Justin welcomes Matt Hargrove, President and CEO of California Business Properties Association (CBPA). The CBPA acts as an umbrella group for all different commercial real estate groups within California and represent them as one at a state level. Matt delves into his role as a lobbyist in Capitol and his 30 years of experience in government relationships. He also shares bills that directly impact our industry.
Listen to more episodes and subscribe to the podcast on Apple.
- CBPA and NAIOP California Council – 2:45
- Matt Hargrove’s background in government relations – 4:30
- CPBA binds all the different companies and different sectors of the industry together – 7:26
- How does lobbying work and how does it directly relate to industrial – 9:45
- Reading through bills and identify which will impact our industry – 16:00
- How legislations can impact the supply chain – 20:00
- Impacts of AB 2840 – 25:00
- Banning dual agency – 27:05
- Energy issues proposals we will see in 2023 – 36:15
- Warehouse bill limits where warehouses can be built – 39:00
- Clean truck rule – 41:00
Connect with Matt Hargrove
Connect with Justin Smith
Justin Smith: Hi, it’s Justin Smith. Welcome to Industrial Insight Podcast. Today’s episode is with Matt Hargrove of the California Business Properties Association, and he helps us understand all things lobbying. And so for commercial real estate property owners we all have faced a challenging environment. It’s never been more important to know how legislation is made and what common interests industrial property owners have with office, hospitality, multi-family or retail property owners. And then to think through how the sausage is made. And so this is increasingly in everybody’s world, from new initiatives on moratoriums for industrial real estate development, for use, taxes and clean air. This is something that you have to continue to up your game and understand how progress is made and what to expect in the future. So I think you’ll really enjoy this, and I hope you join the movement and educate yourself even more and happy to share this with you. Thank you.
Justin Smith: Tell me about Tim Jamal. How did you guys come to be friends, or I imagine your path have crossed quite a bit lately.
Matt Hargrove: Yeah, so Tim is just a fantastic person to work with. And we can get into some of the details of how commercial real estate industry represents all of our members in California. But it takes a village because of the nature of commercial real estate that depending on if you do that type of building or you do that type of building, or you do that type of building there are different professional organizations that represent companies from all different aspects of commercial real estate.
Matt Hargrove: On the home building side, if you build a home, it doesn’t matter if you build a ranch style home in Inland Empire or if you build high density homes in San Francisco you belong to the local Building Industry Association. So the home builders are very vertical. If you build a home, you belong to the home builders and the home builders give you representation in that building. That local Building Industry Association belongs to the Regional Building Industry Association and belongs to the statewide BIA.
Matt Hargrove: In commercial real estate, to use the cliche herding cats when it comes to government relations. Because there are so many different professional groups depending on what you do within commercial real estate. So you might belong to NAIOP, or you might belong to BOMA, or you might belong to both, or you might belong to ICSC or RLA or IRAM or CIM depending on what your company focuses on and even to a certain extent to the region you’re in. That’s the long explanation of what CBPA does in Sacramento. We act as an umbrella group for all of the different commercial real estate groups within California to bring them all together under one umbrella. Speak with one voice to the capitol. Within CBPA, we have individual members like yourself, thank you very much for joining. We really appreciate that. So we have individual members and then we also work with the different associations that are out there. And what we’ve tried to do is provide a statewide structure for the different associations to be able to have a voice in Sacramento.
Matt Hargrove: Tim is part of NAIOP and what we do at CBPA is we run the NAIOP California Council. And what the NAIOP California Council is it allows each of the individual NAIOP, there’s six of them throughout the state to come together under the California Council, look at bills, talk about politics, talk about regulatory issues, give me feedback as the head of the CBPA organization and then we lobby in Sacramento on behalf of NAIOP. Also, we work the other way too is we will work with Tim on issues that are happening in Los Angeles that potentially impact what’s going on in Sacramento. So he’s my individual contact and for on behalf of NAIOP SoCal in Los Angeles for issues related, everything from warehouses to transportation issues. So that’s the symbiosis of how we work Generally. I focus on state issues, and he focuses on regional issues but there’s no clear line there. We’re both informing one another and working very closely.
Justin Smith: And there’s a lot of work to do. I’m sure it’s a never ending task that you got on your list over there.
Matt Hargrove: There’s a lot of work to do.
Justin Smith: Yeah, and you’ve been in the game for 15 years, as best I can tell.
