Eastfield Mall
Springfield, Massachusetts

   
  Mixed Signals
  By Eric C. Peterson
New Jersey & Company Magazine
November 2, 2009
Original Article
   
 

The state of the economy, the question of New Jersey’s economic competitiveness, the various state incentives that have been rolled out over the past year, and the gubernatorial election—all the current key topics were raised during panel discussions at the New Jersey Real Estate Economic Survival Conference in Newark. Presented by ScheinMedia and New Jersey & Company at NJPAC on October 6, the event evoked not only the key issues of the day, but attracted the state’s top public and private sector leaders to talk about them.

First topic on the agenda for the Wisdom Panel, moderated by Jonathan A. Schein, president/CEO of ScheinMedia, was how the commercial real estate market is different today from past years, particularly in light of the economic downturn. Harking back nearly four decades, Stephen B. Siegel, chairman of global brokerage for CB Richard Ellis, termed the early 1970s “fascinating.” For New Jersey in particular, he said, “this was an industrial state with very little office.”

Noting Manhattan’s towering skyline just across the Hudson River, Siegel said that in the ’70s, “people were convinced to come to New Jersey because of incentives, lower rents, and costs, and [because] the real estate industry and the state have evolved. And this was accomplished during a down time.”

Fast-forward to today, to another down time. “We’ve come back from the brink of what could have been the next Great Depression,” said Mitchell E. Hersh, president/CEO of Mack-Cali Realty Corp. With government and regulatory actions having apparently forestalled that eventuality, he conceded that “we continue to go through a difficult period.” Citing property devaluation, deflation, and “the evisceration of wealth, there are so many difficult issues that have impacted the global markets,” Hersh said.

Nonetheless, “We’re seeing markets come back slowly,” Steven J. Pozycki, chief executive of SJP Properties, pointed out. “The greed is coming back.” And, relating back to the late 1970s and early 1980s, Joseph Taylor, president/CEO of Matrix Development Group, said simply: “We have seen huge peaks and valleys over the years.” Regarding the present downturn, Taylor commented, “The market is never going to get to where it was, but it won’t get any worse.”

In terms of a possible uptick, Taylor said that while it’s still difficult to access debt, “equity is out there—when the market recovers, it’s there.” That being said, Taylor also acknowledged seeing signs of improvement. However, he remarked that New Jersey can be a difficult place to do business and indicated that the early stages of recovery would come in the urban areas “which have more incentives,” and will likely come from smaller companies. Above all, he said, “We have to be nimble and creative.”

Michael Seeve, president of Mountain Development Corp., observed that “development continues to be difficult,” and one way out is to “cut costs and retrench.” He predicted that adaptive reuse of existing buildings will be one successful approach.

Siegel believes it will be 12 to 18 months before the market sees speculative growth. But Pozycki concluded that the key to New Jersey’s recovery will be having “the best labor base in the metropolitan area.” Noting the state’s perception relating to corruption, taxes, and other issues, he added, “New Jersey has to stop being the Rodney Dangerfield of the region.”

The New Money and Investors Panel, moderated by David T. Gockel, president/CEO of Langan Engineering, addressed the issue of whether we’ve hit bottom. Andrew N. Stark, executive managing director of Cantor Real Estate, wasn’t sure. “We’re in a logjam,” he said, projecting it will be the end of 2010 “before there is an uptick in deals.”

Michael H. Sonnabend, managing partner of PMZ Realty Capital, agreed about “the logjam of liquidity.” Even if the market hasn’t hit bottom yet, “it’s close—the break could come from private money.” But he believes we are seeing “the light at the end of the tunnel.”

Ralph Raciti, managing director at Phoenix Realty Group, admitted to frustration. “We can’t get a lot of lenders to answer our calls,” he said. Attorney Mitchell Berkey, a partner at Wolff & Samson PA, said he’s seeing “mixed signals. Buyers far outnumber sellers in this market. But I am seeing some positivity—the insurers and community banks are coming back a bit.” Berkey expressed concern about the number of loans coming due and termed the commercial banks “the great unknown.”

And Ron Beit, president of RBH Group, acknowledged the unpredictability of the economy. “There is a lot of pain ahead of us,” he said. “It’s time to get back to the fundamentals and execute long-term plans. We need to look at the specific values in specific markets and find the opportunities to create value.”

Yet despite the unpredictable market, Raciti noted, “There are a lot of deals out there because of past problems, tear-downs, and the like.” He said he believes those deals may well be done by private investors because “they have an unlimited time horizon. They’re not as driven by investors’ need for returns.” In response, the panel concurred across the board that New Jersey has to correct the perceptions about the state as a place to do business.

That was an appropriate segue to the Business Incentives Panel, moderated by Robert S. Goldsmith, a partner in the law firm Greenbaum, Rowe, Smith. From a government perspective, “we look at this as a continuum,” said Jerold L. Zaro, chief of the state’s Office of Economic Growth. Noting that the aim has been to make government operate more like a business, he remarked, “Government is like a lumbering bus—it’s difficult to turn around.

However, Zaro pointed out, “compared to a year ago, we’ve come a long way.” He called recent initiatives, added to earlier efforts by the administration of Gov. Jon Corzine, “injecting rocket fuel” into the long-term process. These recent initiatives, Zaro said, include 48-hour “concierge service” to get business questions answered quickly; liberalized business tax laws; permit extension legislation; and the Licensed Site Remediation Professionals program, aimed at getting brownfield sites cleaned up and approved for redevelopment faster. And Zaro promised more to come. “You will be seeing more announcements in the days ahead,” he said.

