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There could be a boom in affordable housing in the coming years based on the way California voted in the 2018 midterm election. There were a number of propositions and measures that Californians voted on that will affect commercial real estate in the next few years.

California State Proposition 1: Authorizes bonds to fund specified housing assistance programs.

Results: Approved 54% to 46%

Prop 1 will allow California to issue $4B in bonds to fund affordable housing and veterans programs.

California State Proposition 2: Authorizes bonds to fun existing housing programs for individuals with mental illness.

Results: Approved 61% to 39%

Prop 2 will allow the state to sell $2B in bonds to fund the construction of housing and support services for mentally ill and homeless people, or those in need of mental health services on the brink of homelessness.

California State Proposition 4: Authorizes bonds funding construction at hospitals providing children’s healthcare.

Results: Approved 61% to 39%

Prop 4 will authorize California to sell $15B in bonds to fund grants for construction, expansion, and renovation and other capital improvements of children’s hospitals and other hospitals that provide services for children.

California State Proposition 5: Changes the requirement for certain property owners to transfer their property tax base to the replacement property.

Results: Rejected 58% to 42%

A yes vote on Prop 5 would have allowed seniors who are age 55 and over, severely disabled individuals and those whose property has been impacted by a natural disaster to carry over their home property tax assessment to a new home regardless of price.

California State Proposition 6: Eliminates certain road repair and transportation funding.

Results: Rejected 55% to 45%

A yes vote on Prop 6 would have repealed the 2017 road repair and accountability act transportation law and made it harder for the state legislature to enact measures that increase taxes on gas and/or diesel fuel.

California State Proposition 8: Regulates amounts outpatient kidney dialysis clinics charge for dialysis treatments.

Results: Rejected 62% to 38%

A yes vote on Prop 8 would have limited dialysis clinics’ revenue cap to 115% of specified direct patient care service costs and healthcare improvement costs.

California State Proposition 10: Expands local governments’ authority to enact rent control on residential property.

Results: Rejected 62% to 38%

A yes vote on Prop 10 would have repealed the 1995 Costa-Hawkins rental housing act and expand local cities and authorities’ ability to enact rent control.

San Francisco Proposition A: Embarcadero Seawall Earthquake Bond

Results: Approved 82% to 18%

Prop A will allow the city to issue $425M in bond debt for the construction, reconstruction, improvement, seismic strengthening, and repair needed on the Embarcadero Seawall.

San Francisco Proposition C: Additional business taxes to fund homeless services

Results: Approved 60% to 40%

Prop C will impose additional business taxes, a “homelessness gross receipts tax” that averages less than 0.5% for San Francisco businesses with more than $50M in gross receipts. The funds will be used to house the homeless and expand shelter beds, fund legal assistance, and rent subsidies and fund mental health and substance abuse services.

Berkeley Measure O: Affordable Housing Bonds

Results: Approved 76% to 24%

Measure O will create and preserve affordable housing for low-income households, working families, and individuals who qualify.

Berkeley Measure Q: Rent Amendments

Results: Approved 69% to 31%

Measure Q will make accessory dwelling units exempt from rental control on properties that are owner-occupied.

 

Read more on BisNow

The federal government has recently designated 9,000 census tracts as Opportunity Zones and they have become ripe for real estate investment. Investment in opportunity zones has become part of a new community development program through the Federal Tax cuts and Job Acts of 2017. This program encourages private investment in low-income urban and rural communities. The investment program is a free-market approach that is meant to spur economic and community development through long-term investment.

Earlier this year, governors from all 50 states were asked to identify low-income or low-performing areas in need of infrastructure investment. States themselves could then go on to nominate 25% of those tracts to make opportunity zones.

The opportunity zone program will allow investors to defer taxes by taking capital gains from other investments and placing them into businesses or various real estate assets in the opportunity zone. The tax incentives not only encourage investment in low income areas, but also promotes long-term investment. The longer investors keep their money in opportunity zones, the more tax incentives they receive. Real estate funds provide many benefits to its investors, including low risk. The companies creating the real estate funds are usually sophisticated in understanding the economic and social climate for each location and they tend to have more influence over the areas, which increases the chance of a positive return on investment.

In the opportunity zone program, there are no official guidelines on the type of investment that must be made. Investors have their choice of a capital investment in a startup company based in the area or they can choose to develop a new residential or commercial building. Investors ultimately become an integral part of a opportunity zone community’s rebirth. Usually, investors can transform low-income areas into thriving and economically sound neighborhoods. Investments in low-income opportunity zones usually  improve housing stock, create new jobs, and leverage public transportation.

The opportunity zone program is still in its early stages, but there has been discussion about the long term impact the investments will have on the people and the areas they live in. While awaiting government guidance, the preliminary research would appear to show that the program is going to be mutually beneficial to investors and the communities in which they operate.

Read more on Forbes

Office buildings may be getting older, but they become more appealing with age. Many potential office tenants are looking to reside in architecturally unique buildings. First instinct might be to tear down and rebuild an old building, especially if it seems the cost of restoring it is high. Building owners have quickly realized that you can’t buy or build character and there is inherent value in restoring these old office buildings. For example, Pier 70 in San Francisco, CA is full of historic buildings and is 100% leased; some of its notable tenants are Gusto, Restoration Hardware and Uber.

The adaptive reuse of historic buildings is becoming increasingly popular for nonprofits. One developer, Equity Community Builders, said that much of the adaptive reuse their company has done ended up working better for non-profits, since many are struggling to find affordable office spaces.

Although adaptive reuse can bring many advantages, it also comes with many challenges. One of these is the increase time to delivery and cost to redevelop. In addition, working within the confines of a historic building also means not tearing down a wall or column to make way for more office space. The biggest challenge that comes with adaptive reuse is finding a design that is functional now and will continue to be useful long-term.

Read more on BisNow

Adaptive reuse is becoming an important pathway to build more housing and mixed-use projects. A lot of the former retailers on the 880 corridor are being converted into housing. One of these adaptive reuse projects, in particular, is going to convert an old car dealership into a huge mixed-use space; including a hotel, retail, and 140 townhomes. The ideal reuse opportunities are retail spaces that require less square footage.

MLC Holdings president, Charles McKeag, said that not every reuse opportunity has been viable, especially in the industrial sector. He noted that there is already a lot of competition for the industrial spaces in the Bay Area, since vacancy is so low. In the industrial market, the most successful reuse opportunities have been small sites since they don’t usually have enough square footage to be useful to industrial users.

Currently, Union City is home to one of the biggest adaptive reuse projects, Station District. They are creating a mixed-use community with hundreds of housing units, 1.2M SF of office, as well as ground-floor retail and a public plaza. It is anticipated that Station District will have easy success leasing the spaces given its location and the current demand for similar spaces.

As people are moving further from their jobs and toward more affordable areas, transit-oriented developments (TODs) have been in high demand. TODs near BART have been very popular and a recent state bill would give BART more authority over developments on and near its land. This bill could be very important in creating new and affordable housing developments; but unfortunately, it could also be problematic because design that works in Oakland might not work in Union City or Newark.

Read more on BisNow.