Matt Hargrove: I have done government relations work. I’ve worked in and around the capitol since 1991. I’ve been with CBPA for 15 years and I’ve just, this last year took over as the President and CEO. So I have 16 years now, of specifically working for commercial real estate interests in Sacramento. But I have now almost 30 years’ experience of working in and around the capitol, for a legislator, for a state regulatory agency. The University of California I worked for. I’ve been in Sacramento a while.
Justin Smith: I consider that all practice for this moment. That all helps you to be who you are today and in this role.
Matt Hargrove: Yes. I’m not an expert in commercial real estate. I’ve never managed a building. I’ve never built a building. I’ve never gone through the entitlement process. My expertise is the legislative process, the political process. So that’s a really important function and a really important role that an association plays on behalf of an industry. Is as we comment on, bills and legislation and regulation fully rely on our members to provide us information on how these bills will impact day-to-day, how they’ll impact what we build, how they’ll shape taxes and things like that. Again, we’re the industry representative, so the very important thing that CBPA does is pull together all the opinions from every different aspect of commercial real estate. Then try to synthesize that and prioritize the issues that we work on in a way that accurately reflects where the industry actually is.
Justin Smith: Oh my goodness. That sounds like the role of a broker. That’s the agency part where you speak for someone else, and the better you know them the better you can speak for them and represent them.
Matt Hargrove: It’s very similar. And brokers play a very important role in our industry. And there’s actually broker specific issues we’ve worked with different brokerage firms and individual brokers on. But yeah, I do have the responsibility in the agency to try to represent my client, in this case the commercial real estate industry to the best of my ability and to the best of where the industry is. It’s not always easy because our industry is very broad, very wide, lots of different companies. So the interesting thing on commercial real estate is a lot of companies are really very competitive at the local level. You guys are trying to make the deal, get the deal. You want to build the building, you want the tenant, you want the contract. I think a really good role that CBPA does in something I specifically try to do is recognize that there’s a difference between fierce competition for everything in the marketplace at the street level but that doesn’t exist at the policy level. The only issues that I ever have between the very disparate groups of commercial real estate will be a matter of emphasis.
Matt Hargrove: The easy to understand example of emphasis would be something like solar panels and solar mandates. So if you’re a company that does a building like this Class A office buildings in a dense downtown area, you’re not particularly going to care about solar panels very much. You just don’t have the rooftop for them. You want to make sure that there’s not crazy mandates that require you to do something you can’t do. You have limited rooftop on these types of buildings. So a lot of folks that would be in the Class A, Class B they’re not going to have a super big emphasis on solar panels. Now if you’re in the retail space or the industrial space you have very large buildings with humongous rooftops, you’re going to have a small pressure to put solar on. And you’re going to have a much bigger concern about what you do with that produced energy. That’s just an example I always use of theirs three main components of commercial real estate office, industrial and retail. So those the three big buckets. And that’s just an example of where emphasis on might be slightly different.
Matt Hargrove: And what CBPA then tries to do with that is we say “okay look Class A office folks, we know this isn’t your highest priority right now, but it is a huge priority for these other two areas. So what we need to do is work on this. We need to get something fixed that works for everybody in the industry, and we all need to stand together.” Because the way we get picked off in Sacramento or the way you lose a political battle is pieces of your industry get peeled off and say, “oh, we don’t care about that or we’re not going to work on that.” And that’s one of the things that CBPA does very well is binds all the different companies and different sectors of the industry together. So we speak with one voice.
Justin Smith: So if I had one question, everybody wants to know that the outsider is how does lobbying work? And I would think that so many people in our industry are unaware of the nitty gritty detail. Can you help us have an example of what it looks like with you up there and with a specific issue? If it relates to industrial, awesome. If it doesn’t that’s okay.
Matt Hargrove: I have great examples that relate directly to industrial.
Justin Smith: We’ve had a couple recently.
