New Commercial Real Estate Legislation in 2024
Key Changes Impacting Property Owners, Investors, Renters, and Developers
Commercial real estate is facing several significant changes as new or proposed laws come into effect across the United States. These legislative updates have the potential to affect anywhere from property owners and investors to renters and developers. Here are the most critical legislative changes at local and national levels facing commercial real estate this year.
California Leads with Extensive Housing Reforms
California continues to be at the forefront of housing legislation, with several new bills aimed at addressing affordability and tenant rights.
Assembly Bill 2216: Mandatory Pet Acceptance
AB 2216 proposes to prohibit rental housing providers from asking about pets during the application process. The bill also aims to restrict pet deposits and fees. This legislation could affect how commercial property owners manage multifamily residential buildings and mixed-use developments.
If passed, the law might increase wear and tear on rental properties. It could also lead to higher insurance costs for property owners. However, it may expand the pool of potential tenants for residential units in commercial buildings.
Assembly Bill 2347: Extended Eviction Response Time
This bill seeks to extend the period tenants have to respond to eviction lawsuits. The current five-court-day window would increase to 10 court days. For commercial real estate owners with residential tenants, this change could lengthen the eviction process and potentially impact cash flow.
The extended response time might also affect how quickly commercial spaces can be turned over to new tenants. Property managers may need to adjust their timelines and procedures for handling evictions.
Assembly Bill 2493: Restrictions on Applicant Screening Fees
AB 2493 aims to limit when housing providers can charge applicant screening fees. This bill could change how commercial property owners select tenants for residential units in mixed-use developments.
The proposed restrictions might lead to a more streamlined application process. However, they could also increase the risk of renting to unsuitable tenants. Property owners may need to develop new strategies for vetting potential residents.
Assembly Constitutional Amendment 10: Housing as a Fundamental Right
This measure proposes to amend California’s Constitution to recognize housing as a fundamental human right. If passed, it could introduce new tenant protections and rent control measures.
For investors, this amendment might lead to increased regulation in the residential sector. It could affect the profitability of mixed-use developments and multifamily properties.
Senate Bill 1201: Disclosure of Beneficial Owners
SB 1201 would require beneficial owners of more than 10% of a corporate entity to disclose personal information annually. This bill could impact the privacy of commercial real estate investors and potentially change how ownership structures are formed.
The increased transparency might affect investment strategies, particularly for those who prefer to maintain anonymity in their real estate holdings.
Proposition 33: Expansion of Rent Control Powers
The “Justice for Renters Act” is a ballot initiative that could repeal California’s Costa-Hawkins Rental Housing Act of 1995. This proposition would give local jurisdictions more power to regulate rents. It would allow them to implement price caps on homes and situations currently exempt from rent control.
For owners of multifamily properties, this could significantly impact long-term profitability. It might also influence decisions about future investments in California’s real estate market.
SB 423: Multifamily Housing in the Bay Area
SB 423 focuses on increasing multifamily housing development in the Bay Area and aims to address the region’s housing shortage.
For developers in San Francisco and surrounding cities, this legislation could create new opportunities in the multifamily sector. It might also lead to changes in zoning regulations and development processes in the Bay Area.
New York Introduces Zoning Changes and Tax Incentives
City of Yes Zoning Changes & 485x Tax Abatement
New York City is implementing zoning changes under the “City of Yes” initiative. This is paired with the 485x Tax Abatement program. These measures aim to encourage more development and affordable housing in NYC.
Commercial real estate developers in New York City should closely monitor these changes. They could open up new development opportunities and provide tax benefits for certain projects.
Florida Tackles Rent Control Legislation
Florida SB 250: Restrictions on Rent Control
Passed in 2023, Florida’s Senate Bill 250 restricts local governments from imposing rent controls. The bill preempts local governments from enacting, maintaining, or enforcing any rent control ordinances. SB 250 aims to maintain a free market for rental pricing across Florida.
For investors, this law provides more certainty in rental income projections. It may make Florida a more attractive market for multifamily and mixed-use property investments.
Texas Puts Limits on Local Governments
Texas HB 2127: Limits on Local Business Regulations
Also passed in 2023, Texas House Bill 2127 limits the ability of local governments to regulate various aspects of business operations. The bill, also known as the “Texas Regulatory Consistency Act,” prevents local governments from enacting ordinances that conflict with state laws in several areas, including finance, insurance, labor, and natural resources.
HB 2127 may simplify operations across different Texas municipalities and lead to more consistent regulations for property management, development, and investment throughout the state.
National Legislation Targets Housing Affordability
Rent Hike Cap Proposal
President Joe Biden has proposed a series of measures to lower housing costs. A key element is the withdrawal of tax credits from landlords who raise rent more than 5% per year. This would apply to landlords with portfolios of more than 50 units.
If implemented, this policy could significantly impact large-scale commercial real estate investors and property management companies. It might lead to changes in rental pricing strategies and portfolio management approaches.
H.R.9002: Tax Credit for Affordable Housing Conversion
This bill aims to amend the Internal Revenue Code to provide an investment credit for converting non-residential buildings to affordable housing. For commercial real estate owners, this could create new opportunities to repurpose underperforming properties.
The tax credit might make it financially viable to convert office buildings or retail spaces into residential units. This could be particularly relevant in areas with high housing demand and an oversupply of commercial space.
The SECURE 2.0 Act: Retirement Account Real Estate Investments
While passed in late 2022, the SECURE 2.0 Act continues to impact real estate investors. The act allows for higher contribution limits and catch-up contributions, potentially increasing the funds available for real estate investments through retirement accounts. It also changes the rules for Required Minimum Distributions (RMDs), which could affect how investors manage their real estate holdings in retirement accounts.
The Inflation Reduction Act: Energy Efficiency Incentives
Also enacted in 2022, the Inflation Reduction Act’s tax incentives for energy-efficient buildings remain relevant in 2024. Commercial property owners can benefit from deductions of up to $5 per square foot for qualifying energy-efficient improvements. This incentive encourages the renovation of existing buildings and the construction of new, energy-efficient properties.
Looking Ahead
New legislation at state and national levels seeks to address issues like housing affordability, tenant rights, and development incentives. For commercial real estate, these changes will likely reshape investment strategies, property management practices, and development plans in the coming years. As the regulatory environment continues to change, flexibility and foresight will be key to success.
