California’s AB 98 Poised to Regulate the State’s Runaway Industrial Sector

The issue is top of mind in Southern California’s Inland Empire — the country’s largest market for warehousing and logistics, serving the world’s biggest companies and logistics firms with thousands of low-rise properties that range up to 1 million square feet or more — which was put into hyperdrive amid the COVID-19 pandemic. The law also targets the state’s unrelenting housing crisis by mandating a two-for-one affordable housing replacement for industrial projects that demolish certain dwellings. 

Opponents, however, say the new rules will hamstring the economic engine of warehousing, and that the legislation is too confusing besides.

The Inland Empire is home to the district of State Assemblymember Eloise Gómez Reyes, who co-sponsored AB 98 alongside Assemblymember Juan Carrillo. The bill is at least the second attempt by Gómez Reyes to regulate industrial development in the state. Her previous effort, AB 1000 — which sought to heavily restrict new facilities larger than 100,000 square feet within at least 1,000 feet of sensitive receptors — failed to pass the committee stage last year. 

“Another consideration for us in introducing this bill is to keep the [industrial development] industry in California,” Carrillo told Commercial Observer. “If we didn’t do anything about it, they would keep on going along the 10 freeway until eventually they will reach the border of California and Arizona. We need to support those industries that are here in California. … We keep hearing that California drives industries away; we don’t want that to happen.”

The new law has the endorsement of some powerful business organizations, like the California Chamber of Commerce, as well as labor unions such as the Laborer’s International Union of North America, which represents some 80,000 construction workers in the state. The chamber has described the law as a “compromise,” and that legislation limiting industrial development near sensitive receptors was inevitable. 

Yet AB 98, parts of which take effect Jan. 1, has made strange bedfellows out of groups that strongly opposed it, albeit for different reasons. Developers, local governments and environmental advocates argue its regulations are either too vague, go too far, or don’t go far enough, depending on whom you ask. 

Even Gómez Reyes has indicated that her own bill inadequately addresses concerns she has over such developments, saying in a statement that although she felt “immediate action” was necessary, she “[does] not believe the sensitive receptor setbacks in this bill go far enough to protect our most vulnerable communities.” 

Doubt about the law from so many players with stakes in the game begs the question: What is the endgame for AB 98 and for California’s industrial scene writ large?

“As an industrial real estate developer, our knee-jerk, gut view on this is that it’s just a poorly drafted piece of legislation,” Rishi Thakkar, director of investments for developer and owner Dedeaux Properties, said. “It creates more questions than it does answers. I’m all about protectionist laws and looking out for the best interests of a [community] or individual, but it’s got to be done in a methodical type of way.” 

Restrictions, exceptions and ambiguities

AB 98’s new restrictions are essentially split into different sections, all of which stack depending on the type of project. (The law affects only new projects, or expansions adding 20 percent or more to an existing facility’s square footage. Those that had an entitlement application on file before Sept. 30, regardless of size, will be largely exempt.) 

A set of general standards that will apply to all non-exempt developments, beginning Jan. 1, include requiring developers to submit a truck-routing plan to and from state highways, the installation of truck-routing and anti-idling signage, and new entry gate requirements. Then, beginning on Jan. 1, 2026, developments must be on an arterial road, collector road, major thoroughfare or local road used primarily for commercial use. That requirement is subject to a city’s discretion based on a set of exceptions, such as geographic impracticality.

Another wide range of restrictions will then apply to developments from Jan. 1, 2026, onward. Certain characteristics of a given project trigger those restrictions. These include: if the size of a development is more or less than 250,000 square feet, if a development’s loading bay is within 900 feet of a sensitive receptor, if the development is within the Warehouse Concentration Region (defined by the bill as Riverside and San Bernardino counties and the cities of Chino, Colton, Fontana, Jurupa Valley, Moreno Valley, Ontario, Perris, Rancho Cucamonga, Redlands, Rialto, Riverside and San Bernardino), and if the development requires a zoning change.

Projects under 250,000 square feet and that do not require a zone change are subject to the mildest level of restrictions. Those include orienting loading bays away from sensitive receptors, having a separate entrance for heavy-duty trucks, screening to reduce light and noise, and compliance with the state’s most current energy-efficient building design standards.

Yet the problem children are projects that are at least 250,000 square feet and do require a zone change. They’ll face the heaviest restrictions. Those include a 500-foot buffering requirement to the nearest sensitive receptor, more intensive screening for light and noise, zero-emissions requirements for forklifts and any equipment powered by “small off-road engines,” electric vehicle parking requirements, and a microgrid switch-gear system for distributing electric power.

As voluminous as these listed restrictions are at different levels, some critics say that AB 98 comes with a host of ambiguities and ill-defined terms ingrained in its language. A common complaint among developers is the law’s housing replacement obligation, which mandates two units of housing be built to replace every one occupied unit demolished to make way for an industrial project.

Critics say the vaguely worded mandate raises myriad important questions: Where and when should the replacement units be built? What are the size and cost standards of the replacement units? Must the type of housing of the replacements be the same as the original?

“What happens if you’ve got a house that’s on, say, an acre lot,” said John Condas, partner at law firm Allen Matkins, which specializes in real estate law. “What do you replace it with? Do you have to replace it with a house somewhere else with an acre? Can it be an apartment? We just don’t know.”

