. Not everything goes to plan. 

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Spring is here! We finally have warmer weather, longer days, and the prospect of weekend plans not getting ruined by rain. If you’re anything like me, you were ready for the turn of the season after a very wet winter. What I wasn’t ready for was the inevitable assault on my senses, as pollen has suddenly filled the air and unleashed its annual crusade to dampen the optimism of spring. If I had remembered to start my Flonase and Claritin regime earlier, perhaps I wouldn’t be flying through tissue boxes as I sneeze and cough my way through the day.

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With the turn of the year comes ill-fated resolutions, needed but annoying rain, and a slew of new legislative enactments coming into effect. While commercial real estate is not typically a hotbed for legislative activity, there are a few noteworthy changes that may affect prospective projects, mostly focused on relaxing procedural requirements to incentivize the construction of new housing projects to combat the state’s ongoing housing crisis.

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