Warehouse Law Pushes Developers to Far-Flung IE Cities

Warehouse developers in the Inland Empire are keeping a close eye on a new law that could push projects into far-flung desert markets.

Builders are tracking how Assembly Bill 98, signed into law this year by Gov. Gavin Newsom, will affect development and drive up the value of approved projects, according to panelists at Bisnow’s Inland Empire and Desert Markets Commercial Real Estate Summit.

AB 98 sets requirements for locations of new warehouses, including setbacks of 300 feet from homes and schools. In areas that aren’t zoned for industrial use or where the zoning had to be changed to accommodate the property, setbacks are extended to 500 feet.

They said the new law will play an outsized role in shaping new construction in established markets in Riverside and San Bernardino counties, but could also benefit growing industrial areas in its desert regions.

“These desert cities that are less developed are really well positioned because they’re able to kind of start from scratch in some regards,” Newcastle Partners Development Manager Courtney Wing said during the event this month at the Hilton Los Angeles Culver City.

The controversial legislation was introduced less than a week before the end of the legislative session, leaving little time for input or questions from the development industry.

Questions linger on how to rejigger truck routes that some cities may be required to undertake and their impact on future development.

In that respect, less built-out industrial markets may have an advantage, panelists said. The size of the desert region, and what cities it encompasses, were not defined.

“I think the desert markets, for a variety of reasons, are well-positioned just because they have a little bit of a blank slate to work with,” Wing said.

Approved building sites now may be increasingly valuable as it becomes more difficult to construct new projects, Rexford Industrial Realty Director of Industrial Investments Ryan Leslie said.

While that’s a boon to developers with projects in the pipeline, the conditions may also impact who builds these projects in the future.

“I think what we’re going to end up seeing is that development in California is going to get continuously more and more institutionalized because it’s getting more and more complicated to pursue entitlements,” Leslie said.

Another major consideration for industrial in these markets is power. The issue is not new, but as electricity becomes more important to tenants, it’s making or breaking deals for landlords.

It could take years to get significant electrical power to warehouses. And in anticipation of increasing power needs to charge equipment and trucks that run on electricity, it’s only going to become more important, Leslie said.

“In our portfolio, we’ve seen ourselves both winning and losing some deals because we either have power or we don’t,” Leslie told the conference.

Newsom and the state’s commercial developers have drawn battle lines over the bill he signed to regulate construction of warehouses. After the governor signed AB 98, commercial real estate groups vowed to fight back this fall with opposing legislation in Sacramento

The bill, co-sponsored by Assemblywoman Eloise Gómez Reyes, D-Colton, and Assemblyman Juan Carrillo, D-Palmdale, came in response to an Inland Empire warehouse boom of buildings of up to 1 million square feet, with trucks that bring pollution, traffic and noise to local neighborhoods.

— Dana Bartholomew