“You just have to make sure that you’re
comfortable that there is a risk that the laws
might change in the future, which undermine or hinder the performance of the
asset,” said Watkins. “Pricing that [risk]
upfront to the best that you can is the way
that we’re trying to handle it,” he adds.
BentallGreenOak, for its part, is not
avoiding any specific cities because of these
new rules, according to Boneham.
On the other hand, the transactions peo-
ple know that they need to be able to defend
their underwriting assumptions and invest-
ment level, he continued. “It’s self-select.”
Rising taxes serve as another challenge
facing real estate investors, according to
Livanos. But the affordability issue even
seems to trump that to a certain extent. In
general, she said, “the unfriendly environ-
ments that we’ve seen so far are obviously
New York, Chicago, California and
Washington State.” The problem is there
is more and more divergence in incomes
and there is really no public answer to
affordability, she continued, and there’s
also no public-private coordination to
solve the affordability issue.
“We’ve seen historically that a public
answer isn’t necessarily going to work.
We’ve seen historically that a lot of private-only doesn’t work. So, there has to be some
coming together of the two parties to
resolve the issue,” Livanos said.
Even the opportunity zones, which she
said were a great idea, are not really solving
any affordability issues.
Other regulations are also hindering
real estate developers, Watkins added, citing environmental impact rules and insurance issues.
“We’re seeing insurance be a large factor
in our underwriting that’s got to be taken
into account, and the areas that we want to
be investing in, West Coast and Florida are
the high risk areas for earthquakes and hurricanes.” Watkins reported thata Clarion
Partners is very actively pursuing an insurance program to make sure that it has the
best policies in place.
Panelists also pointed to regulations
underway in Portland, in which new developments must include an area for the
homeless to rest. This applies to all projects including multifamily, office or retail.
“What it’s doing is making [certain]
deals more attractive because people
don’t want to be in the area where
there’s people loitering,” said Hughson.
“It’s challenging for tenants. They don’t
With all the concern about rent con-
trol and other regulations, these inves-
tors are still adhering to the basic rule of
commercial real estate, which is to follow
the demand—and now that often means
developing in the heart of some of these
Tech and biotech are the two biggest
drivers in demand for office space, and
Clarion Partners is actively investing
around these drivers, Watkins says. That
includes Cambridge, San Francisco,
Seattle and Portland, he said—markets
that are looking for those creative office
spaces. And yes, they’re looking for multifamily to support that office growth,
whether it’s top tier or class-B, he added.
It would be ironic if the stakes weren’t so
high. But, as regulations mount, we can
expect this dichotomy story to play out in
market after market. ◆
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