Matt Hargrove: First of all, I will say it’s not what you see on TV and it’s not even what lobbying was like 20 years ago. Lobbying in Sacramento now, is a very intensive work in terms of knowing issues and then communicating issues with 120 legislators and all of their staff and the committees. So just focusing on what happens in the building. The warehouse bill from last year, AB 2840 is a great example of that. And lobbying has very much changed in the last 30 years, last 10 years really. And the biggest thing that has impacted how we operate in Sacramento is really term limits coming on in full force. And that’s because 30 years ago before term limits really were in play, you had lots of legislators who were very stable. They knew they were in the legislature for many years to come. They became expert in different areas. They formulated personal relationships to the level that doesn’t really happen today in Sacramento. They do happen, but not to the extent that they used to. So really to be effective in Sacramento these days. It’s just a lot of conversations, a lot of constant conversations with staff and with legislators. And the biggest piece I would say that has really changed, and this is where Tim Jamal comes in. A lot of the focus on the legislative process has moved to the local level. And again, that’s a piece of that is because of term limits. A piece of that is because of campaign giving and restrictions and all of that. The times have changed. And whereas in the old days, really all the Sacramento legislative conversations happened in Sacramento. Nowadays a lot of these conversations are happening in the district, at the local level. So whereas on 2840 I was doing CBPA was doing a lot In Sacramento talking with staff and members, but we were also, and I think the most important piece of how we were able to stop that is we were coordinating with our groups that we work with at the local and regional level. Putting coalitions together. So NAIOP SoCal, NAIOP Inland Empire, NAIOP San Diego. Boma, GLA, our network through ICSC. Lots of individual companies that are building in Southern California. A lot of these conversations were pivoted to those groups and working with them to make sure that there was some heat felt in the district, if you will be coming to the legislators. Because again, in a term limited legislature, a lot of legislators are very focused on what their specific constituents feel. They’re not as concerned I don’t want to put this the wrong way, but the statewide view has been a little bit diminished as the district view has been pulled up a little bit. So a lot of times, unless legislators are hearing from local companies, local faces companies with addresses in the district on their letterhead, you could have a tendency to say, “oh, my constituents don’t care about that. I don’t need to worry about it. I’ll just vote on the bill.” So that’s a long explanation of the glamorous life of lobbying. Today with technology, it means I write a lot of emails. I send a lot of emails. We’re on Zoom calls a lot with staffers.
Justin Smith: The power zoom probably helps get around.
Matt Hargrove: Zoom helps and hurts. As any broker will tell you closing the deal is best done face-to-face. You can close deals on Zoom, and you can form relationships on Zoom, but there’s nothing like one-on-one interaction and direct discussion. So Zoom’s helpful. And of course, we couldn’t have done anything throughout the two years of Covid where everything was shut down. But it remains to be seen how this next coming legislative year, what role technology will continue to play in it. I’ll tell you where Zoom is amazing for us is in being able to coordinate with our local partners. I don’t have to fly down. So in the old days I would fly down do a lunchtime talk. There wouldn’t be a lot of interaction at that. And then I’d fly back to Sacramento. Now we could have weekly calls and with the California Council for NAIOP, we do a monthly call and then we supplement that when stuff’s hot. But being able to pull together 15 to 20 folks from NAIOP or BOMA or ICSC or just individual companies that our CBPA members and being able to have actual conversations that you can then follow up on Zoom has been a game changer for us in that regard. That makes me be more informed in Sacramento. I’m able to better represent where our industry is, where impacted companies are on policies. It’s quicker information and it allows the ability to engage more folks locally, which ultimately helps us with the messaging.
Justin Smith: Yeah, and being more effective. How much they have to listen to you or give you time to go through some of these issues. I imagine a lot of that goes back to the turning up the heat and people hearing from their local constituents. That helps open the door for you to be able to educate more when it comes to the actual lobbying itself on how important is this one specific item and there’s a million items and there’s only so much time in the day and you got to get to the front and make it be known that this is important. I imagine that’s a big challenge, especially with that many people.
