California voters recently voted to enact Propositions 2, 4, and 36, each of which is expected to provide benefits to real estate owners, developers, and investors. These new measures are positioned to create both opportunities and challenges for the commercial real estate industry.
Proposition 36: Enhanced Sentencing for Drug and Theft Crimes Will Benefit Retail Landlords
Proposition 36 introduces reforms targeting drug-related crimes, theft, and homelessness. It aims to address California's rising challenges with homelessness and substance abuse by increasing penalties for specific offenses and enhancing drug treatment options. A key component of Proposition 36 is increased penalties for large-scale drug trafficking and theft crimes, including "smash and grab" retail thefts. Further, individuals with repeated convictions for hard drug possession may now face a "treatment-mandated felony," which results in mandatory treatment instead of jail time. Successful completion of treatment would allow expungement of the felony charge, encouraging rehabilitation and reducing recidivism.
Retail landlords will be directly impacted by Proposition 36's focus on prevention and punishment of retail theft. Over the past few years, retail landlords have seen an increase in tenants claiming inability or unwillingness to meet their lease obligations due to increased neighborhood crime. Despite lease provisions and law to the contrary, retail tenants often argue that landlords are responsible for ensuring the existence of crime prevention measures, such as security patrols and armed guards. Since Proposition 36 is expected to reduce crime, it is expected to enable retail tenants to operate their businesses with reduced crime-related loss, increase foot traffic as patrons feel safer in crime-affected neighborhoods, and ameliorate the need for landlords to implement security measures. Retail landlords should require retail tenants to contact authorities in the event of retail crime as the police and judicial system will have more latitude to prosecute petty crime. For landlords in mixed-use projects, the expected reduction of crime rates will create safer communities for residential tenants, thereby enhancing their property's desirability and stabilizing the communities in which their real estate is located.
Proposition 2: Bonds for Public School and Community College Facilities
Proposition 2 authorizes California to issue $10 billion in bonds to improve public educational facilities. The funds will be allocated to construction, expansion, and modernization of K-12 public schools, charter schools, and community college facilities across California. The measure is intended to improve school infrastructure, meet earthquake safety standards, and enhance technological resources in classrooms.
The injection of $10 billion into school infrastructure is expected to drive demand for real estate and construction – especially in regions undergoing rapid population growth. Property values near these schools may increase as areas with newly upgraded schools attract more families and lead to enhanced community development. Additionally, investors interested in mixed-use projects around educational hubs may find new opportunities as school districts expand.
Local governments are also likely to prioritize zoning changes and permitting to support new educational facilities. Real estate owners, developers, and investors should seek experienced counsel to monitor these local developments, as school bonds often signal longer-term growth in residential and commercial real estate – making the areas around improved schools appealing for both residential and retail investment.
Proposition 4: Bonds for Safe Drinking Water, Wildfire Prevention, and Climate Resilience
Proposition 4 authorizes California to issue $10 billion in bonds to fund projects that support clean drinking water, wildfire prevention, and climate adaptation efforts. This funding is part of a larger state strategy to address the impacts of climate change, safeguard water resources, and reduce wildfire risk.
The funds will support water quality improvements in communities lacking access to clean and affordable drinking water, especially rural and disadvantaged areas. This includes grants for water recycling projects, stormwater capture, desalination efforts, and groundwater management. Developers should be on the lookout for additional local restrictions on building processes and monies available to improve water quality. A significant portion of the bond also will go toward wildfire prevention by enhancing forest health, managing vegetation, and expanding defensible space around high-risk areas. Fire prevention projects include creating community resilience centers to assist vulnerable populations in fire-prone regions. Finally, the Proposition 4 funds will help communities adapt to climate risks such as drought, flooding, and extreme heat. Projects may include upgrading critical infrastructure, reinforcing flood defenses, and investing in cooling centers in regions prone to extreme heat.
The bond's investment in fire resilience and water quality will likely result in stricter building codes and regulatory requirements for new developments in areas with high fire risk. Monitoring changes in local ordinances should be a priority for real estate owners in these areas. Changes in zoning, potential requirements for fire-resistant construction materials, and water conservation measures are expected. These new standards could lead to higher initial development costs – but may also enhance real estate values and reduce risk in the long term.
In addition, as the state prioritizes infrastructure improvements and water conservation, there may be incentives or subsidies for developers incorporating sustainable features. For example, developments that integrate stormwater capture, recycling systems, or green infrastructure might benefit from state funding or regulatory support. Proposition 4's emphasis on climate resilience presents opportunities for eco-conscious real estate investments.
As these propositions take effect, real estate owners, investors, and developers in California should rely on experienced local counsel to stay informed on how local regulations are evolving. For those willing to adapt and align with California's shifting priorities, the real estate landscape promises both growth and the chance to contribute to long-lasting community improvements.