The basics:

• IOREBA panel points to permitting delays as major constraint on NJ development activity
• Developers raise concerns about REAL rules, added construction costs tied to flood elevation mandates
• Panelists see early movement from the Sherrill administration but say systemic issues remain
• Economic uncertainty, energy costs, tenant health weigh on project feasibility

While looking ahead with hope as the Sherrill administration finds its footing, panelists at the Industrial and Office Real Estate Brokers Association’s Annual Developer’s Night tempered excitement with a pragmatic approach.

The IOREBA event took place March 30 at Marriott at Glenpointe in Teaneck. The evening included extensive networking, expo-style booths, a buffet dinner and panel discussion featuring industry professionals.

Moderated by BINJE Editor Tom Bergeron, the wide-ranging conversation explored the start to Gov. Mikie Sherrill’s administration, new state environmental rules, snags in government, energy issues and solutions, the Iran war, tariffs and more.

It can’t get any worse

As it has in other forums, Sherrill’s appointment of the state’s first chief operating officer, Kellie Doucette, drew optimism from panelists. As did her administration’s quick moves to address permitting issues, reevaluate certain regulations and attempt to tackle mounting energy concerns.

Jack Fersko, Real Estate Department co-chair at Greenbaum, Rowe, Smith & Davis LLP, applauded the new governor’s early efforts. “They understand the problems,” he said.

“We have nowhere to go but up,” in terms of business friendliness, said Steven Senior, senior partner at Riker Danzig LLP.

“We just have to find a way to get permits and approvals out the door more quickly,” Senior added. “Because it’s part of the bottleneck; it’s part of the cost; it’s part of that affordability problem.”

The stakes are real. Fersko noted the largest group leaving the Garden State isn’t baby boomers, but rather “the future workforce and present workforce.”

“It’s primarily that 32-to-50 year old … and so there goes your economic base.” To address the brain drain, he said it is incumbent upon Sherrill to start with streamlining government. “Because if you don’t … you don’t get business in the state.

“And you don’t get tax revenue. It’s pretty simple.”

Offering an outside perspective, Iowa-based Jared Zatloukal, managing director at Principal Asset Management, highlighted the Garden State’s high points.

“And that’s what keeps me optimistic about New Jersey, I think, is just the density and the available land for development and moving forward there as well, which is definitely pro business,” Zatloukal said.

Breaking the bottleneck

Peter Feldman agreed “the effort [from Trenton] is appreciated.” However, he noted future-facing reforms don’t immediately address persistent issues. Referencing efficiency, the vice president at Saddleback Real Estate Developers and president of Legacy Real Estate Developers drew a correlation between public productivity and private potential.

On permitting delays, he underscored the need for certainty in operations. It “comes to the volume of deals and the volume of business we’re able to do in a period of time. Me, like many of you, need as many deals as possible, good ones. And we can’t sit around and wait for a year or two to be able to close on a property.”

Beyond the bottleneck at New Jersey Department of Environmental Protection, speakers highlighted the seeming impracticality of some policies the Sherrill administration has inherited.

The Resilient Environment and Landscape, or REAL, rules drew particular focus. Among its mandates, a requirement to building 4 feet higher than current FEMA-base flood elevations has drawn concerns and comments from the commercial real estate community, along with challenges from business groups and concern from the Legislature.

Zatloukal said flood studies, like those referenced in the REAL rules, can provide insights but that there’s a “common sense factor that needs to go along with it.”

On the lending side, his team recently introduced a climate risk report as one of three assessments it does during phase one property conditions and appraisals. While the reports are helpful – as is building in resiliency – “if the infrastructure doesn’t follow, it doesn’t really do anything.”

The cost of doing business in New Jersey is already expensive. So it’s going to take some creativity.
— Jared Zatloukal, managing director, Principal Asset Management

Referencing Hurricane Sandy, Zatloukal said many of the buildings his firm had debt on didn’t ultimately see flooding, “but no one could get there to figure it out.” Beyond that, “you’re not going to have a tenant paying additional rent because you’ve incurred additional cost to raise your site … So again, there’s that common sense factor that needs to go along with it.”

Senior said the timeline is tight but reminded that NJDEP will review applications under the old rules until July 20.

The struggle is real

Both Senior and Fersko said some tenants are struggling. And it’s not due just to one thing.

“Clients are pausing, just waiting to see what happens next,” Senior said. “There’s a lot of uncertainty.”

Addressing the geopolitical situation and rising oil prices, Feldman noted local impacts. “We do have to think about the sustainability of our tenant base,” he said, noting oil’s prevalence extends far beyond the gasoline powering our autos. “It’s your entire world.

“And it could be inflationary across the board for almost everything, and that’s going to affect all business.”

If your tenant base sustains harm, the value of your asset goes down. “So it’ll make new development a little tougher if that velocity of that rental number doesn’t hold, especially because it’ll only increase construction costs and other operating expenses.”

“The cost of doing business in New Jersey is already expensive,” Zatloukal said. “So it’s going to take some creativity. It’s an ongoing issue that’s not going to go away. I think back to an earlier point, it’s just not fixable really quick.

“And so with this administration, they’re going to have to get to work really quick and it’s going to have to be bought into.”