Matt Hargrove: So you hit two layers of prioritization there. First of all, within our own industry prioritize all the bills that are out there every year at CBPA. Every year within the legislature, about 2,800 separate bills are introduced. One of the big jobs for CBPA and again, this goes to what does a lobbyist do. One of the things I do every single day, again, this is not a glamorous life is during the bill introduction period, I wake up every morning to a list of anywhere from 50 to 500 bills that have been introduced. And one of the really important things that CBPA does on behalf of the industry is we actually read every single one of those bills. And you have to read bills because you can’t rely on the search functions and all that. They’re helpful, but you have to pull up a bill and you have to read through it. Again, this is not what people think of as lobbying, but it’s a huge role of what we do is I then have 15 years of experience in our industry. I can first of all looks at a bill and it might not look like it impacts our industry, but I’ll say, “oh, this looks like an energy bill, and it looks like it potentially will have impact what new buildings install for HVAC systems.” That’s just a nice obscure issue there. What I then need to do is sometimes I can’t fully understand if it will have an impact or I might be able to understand it will have an impact, but I won’t fully understand if we care about the impact. Cause we are in California, and we know every year to a certain extent, the regulations, the laws are going to move forward and become more strict on all of these areas. The thing we need to do as an industry is figure out, okay what is just the normal progress that we know is going to happen and we’re not going to fight, and we don’t care about and what are the things that are stretch goals are pushing us beyond what is reasonable or will actually hamper our business. So, I hit this bill that is going to do something with HVAC. I’m not a hundred percent positive, so I will mark that up as a monitor Bill, we need more information on this, put it on our list. Ultimately those lists get sent out to our CBPA legislative committee and other volunteers where I spend the first two months of the year just trying to categorize and prioritize the mountain of legislation that is coming out of the building so we can then put expert eyeballs on these bills and start saying, “all right, we don’t care. Don’t care. Oh, we really care about this HVAC bill.” What it’s going to do is it’s going to trigger not only on new buildings, but the way this is written is it will require existing buildings to also swap out without a triggering event, and we need to work on that. So again, that’s a piece of the glamorous life of an association lobbyist. We would spend 80% of our time just slogging through bills and legislation and trying to identify the things that impact us and then prioritize the bills that do impact us because we have limited bandwidth on what we can actually do. And then even within those bills that we work on in Sacramento, then there’s a very small number of them where we have to then turn up the heat locally. So we can’t do that on every bill. If you as a member get an email from me every week saying, “Hey, I need you to contact your legislator on this bill.” Even somebody who’s interested in this area you’re going to say at some point, “no thank you. I’m done.” So one of the things we need to try and make decisions on is, all right these two bills here are the ones we care about most. Doesn’t mean these other five bills we don’t care about, but these are the two that are going to fundamentally rock our industry in a manner that we need to engage on. And then that’s where you start seeing more communications from us out to locals. FYI on this bill, we need your help. Please join us for a call for a briefing. So that’s the internal prioritization we do and then once we know our top bills, we then have to try and break through the Sturman drain of every other industry and environmental group and union and constituency and environmental justice group to legislators of us saying, this is an important thing that you need to pay attention to. And that is whereas an industry group we have a much more difficult time than some of the other constituencies that are working in the capital.
Justin Smith: Okay and that by virtue of some of their issues and which ones they represent in the urgency or just like they’re being long entrenched in the world.
Matt Hargrove: The warehouse bill again, is a great example of all of this. Let’s say you’re a legislator who represents an area in coastal Los Angeles and you don’t have a lot of warehouses providing jobs in your district. You are probably going to have an immediate sympathetic reaction to the argument that warehouses are not good neighbors, they’re bad and they need to be regulated. So then our job is to then go talk to that legislator and say, ” we understand, you don’t have a lot of warehouses in your district. They’re not providing jobs in your district but here’s how this bill would impact your district in terms of supply chain. In terms of goods movement.” The joke I always love to say is we don’t want to be in a situation where we’re having a toilet paper crisis when it’s not a pandemic. And coming through the pandemic, a lot of people knew it was very much illustrated to policymakers that our supply chain has serious issues. There have been people working on this for years. In fact, the incoming chair at CBPA, her name is Fran Inman has been sounding the siren, ringing the bell on supply chain issues as long as I’ve known her. But what Covid did, and again I say it jokingly, but it also was very important to illustrate the point is, yeah, who ever thought we would be hoarding toilet paper? And that now is something that’s a trigger when you talk to a legislator and say, that supply chain issue during covid got acute because of issues during covid but there are endemic issues that we need to address to make our supply chain work. And this bill will actually make supply chain issues much worse and then you have to go through them. So that’s the big initial job for us in Sacramento is to just have that conversation with legislators and try to put something we’re on the natural. On the natural, if you’re an elected official, you always want to side with resonance and neighbors and your voters. And being seen as siding with a developer on a warehouse issue. That’s the hump that we need to get over to talk with legislators and help them understand why sometimes difficult policy issues like that, even if they’re not directly impacting their have an impact on goods movement, have an impact on the economy, have an impact on jobs. Nowadays we talk a lot about greenhouse gas.
Justin Smith: And then back to their constituents.
