May 1, 2017

West Coast Real Estate Update: May 1, 2017

Holland & Knight Update
Susan Jennifer Booth | Stacie Andra Goeddel | Robert M. Haight Jr. | Karl J. Lott | Douglas A. Praw

New Arizona Law Aims to Prevent "Drive-By" ADA Lawsuits

Arizona recently enacted a new law that gives businesses and property owners a 90-day grace period to fix alleged disability-access violations without paying penalties. The law was passed in response to so-called "drive-by" lawsuits in which unscrupulous plaintiffs search properties for minor violations — such as the width of a van-accessible parking space being a couple of inches too narrow or the height of a handicapped-parking sign being a few inches too low or too high — and then demand cash settlements to dismiss their lawsuits. In addition to the 90-day grace period, the law requires that sufficient detail and notice be given to allow a correction to be made, offers legal standing only to an aggrieved person who has been subject to discrimination and prohibits a plaintiff from being promised anything of value in exchange for filing a lawsuit.

Arizona's law tries to strike a balance between protecting the rights of persons with disabilities and preventing those who use disability laws as a tool to force businesses and property owners into paying thousands of dollars to dismiss a dubious lawsuit. The law was supported by the International Council of Shopping Centers, which has lobbied Congress for a similar law to be passed at the federal level. Those efforts resulted in H.R. 620, the Americans with Disabilities Act (ADA) Education and Reform Act that was introduced in the House of Representatives on Jan. 24, 2017. That bill is currently assigned to the House Judiciary Committee, which has yet to take further action.

Non-Traded REITs See Dip in Capital

According to Summit Investment Research, non-traded real estate investment trusts (REITs) raised $4.8 billion of equity in 2016. That number marks a 53 percent decline from the $10.2 billion that was raised in 2015 and the lowest volume of capital for the sector in the past 14 years.

Some of the decline could be explained by the departure of one of the major players in the sector, American Realty Capital Trust, now known as AR Global. In 2013, AR Global — then known as AR Capital — was responsible for more than a third of the approximately $20 billion raised by non-traded REITs. It is likely that two proposed regulations — the U.S. Department of Labor's fiduciary rule and the Financial Industry Regulatory Authority's Notice 15-02 — played a role in AR Global's departure. Although the fiduciary rule has been postponed and could be overturned by the Trump Administration, the uncertainty created by these two proposed regulations could weigh on other non-traded REITs and continue to limit the amount of capital raised this year.

West Coast Cities Lead in Rent Growth

A recent article published by National Real Estate Investor placed Sacramento and Seattle, followed by California's Inland Empire area of Riverside and San Bernardino, at the top of a list of cities with outsized apartment rent growth. Fort Worth, Texas, followed by Atlanta, rounded out the top five. The article notes that most of the cities around the country with the largest rent growth are in secondary markets, away from the large urban centers where developers focus on creating new supply. With little new construction in these markets and low vacancy rates, year-over-year rent growth is expected to reach near double digits in the California cities and greater than 5 percent in Seattle.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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