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Law360 (March 26, 2021, 4:48 PM EDT) -- Developers flush with cash on hand are moving forward with biotech campus projects, one of four sectors that Perkins Coie's real estate and land-use chair said she's been seeing strong activity in amid the COVID-19 pandemic.
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Cecily Barclay
Barclay, a partner in the firm's San Francisco office, said she expects to see continued activity in the first three areas over the coming months, but said the future of mixed-use redevelopment is less clear. She said she's also currently working on getting approval for a new Bay Area hotel.
This is the final article in a five-part series of interviews with female real estate leaders during Women's History Month and a year into the COVID-19 pandemic.
This interview has been edited for clarity and length.
What have been the biggest challenges in doing land-use work over the last year?
Well, surprisingly, the land-use work has not been as challenged by COVID-19 as many of us might have thought when the pandemic first got started. ... We've had many many public hearings and quite a few projects approved during this period. So from a land-use perspective, the process has really been quite phenomenal in how adeptly the public and the communities and the practitioners and the developers have been able to continue to move entitlements along with the new technology.
I'm wondering about the [process] of getting the public involved and doing this all virtually. What has the virtual aspect of this been like from your point of view?
Well, two significant changes. The first is that there have been overall fewer attendees at the hearings. In other words, neighbors seem to be less likely to have a concern and show up at a Planning Commission hearing or a City Council hearing virtually than they might have if there was opposition and they [could] go down to City Hall and see what was going on. The total number of people participating does seem to be lower. But I have heard from many cities and folks who are interested that the ability to watch what's happening and listen in and observe has actually gone up quite a bit. ... So, there seems to be less public comment, yet more public viewing and knowledge of what's going on, because it's easier to simply log on and listen in real time. It may be that the members of the public are just maybe not as comfortable yet speaking up in an online fashion.
I think a lot of communities who've had the benefit of changes in how we allow for public participation through technology in our state are perhaps looking forward to being able to continue that participation by having meetings be available [online], so that folks don't have to come down [to City Hall] if they have challenges [with] disability or childcare or cost and remoteness of where the hearings are. It's a lot easier for the public if they do want to participate, to be able to continue to do [remotely], and that would actually allow for a greater level of community involvement in the long run.
You mentioned that you've gotten quite a few projects approved during the pandemic. What are some of the key questions that your developer clients are coming to you with?
Well, the questions haven't really changed all that much. ... There are really four types of projects that I continue to see heated interest in. One is biomedical and pharmaceutical research and development campuses and buildings. There's a great interest in continuing to invest and entitle [properties] in the biomedical as well as pharmaceutical [and] technology industries. We've had quite a few hearings on that front. And then also on the industrial side, transportation ... by all sorts of users has been a very active sector in the entitlement process.
We've also continued to see strong interest in multifamily housing, and notwithstanding the fact that rents may be down in parts of the urban areas of California, we still have pent-up demand for housing, and multifamily housing continues to press forward as well as single-family housing. Those are both continuing to be very strong markets as folks want to invest in where they live, and perhaps are willing to live a little further away from their place of employment.
And then the last of the four is continuing to redevelop areas that were primarily retail centers to a mix of uses that might still include some retail but also be combined with the other uses, where they can be complementary to each other. Housing, office, light research and development. Not heavy industry, but lighter industry. So those mixed-use projects are also continuing to be very active.
I'm wondering about access to financing right now, amid the pandemic. When you think about these four types of projects, how much capital is available?
Most of these projects are privately funded through the entitlement phase and sometimes even the beginning of construction, and if there's enough equity in these projects to move them forward to full construction, there seems to be very little concern by the clients in the ability to get the financing needed to build the types of projects that we're talking about right now. So access to capital for transportation goods, research and development, industrial, storage, housing and the right kind of mixed-use does not seem to be holding back either the entitlements or the actual commencement of construction. Early on in the pandemic, the Bay Area had very strict guidelines that even limited construction to only certain sectors, depending on what county you were in. And I spent quite a bit of time working with my clients as well as the cities or counties to be in a position to keep housing and biomedical and industrial projects going, because we believed that they fell within the definition of essential services.
[The California Environmental Quality Act] is a major part of the review and entitlement process. What has it been like to do CEQA review during the pandemic?
Very good question. Again, early on when we were under very strict stay-at-home orders in many parts of the state, particularly the Bay Area, we had biologists, geologists, ... hazardous material consultants, engineers, saying we can't go to your site and start preparing the reports that are needed for your CEQA document because we have to stay at home. And that did actually slow things down for a while. It was a real concern about getting in your car and going outside to do anything. By May, the orders had been revised enough to be interpreted to allow really any CEQA-related report to be prepared. Most of the reports have to do with impacts of a project on the environment, and so you're really able to evaluate … outdoors. You don't have to go inside to do the work that's needed for these reports, and then once you gather the information … you go back to your office to write the results based on pictures and findings or traffic studies. So by May, we were able to restart the CEQA process, and now I don't hear any concerns whatsoever about proceeding with the environmental reports in light of the pandemic.
If you think back to this set of four asset classes you mentioned earlier, do you see continued activity in those four sectors in the next three to six months?
I definitely expect to see development activity in the first three. I think on mixed-use, it will depend on what the mix of uses is. The areas in which we've had a lot of challenges are obviously hotel and hospitality, retail, restaurants and office. And so if you have a mixed-use project that has some housing in it but also has some of these other components, I think we're going to continue to see a pause for the next three to six months, looking to see how effective the vaccines are not only in inhibiting the original COVID-19 virus but the variants, and also in stopping the spread. So if the vaccines not only keep a person healthy but [the original virus and its variants] are not shown to be spreading, then I think we're going to see a lot of our lives resume back to normal in the next three to six months. And some of these other industries that have been so challenged will start to move, and then mixed-use will. If, on the other side, we continue to find ourselves six months from now with the same challenges we have today, then that's where I think you're just going see very limited capital and actual construction of some of these other asset classes.
It might interest you to know that ... I'm filing an application to develop a hotel near an airport. That business is not over. The first thing you do is you file the application. One of the last two or three meetings that I had before COVID hit was for this hotel, and we did put off filing the application until August, and then what we're filing … is just a final set of materials so we could move forward to the Planning Commission. So it's a formal submittal. This particular project definitely has been held up six, maybe 12 months overall, in part maybe because of financing. But really, just because the particular jurisdiction we're in, with their [limited] staff and their resources plus the fires that we experienced in the fall, we just decided that it would be better to give everybody some breathing room and hold off a bit. But now we're ready to go and I'm hoping that we'll get the project approved by this summer and start construction in early '22.
What is your prognosis for what we'll see in the hotel space in the next six months?
We actually have a group of attorneys in what we refer to as our hotels and leisure [group]. And we are very much in wait-and-see mode. There are not a lot of foreclosures going on. There's not a lot of refinancing going on. There are not a lot of sales going on. There's still not a lot of hotel occupancy activity. Everybody's really in this wait-and-see mode. I think that there was a lot of activity in the later months of 2019 and early months of '20 that looked to healthy hotel, hospitality and transportation sectors, and then everything kind of came to a stop. We're [no longer] at a complete stop, but much of a stop. ... You don't see a lot of hotel bankruptcies or [hotels] closing down. We're in a really, really, really long pause.
--Editing by Alanna Weissman and Emily Kokoll.
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