Matt Hargrove: Believe me, I have, not been in a room with people smoking cigars in over 20 years. So that glamorous life that is sometimes portrayed on TV is not what we actually do on a day-to-day basis. It’s a lot of reading. It’s a lot of synthesizing. It’s a lot of trying to connect dots. It’s a lot of managing large amounts of bills prioritization and engagement of members.
Justin Smith: When you were talking about the indirect impact and how you have to help educate on that and advocate, I was thinking about that split roll property tax, where that was one where you would think if you were a resident and you could still have your Prop 13 tax protection, but if the commercial properties would no longer have that that would be something that would be easy for residents to be excited about. And then having indirect impact on commercial property owners and then flowing back to businesses and back to residents, and that was another one of those. It seems like indirect there’s so much nuance in there that your job, there’s so much to educate, I would imagine.
Matt Hargrove: Very much and CBPA was actually a co-chair of the Prop 15 split roll property tax campaign a few years ago where we defeated Prop 15. And you’ll probably remember one of the most effective ads during that campaign, which came from the no on Prop 15 campaign, which again, CBPA was a co-chair of, that was the ad with the barber. Where the barber explained that if commercial taxes were increased that gets passed along to the barber and the barber’s rent goes up. The barber has to charge more for giving haircuts and potentially would have to close his property if he can’t afford to pay the cost increases. So that’s all exactly what you’re saying and part of the messaging that we have to constantly do. To use the cliche, it’s connecting the dots. If you raise commercial property taxes, if you don’t allow warehouses to be built. If you require massive amounts of solar energy that can’t be used on site, you are increasing costs for doing business on organizations and companies that are ultimately a large part of the economy and you’re going to see a negative impact in either consumer costs or lack of availability, empty store shelves, jobs going away, increases in greenhouse gases. Those are the things that we have to focus on to tell this story. Again, back to the warehouse bill, one of the impacts of 2840 was going to actually be, that it would push warehouses further inland. Further away from the ports.
Matt Hargrove: So one of the things that was incumbent on our industry to do, make the argument to the legislature and the governor who both of them have said reducing greenhouse gases in the state of California is a number one priority. So we had to make the case that if you were pushing warehouses further away from ports, and from population centers you’re actually increasing the vehicle miles traveled of the trucks that need to service the population centers. And you’re actually increasing greenhouse gases by doing that.
Justin Smith: The cost of fuel, and logistics expenses all getting passed down too,
Matt Hargrove: And moving jobs away from where people live. We worked very closely with the laborers and LIUNA on that bill because they didn’t want to see the projects where their members are building these warehouses move further and further away. We heard stories from some of the folks at the laborers that at one point you had, their members were driving two, three hours to get to a job site, but had now moved to the Inland Empire and were either working in the Inland Empire building the warehouses or were working within the warehouses once they were built. So they were great partners of ours and that was a huge piece of the story was working with the labor groups to explain to legislators how warehouses were providing jobs and would be negatively impacted if they were pushed further inland.
Justin Smith: There’s Jason Miller at Michigan State University. I had interviewed. He focuses on supply chain and logistics and then on all things like government reports and all of the federal data and then trying to parse all the data and make more sense of it. And so he’ll have, every week is a new piece on some part of the supply chain. And so he’d gone over the labor figures and how much of job growth was tied back to the growth in warehouses and what a disproportionate impact that had across the country over this past two year stretch. And I can only imagine Southern California plays a pretty decent size role in all of that.
Justin Smith: You were alluding to something that was broker related. If you want to rewind for a moment, I remember there was dual agency and we had that be one that was a few years ago trying to ban that from one of the tenant rep firms. Is that the next step coming back, or you were alluding to there being another brokerage specific topic that might be in our future?
Matt Hargrove: Well, there are some broker specific topics that are out there, but I think dual agency is the thing I’d like to talk about. That is a bill that has been introduced multiple times in the legislature. It was something that was being pressed by a single company. Again, this is one of those issues where when you have somebody aggressively pushing an issue and they get to the legislature, and they tell a one-sided story. That this is why the membership of CBPA pays mass dividends that a lot of brokers don’t even know about. Because once we heard that the dual agency bill was being pushed again, we were able to quickly go to the legislature and start providing information about why some of the arguments that were being made on dual agency were potentially not correct in California. And why the banning of dual agency on the commercial side would probably cause more trouble than it would the issues that were being brought to them. So there’s been at least four dual agency bills introduced that I recall since I’ve been here.
