IS DEREGULATION GOOD FOR REAL ESTATE?

I’m excited that some environmental deregulation seems to be on the way. Lighter regulation means easier development, greater deal flow, and higher profit. As a real estate investor, I’m optimistic about the political rhetoric recently, while we await the actual details. If executed well, a new approach from Washington should help open up new investment opportunities.

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The smart approach to regulation is to apply more common sense cost-benefit analysis. I’ve seen insignificant errors force developers to commission whole new environmental impact studies. The Keystone pipeline got all the attention, but there are many less publicized projects that have been stopped due to regulation overload. It’s a huge waste of time and money. As regulators can drag their feet as they give themselves a pat on the back. What is the value in completely redoing expensive reports when we could just address the errors? This looks like more cost than benefit to me, but regulators get to do whatever they want. I hope we can cut some of this red tape.

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Don’t get me wrong, some regulation is necessary. Many people who oppose environmental protection rules are looking at the benefits to industrial projects. There’s no doubt that the ability to pollute the air, water, and soil around a factory or mine will make those enterprises more profitable. No disrespect to people in industry or resource extraction — they do valuable work. And I sometimes come across opportunities to invest in land for their mineral rights, but that is not really my line of work. Most importantly, I think that smart environmental protection bolsters another huge opportunity.

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America is one hell of a beautiful country, and our beauty is an infinitely renewable resource. Tourism is big business — roughly $500 billion per year in the US. Hotels, resorts, and leisure properties of all kinds can be great win-win opportunities to make profit, employ lots of workers, and also make people happy. Some basic environmental protection is necessary for this to work. We need clean air, clean water, forests, etc to make these kinds of developments appealing. Have you been to Beijing? The smog is thicker than the smoke machine from my nephew’s Bar Mitzvah. No thanks.

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Tourism is a great business opportunity, and I’m optimistic about an easing of some needless development restrictions near federal lands. For example, it seems a little crazy to me that the government frequently rejects development permits in the name of marginal environmental protection. The government owns vast amounts of land, and preventing development effectively denies many citizens the chance to experience our national heritage.

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Here’s another example that really grinds my gears. A few years ago, a friend of mine was a partner in a real estate development project in a major urban market. Local historical preservation regulations required him to hire an archaeologist to dig on the project site and search for artifacts of historical value. When he told me why his project was delayed, I felt for my friend, and I wasn’t entirely surprised either. It’s all too common for developments to be hindered by time consuming, expensive, and as far as I can see, completely useless requirements. When regulatory burdens make people think you have got to be kidding me, that’s probably a sign they should ease up.

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I know another guy in Berkeley, CA who had his shopping center construction help up because part of the parking lot was on an ancient Indian burial ground. I could tell you the rest of the story but you’d probably learn more about how bureaucracy works reading Kafka…

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Since lighter regulations are probably coming, let me give this one critical warning to real estate developers. Make sure that you attend to some key environmental due diligence, whether it’s legally mandated or not, because mistakes can really bite you in the rear. For example, I’ve seen lax preparation for stormwater management ruin a housing development and wipe out its investors. Also, always commission a high quality Phase I Report that investigates the history of land use near your property. Finding toxic chemicals later will not help your resale value.

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Most permitting issues are local, so the new presidential administration won’t actually affect much of this red tape. Still, I am excited about increasing opportunities for investing, and about a broader movement to use more common sense.

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Call me at 847-317-0077, email me at breinberg@alliancecgc.com, or tweet me at @benreinberg or @alliancecgc if you can submit us a property to acquire and/or would like to invest with us. For further information on investing with Alliance, please click here.

My Best,

Ben

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