Development Challenges Face Inland Empire

By Dennis Kaiser

First Part in Series: Overview – What’s the Problem?

This four-part series, leading up to Connect Inland Empire  on October 6^th, details how the CEQA law is being used, the problems resulting from those lawsuits, the impact on commercial real estate developments and some potential solutions for a challenge facing developers across California.

The major economic engine in the Inland Empire is under attack. The primary weapons being used against industrial development projects now are California Environmental Quality Act (CEQA) lawsuits.

The environmental statute, which was signed into law in 1970 by Governor Ronald Reagan, requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible. Public agency activities surrounding projects must comply with CEQA’s guidelines, regulations and reviews.

While CEQA  initially worked to identify and mitigate environmental impacts, today those guidelines essentially are being used for economic gain. Information gathered by Connect Media demonstrates that the CEQA rules aren’t being used in the spirit of protecting the environment, as originally intended.

“The problem in large part is CEQA litigation, and how the process has been corrupted,” said Michelle Ouellette, a land use attorney with Best Best & Krieger, who notes CEQA is an important law that has its benefits. Still, “It has created additional financial and time burdens for development in the Inland Empire.”

Proponents argue CEQA’s effectiveness relies upon private parties to act on the greater public interest, since no state agency has the specific power to enforce or implement those requirements. Representatives from interests filing lawsuits declined to comment for this story.

John Husing, an Inland Empire economic and political consultant, observed that CEQA is being abused by NIMBYs today to stop projects. Attorneys regard it as a cash cow. Unions use CEQA as greenmail to force payments to them or to get prevailing wages on projects. “It [CEQA] either slows or stops projects that have no need to be stopped on environmental grounds, or to a large extent, for other reasons,” said Husing.

Industrial and manufacturing occupiers help create jobs in the region, notes Western Riverside Council of Government’s (WRCOG) Rick Bishop. But standing in the way of these developments are “some who view industrial/manufacturing as not being an optimal long term use of the land, given an overall desire to focus on future jobs that might be considered to be higher tech and/or require different skill sets,” he said.

So, while the whole state is impacted by CEQA laws, the Inland Empire is perhaps at the leading edge of the battle, not surprisingly as a result of the tremendous amount of demand for industrial facilities.

Husing reported that in the last four quarters ending with June 2016, the Inland Empire had 21.5 million square feet of space absorbed, and had another 17.2 million square feet under construction. “So, demand is coming to us faster than it is being built,” said Husing. “E-commerce and logistics is a major job creator in the Inland Empire that’s being affected by the use of CEQA to stop projects.”

The big driver of increased demand in the Inland Empire are the shifts occurring in the retail industry that have spilled over into the industrial sector. “The industrial world is benefiting from the demise of the bricks and mortar retail world,” said Colliers International’s Thomas Taylor. “E-commerce is growing at a quick pace and online retailers are leasing large, Big Box buildings to meet their needs.”

To illustrate that demand, Transwestern recently conducted a study of Amazon’s growth. It found the behemoth e-commerce retailer completed eight leases in the Inland Empire, resulting in a massive expansion of 7.2 million square feet since 2013.

That’s just one recent example among many expansions that have occurred in the region. Factors driving the growth include the Inland Empire’s lower costs, available land, proximity to ports and, most importantly, consumer demand.

The issue of CEQA negatively affecting CRE development remains largely undiscovered by the public. Yet, ultimately consumers will bear the brunt of the impacts in the form of higher costs for the products they buy.

“There was a time when CEQA was a good thing, but like several other acts, over time have become weapons that are not being used for anything related to the intent of the law,” said Husing. “If the state legislature refuses to do anything because it’s afraid of the environmental community, then development is stuck. It is one of several ways the environmental community has had an impact on people in California.”

Be sure to follow Connect Media’s series this week on development challenges in the Inland Empire. The next part will focus on if the threat is real or are developers crying wolf?

For comments, questions or concerns, please contact Dennis Kaiser

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