How Legal Issues Will Affect The Commercial Real Estate Industry Recovery, 2012

Arizona legislators packed the recent regular session with 357 new bills covering everything from food stamps to firearms.

But barely a handful will directly impact the state’s commercial real estate industry in 2012, and even those not significantly, says Greg Harris of Lewis and Roca LLP.

Still, that doesn’t mean the recent doings of Arizona’s state government, whether dictated by seemingly non-real estate focused laws or budget issues, won’t make a difference to the industry in the coming year, Harris and other local legal experts predict.

The few commercial real estate-related bills which did make it through the recent session were aimed at easing or clarifying municipal regulations and procedures that otherwise could hamper new development, Harris says.

SB1525, which was the latest of a series of laws aimed at limiting development impact fees, and SB1598, which attempts to provide some uniformity in permitting procedures among municipalities, are examples he cited.

Snell & Wilmer partner Ron Messerly adds a few more. SB1166 creates a tax exemption for certain commercial lease structures, and SB1474 has the effect of restructuring insurance requirements on multi-housing projects, Messerly says.

But any or all of those are unlikely to make much of an impact, the lawyers said.

Nor is anything monumental blowing in the wind for the next legislative session.

“There is nothing bright and shiny on the horizon that will have a significant impact on the commercial real estate industry,” Messerly says.

And that is good news, adds David Kreutzberg of Squire, Sanders & Dempsey.

“The legislature was so absorbed with budget problems, it took energy from other issues,” he says.

Kreutzberg, who specializes in hotel real estate, says he was especially pleased that certain  laws which were proposed didn’t pass during the previous session.

He noted a chunk of immigration-related bills that were rejected by the legislature or vetoed by the governor.

“SB1070 was a disaster for the hospitality industry,” Kreutzberg says. “I think the legislature got the message that they were doing injury to the state.”

On another positive note, the legislature’s continued efforts to reform the business property tax structure is a hopeful sign, and the abolishment of the Commerce Department and establishment of the new Arizona Commerce Authority is “promising,” he says.

NAIOP Arizona chairman Mike Haenel echoed Kreutzberg’s concern about revising the tax structure to make Arizona attractive to potential new or expanding businesses.

Haenel says job generators will fuel the future of Arizona’s commercial real estate industry, and HB2001 may have more of an impact on the industry in the coming years than any of the actual real estate-focused bills passed during the recent legislative session.

All those legal issues help establish Arizona’s attractiveness as a place for businesses that might be looking to expand or establish new offices in the state, he said.

A legislative negative, however, is state budget cuts for public schools, Kreutzberg says.

“We’re losing our competitive edge. It’s one of the things that is holding Arizona back,” he says. “The governor and the legislature need to face the fact that it’s a big issue.”

And not all legal issues impacting Arizona’s business growth, and therefore it’s commercial real estate industry, are spawned by the lawmakers.

Harris is concerned less about what the legislature did than what local advocacy groups did or may do to restrict development.

Examples include recent litigation and unfavorable rulings on Phoenix’s incentives for upscale mixed use complex City North, and Glendale’s proposals for saving the Phoenix Coyotes, the centerpiece of the city’s vast commerce cluster.

“Even if you have a project that most think is a good idea, advocacy groups challenging (incentives) may have a chilling effect on investors moving forward,” Harris says.

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For more information about the real estate industry and the firms mentioned in this story, visit the following links:

www.lrlaw.com
www.swlaw.com
www.ssd.com

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AZRE Magazine September/October 2011