One of the most significant challenges created by a drought stem largely from the “uncertainty” or inadequacy in water supply. In California, a high level of uncertainty is already built into most policy-level decision-making, given the state's variable climate history; however, project-specific drought implications are not often considered until a groundwater well runs dry, government agencies require immediate reductions in water use, or the entitlement of a project is delayed due to water supply concerns. Because water certainty is a key driver to the long term economic viability of any project (and in many instances the initial debt and/or equity investment), the incentive for the industry to seek new and more secure sources of supply is clear.

As an example, the commercial real estate industry is well-suited to address long term water supply uncertainty concerns by planning, designing, constructing and operating projects to leverage nontraditional water supplies such as recycled wastewater. Back in 2003, the California Recycled Water Task Force—a group of 40 federal, state, local government, public health professionals, private sector entities, environmental organizations, academics, and researchers – estimated that by 2030 California has the potential to recycle up to 1.5 million acre-feet of water annually. The commercial real estate industry has the opportunity to help California achieve its potential by investing in new technologies that will allow it to increase recycled water use for landscape irrigation, industrial uses, and office plumbing. Rainwater capture and recirculation also presents a nontraditional supply opportunity that can help solve for the uncertainty in the present water supply environment.

Technology can also assist the commercial real estate industry through increased conservation efforts. As part of Governor Brown's drought declaration, water use reduction plans are now required for all state facilities, and a moratorium was placed on new, non-essential landscaping projects at state facilities. Similar plans can and should be developed by private owners, operators and facilities managers. Such plans can include the installation of water-efficient fixtures and equipment, education of tenants and visitors, and new vendor conservation requirements.

As recognized by the Los Angeles Times back in 2011, one of the most substantial ancillary costs of a California drought is an increase in energy costs. While natural gas prices have dropped in the last two years, the Times (citing an analysis of drought impacts conducted by the Pacific Institute) estimated that California ratepayers previously paid almost $2 billion to replace lost hydropower with natural gas generation during periods of drought. The commercial real estate industry has a unique opportunity to mitigate drought-related energy price increases by increasing the use of renewable energy generation sources (such as rooftop solar and small wind turbines) and through implementation of energy efficiency measures in both construction and operations.

With drought a fact of California life, success in commercial real estate will require proactivity and creativity when it comes to water supply. By using tools such as rainwater capture, recycled wastewater, renewable energy, and energy efficiency measures, developers and owners can meet and mitigate the challenges presented by drought and be better prepared for the next challenge.

Kristina D. Lawson is a Land Use Partner at Manatt, Phelps & Phillips LLP, located in the San Francisco office and Michael C. Polentz is co-chair of the Real Estate & Land Use Practice Group at Manatt, Phelps & Phillips LLP, located in the Palo Alto office. The views expressed in this column are the authors' own.