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The Industrial Yield Squeeze Is On

NEW YORK CITY—Executives of Lee & Associates recognize the need for regulations governing storm-water management and green area in general, but are quick to note the impact that these factors have on development yields.

By John Salustri | Updated on October 26, 2016
Riorda: “As real estate experts, we need to be cognizant of the effect of regulations and related fees, and their collective impact on rental rates.” Riorda: “As real estate experts, we need to be cognizant of the effect of regulations and related fees, and their collective impact on rental rates.”

NEW YORK CITY—Outsiders to the industry may praise developers for their attention to environmental issues such as storm-water management. However, in many cases it’s a consciousness born of necessity, as those initiatives are based in local, state and federal regulations falling under the auspices of the 1972 Clean Water Act and the EPA. One of the nation’s critical areas in terms of storm-water management is the Chesapeake Bay Watershed, and Allan Riorda, president of Lee & Associates‘ Chesapeake Region office, sees the regulations as a mixed blessing.

“In the early ’80s the state of Maryland implemented a system designed primarily to reduce flooding and sediment that was pouring into Chesapeake Bay,” says Riorda. “The bay had lost a substantial amount of natural grasses and other plants which, among other things, adversely affected the oyster beds.” The state needed to clean that up to ensure a healthy bay. The good news is that “there’s been significant improvement in the water quality,” added Riorda.

The bad news? “When developers introduce required water-management systems into their site designs, it simultaneously adds cost and reduces the amount of land available to support rentable building area. It all filters down to rental rates,” says Riorda. “As real estate experts, we need to be cognizant of the effect of regulations and related fees, and their collective impact on rental rates. One solution that has been implemented is using a regional storm-water management plan, which, according to Riorda, “essentially creates one larger pond shared by several buildings.”

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