Matt Hargrove: And again, this is one of those issues where legislators aren’t in our industry. Very few legislators. I think we’ve identified three legislators in the last legislators that had any direct experience with commercial real estate. So you’re dealing with a lot of folks who don’t understand commercial real estate from being directly involved in it. And a lot of times what happens is they will just apply the understanding of residential real estate to commercial. Which as we know is a mistake because they are both real estates, but they are completely different beasts.
Matt Hargrove: On dual agency, what we had to do was quickly go out to our brokerage firms that we work with and our brokers. And the first thing I did was said, “Hey, here’s what this company is saying is wrong with dual agency. Act like I know nothing, here help explain to me why these arguments are not valid.” And we pulled together a nice little round table and that’s what we did is I heard from brokers about what would happen if dual agency was banned. And a piece of our messaging was we could do dual agency in California but what would happen if we did do it is it would benefit very large brokerage firms. Who would be able to figure out how to split it, would figure out how to keep that side separately. But what it would hurt is it would hurt smaller brokerage firms and it would hurt tenants. This isn’t something that naturally comes to a legislator, we were able to walk legislators through how a dual agency relationship on commercial real estate actually benefits tenants in many cases. Not in all cases and in a lot of cases it’s best to be able to have your own representation, especially if it’s any type of complicated deal. That’s what you want. But there’s a lot of cases and we were able to use our own negotiation at the time because we were in our own lease negotiation as the example of why it just made sense for us. So we were able to use direct experience of a small company. We’re only five employees dealing with a very large brokerage firm on a lease negotiation. The bottom line of our messaging was we should be able to retain the right to work with whomever we want. Whether that’s an individual representing us or if we’re comfortable with the property owner and the management firm and the broker that’s representing them, we should be able to work with them. We are sophisticated enough to do that.
Matt Hargrove: And then that gets me to my final argument on dual agency was the main difference between residential and commercial real estate in the eyes of the state of California can be illustrated in the pile of documents that you’re required to sign when you buy a house or when you buy a commercial building there’s three or four I think, documents that are required by the state. The reason for that difference is because the state recognizes that the residential transaction is a business to individual transaction. They see that as an imbalance transaction and that the state has a duty to help protect the unsophisticated part of that transaction. On the commercial side, and this is something that’s at the basis of a lot of how we react to bills on the commercial side, the state sees it as a business to business transaction. And there is no reason that the state needs to put its thumb on one side of the scale because these transactions are all over the map and the state needs to just treat it as a business to business transaction. Businesses in the state of California are assumed to know what they are doing, have access, and they’re not always imbalanced. Sometimes you have a very large tenant with national branding, negotiating with a very small property owner who maybe owns one small neighborhood center. So that is again, something we have to explain to legislators because they don’t innately know your business. We have to go walk them through that. They’re used to the landlord tenant relationship on the residential side. On the commercial side they just don’t know and that’s a piece of what we do. It’s just education. And a lot of times once you do explain some of these things to legislators, you very quickly get them to say, “oh, okay. I do understand that and all right, I don’t love that. ”
Justin Smith: I wasn’t aware that was an aspect that was going on out there.
Matt Hargrove: Absolutely. And you saw that with covid bills. I’d say one of the biggest broker issues that we were able to deal with in the last two years was several bills that were going through the legislature related to. Two of the bills that we were able to stop were bills that would have fundamentally changed the contracts on commercial real estate with tenants. Two of the bills would’ve actually allowed tenants to basically walk on any contract that they had signed with a property owner. Now, could you imagine, how that would fundamentally shift what you do as a broker if you cannot rely on the written word and a contract in a negotiation. So those are two bills that we spent a lot of time and effort on.
Justin Smith: Yeah, things would look so different if that had come. Different people making all sorts of crazy decisions at that moment.
Matt Hargrove: A fundamental piece of what a broker is able to do is, bring a deal together, negotiate that deal, come to agreement on the deal, have parties on both sides sign that deal, and then the parties that you’re negotiating on behalf, either the company you work for or the company you’re representing know that deal is then solid set in stone. What both of these bills would’ve done would have created huge holes in that ability to sign binding contracts and would have allowed people to walk on deals. Going back to that same tenant rep that we talked about earlier with dual agency. We were able to share with legislators emails from that tenant rep during Covid who said, “hey in a lot of the areas that you live in right now, if you’re a restaurant you can walk on your current contract. And these were locally, there was no state bill on this. If you’re building and we’ve got a better site for you down the road, which you’re going to be able to sign a better contract, lower lease rate, have better location, and have no responsibility to the spot you’re in now. We actually saw marketing emails from companies that were encouraging that to happen. Having CBPA in Sacramento and having that understanding of our industry my job was then to walk over to Legislators and say there’s a whole huge pile of issues as to why these bills are bad on policy wise. But then here’s an example from right now of how this policy will be abused. And that is why through two full years of Covid there was never any statewide mandate on the commercial side of things in terms of eviction moratoriums or any of that. We were able to make the argument of let the contract stand.