That uncertainty makes an industrial developer’s job more challenging,  Dedeaux’s Thakkar said. 

“What we can pay for a piece of land is predicated on what we can achieve in terms of revenue and income on that land,” he said. “Right now, I don’t know what I can pay for land because I don’t know what implementations are going to be imposed on this project [due to AB 98]. There’s a lot of ambiguity in terms of what I can build, what I can deliver. … So it’s a rather big conundrum in terms of, everyone’s trying to figure out, ‘Well, what do we do next year? How do we figure out what deals to do?’”

Assemblymember Carrillo acknowledged that certain aspects of the bill could be improved, and that there is an appetite in the state legislature to introduce new bills or amendments to AB 98 to address those issues. 

“I realize that there are still some concerns, things that need to be worked out, and, believe me, there’s no legislation that is perfect,” Carrillo said. “But at the end of the day, legislation is about getting things addressed at some point. At least we now have a threshold where we can start addressing those other concerns. Assemblymember Eloise Reyes and myself made it very clear … that we will continue to work on it.”

The legislator added that new rules could be introduced as soon as early January, when the legislature reconvenes, though an exact time frame is unclear.

“There’s an opportunity to do that and we’ve committed to do that,” Carrillo said. “I’m willing to do it now, as soon as we go back, because there are valid concerns.”

City and environmental justice opposition

The bill is also opposed by a number of cities in the Inland Empire, where municipal officials argue that its statewide restrictions undermine local authority to determine what’s best for their own constituencies.

Two weeks after AB 98’s passage in late August, mayors representing the cities of Chino, Chino Hills, Corona, Fontana, Montclair, Ontario, Rialto and Upland published an open letter to State Assembly Speaker Robert Rivas, vehemently protesting its adoption. 

The mayors, many of whom represent cities in Gómez Reyes’ district, argued that the law would stifle the region’s economic and job growth, and places undue burdens on those cities to address vague components of the law such as its mandate that cities reassess certain trucking routes. The localities, too, said too they were “largely excluded” from providing input when the law was drafted. 

“While we acknowledge the need to address concerns related to warehouse development, AB 98 introduces constraints without offering constructive solutions to mitigate its impacts on our communities. … Instead of imposing one-size-fits-all regulations, we urge our local legislators to prioritize more immediate challenges affecting our region,” the mayors’ letter said.

Yet it’s not just developers and local governments voicing issues.

A number of environmental justice advocates are likewise critical of the new law. They say not only were communities largely excluded from input, but that AB 98 was also hurried toward approval before the legislative deadline. Moreover, it generally does not go far enough in setting new sustainability standards or protecting locals affected by industrial development, the advocates say.

“Eloise Gómez Reyes and the legislature have rushed this process at the last minute and without the input of community,” the People’s Collective for Environmental Justice (PC4EJ) said in a statement in early September when AB 98 was under debate. “This policy is half-baked and has many loopholes. This bill will leave us locked in with the low standards that we are currently fighting against. [Gómez Reyes] has seen the impacts the industry has had, yet is championing this bill. This will only delay the actual land-use reform we need and make it harder for environmental justice communities, especially in the [Inland Empire], to fight for justice.”

Representatives for PC4EJ declined to comment. The Center for Community Action and Environmental Justice, another organization critical of the bill, did not respond to a request for comment. 

Assemblymember Carrillo said that while those groups have some valid concerns, he pushed back against the idea that the bill was rushed or that it came as a surprise. California lawmakers, particularly Gómez Reyes, had for years tried to regulate industrial development, he said.

“This is nothing new. Everybody knew that this had to be addressed at some point,” Carillo said.

The California Chamber of Commerce, for its part, described the bill as a “sensible path forward,” and said its passage would prevent even stricter legislation in the future. 

“AB 98 is a compromise that avoids the negative economic and environmental impacts that would arise from much more stringent and unworkable legislation, while still addressing community concerns,” the Chamber said in a September statement. “While any bill of this magnitude is expected to have future cleanup, the bill will help maintain California’s position as a leader in both economic innovation and environmental stewardship.”

Adam Regele, the chamber’s vice president of advocacy and strategic partnerships, said that despite the AB 98’s exact legislative timeframe, the industry should’ve been aware that a law restricting industrial development was forthcoming. Aside from previous attempts at legislation like AB 1000 in years past, Regele said, Assembly Speaker Rivas publicly directed lawmakers earlier this year to establish a “warehouse working group” to determine how to resolve issues stemming from industrial siting.

“Prior legislative proposals pushing for unnecessary and unreasonable setbacks of 1,000 feet or more would have jeopardized the entire California economy and the millions of jobs directly and indirectly associated with the goods movement sector,” Regele told CO in an emailed statement. “AB 98 is the culmination of that process and strikes the critical balance of protecting jobs, the economy and California communities.”

Still, for Thakkar and for other developers, the sheer scope of restrictions imposed by AB 98 means that there is much to be figured out, and not much time to do it before aspects of the law go into effect. Thakkar asserted he and his team did not hear about the bill until July.

“I think the one thing about AB 98 … is that this is a new phenomenon,” Thakkar said. “We’re strapped in, this is our business, so we need to figure it out. But it’s challenging right now because there’s a lot more unknowns than knowns.”

Nick Trombola can be reached at ntrombola@commercialoberver.com.