Homelessness Affecting Commercial Real Estate

California is known for its beautiful beaches, weather, celebrities, and high cost of living. In the context of Commercial Real Estate, California has been a place where many brands launch their first location to “get on the map,” with media attention capabilities second only to perhaps NYC. Property owners demand abnormally high rents and often there is a suitor willing to pay them. Permitting timelines and zoning restrictions has always been a tough pill to swallow, yet there are enough landlords and developers out there willing to take on this challenge. However, in the past 10 years, a new foe has entered the conversation when considering owning or leasing property in California, homelessness.

Homelessness in California is not a new topic, but it is becoming a deterring factor when considering commercial real estate in the state. According to a report in the Stanford Institute for Economics, the homelessness counts in CA rose by 42 percent between 2014 and 2020, while the rest of the country had a 9 percent decrease. On any given night the state has more than 160,000 homeless people. In Los Angeles County, the LAHSA (Los Angeles Homeless Services Authority) states that there are approximately 69,000 homeless residents with only 21,000 temporary beds. Currently, the state does not require cities and counties to ensure they have enough beds for the homeless. That issue is left to each city or municipality and unfortunately, it is not illegal to be homeless in the city of Los Angeles. Blocking sidewalk rights-of-way is illegal, but most cities are not willing to do anything about this issue. The latest law that was approved in California is called the Anti-Camping Law. This law bans sitting, sleeping, and storing property near specific sites. However, shortly after the law was passed, a Street Engagement Strategy was approved in Los Angeles outlining the steps required before removing the homeless. In summary, there is no statistical evidence to support that the law is working. And moreover, there isn’t a strategic, non-conflicting, law or plan in place to help these people and help cure this epidemic.

Property owners and tenants within the city of Los Angeles and the State need to take homeless issues seriously when considering a new purchase or lease. They cannot simply think about rent, permitting, times, zoning restrictions, and deal terms only. They also must factor in the proximity of the subject property to existing homeless encampments and/or consider the likelihood of one popping up nearby the property and potentially, or most likely, scaring off customers or tenants that would patronize the same.

Over 500,000 people left California last year according to a recent statistic in the LA Times. With 50 million people registered in the last census, that number does not immediately move the needle. However, commercial property owners are in this business to monetize their assets. Thus far the allure of California and the immense population within its borders continues to shadow a rising problem within the industry as it relates to the state’s homeless problem.

At Quantum, we understand the law, the encampments, and the migration the homeless population is near and where they are proliferating. There are many factors that influence and weigh decisions for landlords and tenants alike and we strive to account for seen and unforeseen challenges that arise so that ultimately, our clients can make the best real estate decisions possible.

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