Justin Smith: Let the two parties work them out if there’s something.
Matt Hargrove: So that’s another huge broker issue. And I’ll tell you, most brokers probably don’t know that we did that. Don’t know that we were working on their behalf for those types of issues.
Justin Smith: Yeah, I bet a thousand are about to know and become more aware.
Matt Hargrove: That is again, illustrative of the benefit of what CBPA brings to the industry. The situation we have set up where a lot of companies join at a really low level. Anywhere from a thousand to 30,000 a year for a company but it allows on moss companies to join an association, chip in a relatively small amount, and then have everyday day-to-day coverage on issues in the capital. So that’s a big deal, and that’s why CBPA has been able to survive for 50 years and provide services and benefit to our industry.
Justin Smith: There’s no question about the need and it’s probably only increasing with time and complexity. If we thought through 2023 and thinking through what’s on the horizon and forward facing and for industrial owners or for just commercial real estate owners in general, what are some of the clouds that are on the horizon that maybe is good for them to learn more about or just be aware of if they’re not.
Matt Hargrove: Lots of them. You’re going to see everything from proposals and increases and energy efficiency, energy cost, how energy gets delivered, grid issues. Those are all things that if you’re a typical building owner or a manager energy is your number one expense in that building. Everything that’s happening in Sacramento at the Air Resources Board and locally at the different air quality boards out there impact the amount that you pay for energy. The other issues are grid issues and grid reliability issues of us being able to meet the demand for commercial real estate and commercial property is we have to have a functioning and reliable grid. And as the state talks about going all electric that’s much easier to do in a brand new Class A office building where you have a lot of offices. It’s much more difficult to do if you’re building a warehouse and you have to provide enough energy to be able to run very large machines for your tenants who are manufacturing and building things. So energy issues are huge. And the one thing I would say, anytime you hear greenhouse gas policy, if you’re in our industry, greenhouse gas equals energy issues. The way that they’re reducing greenhouse gases is by changing the way that energy is used.
Matt Hargrove: Now that also applies to goods movement and supply chain trucking. Again, we’re not in the trucking industry, right. We’re commercial real estate. But our buildings don’t move, and we have to have a healthy and vital trucking industry to move goods around from the warehouses, bringing them to market, bring them to your home. So there’s issues going on in Sacramento right now related to what does the fleet look like that services California. And there’s some very aggressive proposals that are basically banning diesel trucks. I want clean trucks. I want all electric trucks. I would love to see a bunch of super cool electric trucks on the road moving our goods around, but is it realistic? Are we putting our state and people that live in the state at a disadvantage by being very progressive on some of these issues? We as an industry aren’t saying trucks shouldn’t be clean. What we’re saying is figure out how to do that in a manner that doesn’t fundamentally put Californians at a disadvantage because you adopt something that’s so extreme that we’re unable to deliver goods. So that’s supply chain transportation issues again having a transportation infrastructure that brings those trucks to have roads to drive on. That’s huge. Again, none of those are specific to commercial real estate. Those are the big issues that we’re dealing with. Things that are specific to commercial real estate is the warehouse bill, we’ll see another warehouse bill next year. And it is extremely important that we show up and negotiate on those.
Justin Smith: Different version of the same one, more or less, I’m guessing.