Timothy Lizura, senior vice president of the New Jersey Economic Development Authority, termed his agency “a whirlwind of activity” in terms of government changes involving “what entity does what.” Echoing the various initiatives that have come out of Trenton in the past year, “We now have some of the best tools in the tool chest,” he said.

“New Jersey has some of the best tools in the country right now,” echoed Jay C. Biggins, executive managing director of BLS & Co., citing his company’s experience in 40 states. “There is a tough, rigorous, productive team in Trenton putting all those tools into play at the right time in the economic cycle.”

Rosemary T. McFadden, deputy mayor of Jersey City, agreed: “There is a remarkable difference in Trenton, both for the cities and for business. We’ve clearly been lagging in the nation competitively—until now.”

Another key issue may also get some resolution. Regarding the 2.5 percent fee developers must pay relating to COAH requirements, Zaro noted that the fee has been suspended and the overall COAH program faces a “pending revamp.”

And while the incentives environment in New Jersey has taken a step forward, there are still concerns tied to the economy. Biggins, for example, pointed to the “financing realities. The revenue streams [for these programs] are speculative.”

Ted Zangari, a member of Sills Cummis & Gross PC and moderator of the Developer Incentives Panel, prefaced that group’s presentation by citing the additional costs of development “that have added to the larger financial problems.” The challenge, he said, “is how to close the gap.” Pointing to the incentives of Gov. Corzine’s Stimulus Act of 2009, he noted that “subsidies are already closing the financing gap. We’re working with real, live projects, especially in the urban areas and smart growth areas.”

Caren Franzini, CEO of the New Jersey Economic Development Authority, similarly applauded the various new programs and their impact on new development, but reminded attendees of “the existing programs, such as BEIP [Business Employment Incentive Program grants] and BRRAG [Business Retention and Relocation Assistance Act Grants] that are good for existing buildings.” She also reminded conference attendees not to forget recent site location “wins” for New Jersey like Major League Baseball and TD Bank.

But from a regulatory perspective at least, “the development environment in New Jersey is better now than it has been in a long time,” asserted Tom A. Banker, president of the Banker Group. Complimenting the process of marrying private sector interests (through groups such as Gov. Corzine’s Real Estate Advisory Board) with government itself, said Banker, the various new programs “meet the concepts outlined by the state.”

Among the positives, according to Banker, is New Jersey’s objective way “of examining projects,” and the creativity that is bringing more residential development to the state’s downtowns. But his concerns include the question of security of funds associated with the state’s new Economic Redevelopment and Growth Grant (ERGG) program, essentially a gap-financing program, and making sure the bundling of various grants and incentives offered by the state is addressed “in an open and honest way.”

Ron Ladell, vice president of AvalonBay Communities, concurred that the various new programs are good for residential development. However, he expressed concern about the expense incurred by prevailing wage laws, noting that “many smaller projects are non-union” and that the requirement to pay prevailing wages can be “a hardship.”

On the retail side, George Jacobs, president of Jacobs Enteprises, brought up the fact that “we’re chasing a downward spiral” on rents. “The need is to try to plug these holes,” he said. “The development and tenant communities are the ones actually writing the checks. We need to look at these programs and ask, ‘Do they actually work?’ In my view, they do work, but it takes time.”

Stefan Pryor, Newark’s deputy mayor for economic development, thanked Trenton “for making things possible.” Thanks to the residential tax credit, which has resulted in projects in Newark and the Urban Transit Hub program, he said, “It’s possible to build now. These are resources that help make mixed-use projects—including residential—work in places like Newark.”

As the conference’s keynote speaker, Pryor’s boss, Newark Mayor Cory Booker, credited state and local officials for “taking a climate in Newark that was terrible and [making] it a great opportunity. The State of New Jersey has had a bold vision as the principal state in the Northeast for development.”

Booker predicted that, through various development programs—along with Newark’s advantages as a transportation hub and center for both culture and academia, set within the nation’s second wealthiest state and located just 10 miles from New York City—“We will set the standard for urban transformation.” He concluded, “Newark has become the incubator for new ideas and the real story of Newark is going to be economic rejuvenation. We are focusing on the future, and the future of New Jersey is its cities.”

With the gubernatorial election only a month away at the time of the conference, both incumbent Gov. Jon Corzine and Republican challenger Chris Christie were invited to speak. The latter declined to attend, but Gov. Corzine was represented by Assemblyman Albert Coutinho (D-Newark). Coutinho credited the Corzine administration for the various business incentives outlined throughout the day’s events and the public/private partnership that has facilitated much of that agenda.

While admitting that much more needs to be done, “actions speak louder than words,” Coutinho said. “New Jersey has been the most aggressive state in the nation to get us out of this economic mess.” Pointing to the fact that New Jersey was the first state to come up with an economic recovery plan, as well as such efforts as foreclosure mediation, the state’s neighborhood stabilization program, permit extension, and the LSRP program, Coutinho noted that “the governor listened to the communities and the legislature.”

In addition, said Coutinho, “the governor has initiated long-term tax reform, under which 70 percent of New Jerseyans will receive some form of tax relief. [Gov. Corzine] is also the first governor to have a smaller budget in his fourth year than in his first year.”

But even though “we’ve made progress,” Coutinho admitted that “a lot more needs to be done. Every step of the way, the governor has listened to the various constituencies,” he concluded. “And it shows in the progress we’ve made here in Newark and across the state.”