Matt Hargrove: Yes. So it’ll be things like do we want to see a bill that says you can’t build a warehouse within a thousand feet of basically any non-warehouse. And what does that mean? Yeah, we’re going to see that again. So we are going to have to continue to communicate and push back on that. And that is specific commercial real estate issue that is extremely important for us to engage on in a very positive way. And take the opportunity to explain to policy makers why first of all warehouses are not a bad thing. That this isn’t a lack of planning. Actually, a lot of what you’re seeing now with warehouses is specifically because of local planning trying to concentrate warehouses in specific areas. And as you do that though, you’re going to have an issue where sometimes as you’re changing a century old land use, there’s going to be a period where you’re going to have those non-conforming uses and with the new uses. A piece of this is, you just have to figure out how to move through that. So that will be back again. Other issues that I think are important are electric vehicles. Electric vehicle charging stations. It’s crazy. But this is one of the number one thing I think impact commercial real estate is what do the policies at the statewide level look like for EV chargers and what do the mandates look like? Our position on these is, we need reasonable regulations that as we’re building new buildings and as we’re building out new parking lots, we’re going to accept some level of having to put in EV chargers. We’re part of the solution, but it can’t be a one size fits all solution. A warehouse is different from a retail center, is different from an office. And then also fundamentally what I try to explain to legislators is people really should be charging at home. As we go through this and think about these mandates, we saw bills this year that had a 100% of all parking spaces in the state of California had to have a charger on it. Now, could you imagine the expense of that? Could you imagine as a broker trying to pull a deal together? That deal’s going to trigger all those EV head units be installed at a warehouse building that deal’s not going to happen. I think that’s something you’re going to see more bills on next year.
Justin Smith: Yeah, that is interesting as everything finds its place and its balance. And I love the balance of progressive and practical. That’s the challenge, right. Being part of the solution, but how to make it people in businesses not being a disadvantage.
Matt Hargrove: Absolutely. The final parting shot I’ll leave you with, again, this isn’t specific to commercial real estate, but it is extremely important to us, and it illustrates your point you just made, and that is the state is pushing very hard for the clean truck rule that service our warehouse. So our ask back to the state isn’t, don’t do a clean truck rule. We want to see clean trucks. Our ask to the state has been invest the relative same amount of monies on the heavy duty truck sector infrastructure in the state as you are focusing on the private car infrastructure. So that is where we’re hoping the state will go is recognize that’s the path we’re moving on. Push us on that path, but then invest infrastructure dollars, whether it’s coming from the feds with the recent infrastructure bill or with a lot of the money that’s generated in state is allow those folks who are developing warehouses that are part of the goods movement sector to be able to work with the trucking companies even the trucks that are on site and assure that we have heavy duty truck infrastructure that allows for us to move into that clean truck future. Which we all know is coming but it’s just how do you get there? How soon do you get there? And the thing that we always deal with is the groups that push a lot of these ideas, they want stretch goals. They think if you put a goal out there that is unattainable, that will somehow make these companies move further. We have a completely different philosophy.
Justin Smith: Doesn’t work that way.
Matt Hargrove: We think incremental. If you do it incrementally and then we get there, and then you incrementally move it again, that is the best way to move forward policy. And we’ve seen a good example of that in California under Title 24. We have the number one, the best energy codes in the nation, the most progressive energy codes in the nation. But we didn’t in 1978 say you have to have all electric buildings. That has been progressively done every three years as part of that code cycle. And it’s done in a manner under law, Title 24 has to be adopted in a manner that you can actually meet it. You have the technology, it’s not too expensive. That’s what we’re asking the state to do on some of these other larger policies.
Justin Smith: Eight bucks a foot. I remember that’s what it was for a period of time off to upgrade to Title 24. And then I think of like an ADA when you’re doing tenant improvements or big construction project, how much you allocate towards ADA is proportionate to the amount that you’re spending so that you get that incremental improvement.
Matt Hargrove: That’s a great example too.
Justin Smith: Yeah, I’m with you, Matt. I’m excited to have a new friend out there and just learn more about it and understand what a big impact it has out there and all the people that are in our world and are in our industry and for all the residents, really, when you think of all the direct and indirect impact.
Matt Hargrove: Great. Well, I’ll leave you with a plug for CBPA. We hope that you’ll join your local associations, but we also hope that you’ll be a direct member of CBPA, because that allows us to survive and play the role that we play in Sacramento. And I want to thank you for becoming a CBPA member. It’s important and we really appreciate it.
Justin Smith: Yeah, I’m excited to find a way that I can help contribute.
Justin Smith: Thank you, Matt.
Justin Smith: I want to thank you for joining me on this episode. And if you liked what you heard, please drop me a note at email@example.com or text me (949)400-4786 and let me know if there’s any follow up you would like. If you have any guests or anyone, you’d like to hear interviewed or see on the show, let me know. I’m always looking for new exciting guests and look forward to connecting with you. Thank you.