9/8/22 Northern New Jersey Mastermind Group Meeting

Key Take Aways from Northern New Jersey’s September 2022 Meeting

• Tony Ianuale (Dresdner Robin) briefly summarized his firm’s focus in the Philadelphia/New Jersey/NYC area in both the private sector (mainly industrial and the still strong multifamily markets) and in the public sector, specifically with NJ infrastructure projects.
• Guest David Fallo (Netgains Engineering), who is Director of Project Development, commented on climate change initiatives affecting multifamily in the NYC/NJ area. Recent legislation like NYC’s 2019 Climate Mobilization Act and similar programs in Boston, Chicago, DC, and California are mandating the transition from gas energy in multifamily to electric and alternative energy within 6 years, leveling steep fines for non-compliance. NYC has banned new gas lines for new development, and hefty fines for non-compliance could reach $600K annually within 5 to 6 years. While NJ does not have similar legislation in place, energy change progress has been made by PSE&G, NJ Natural Gass, JCP&L, and others to convert from gas to electric and alternatives. NJ is ramping up its offshore wind energy and solar programs. At the same time, there is a shortage of components for HVAC systems; air source heat valves that used to be $200 to $300 are currently $6-7K.
• Guest Leslie Cook (IMC Construction) noted that as construction manager, she is involved in all aspects of construction, starting with design and procurement, for multifamily, affordable housing, industrial, cold storage, and shopping malls. Since IMC has always encouraged clients to follow LEED standards, she does not anticipate any gas conversion issues. IMC design, planning and construction teams work with clients early on to plan for and navigate supply and cost fluctuations for mechanical systems and other components throughout construction.
• Guest Diane Leva (Columbia Bank) summarized her activities as VP, Commercial Lending with a few recent examples of how she helps business owners secure the type of financing they need. Examples that demonstrate the breadth of business included a line of credit for a Bergen County manufacturer via a cash out on a building they owned; a commercial mortgage for a synagogue; a line of credit for school with non-profit and for-profit arms; a CPA firm; and a $1M per year landscaper financing a needed storage building.
• Bill Hanson (NAI James E. Hanson) provided a brief overview of the markets his firm serves, citing that multifamily and industrial continue to be prominent with some investors sharpening their pencils and fewer bidders. Multifamily projects still create a lot of interest no matter the size or location. Although there has been a small uptick in the office market, retail remains stagnant.
• Gregg Manzione (Nationwide Consulting), who focuses on tax appeals and lower financing, reported that inflation on operating costs is resulting in some towns getting aggressive with tax increases to developers. Gregg’s firm is involved with several tax appeals, including a Hackensack apartment building that was valued at $13M two years ago now at $17M and being taxed $40K more/year; an office building in the same town increased in value from $11M to $15M with taxes now increased $60K per year. In general, NJ towns are currently doing annual re-evaluations due to increases in home valuations.
• Guest Monica Caiello (US Title Solutions), Director of Marketing & Development, conveyed that her firm is the largest provider of title searches for the industrial, commercial, and institutional markets; they also have a division that caters to the telecom and energy industry. As recent title searches demonstrate — the Hub and Cancer Center in New Brunswick; Atlantic Care in Atlantic City; SJ Industries in Stockton; and a huge Linden industrial project – they tend to take on large projects vs. volume. Monica noted that she does not see the multifamily market softening, unless climate change or NJ DEP regs affect it.
• Jonathan Kristofich (NAI James E. Hanson) summarized his focus on private developers, estates, and trusts in the NNJ market, particularly revaluations in the Hackensack area. While homeowners are getting a boost, commercial properties are being slammed. For example, one commercial property recently went from $73K to $106K, with landlords consequently having to increase rents.
• Guest Scott Geller (Marcus & Millichap) works in three areas from his NNJ office – industrial, single tenant net lease offices, and acute healthcare/medical. He works with tier 1 and 2 private clients with high-net-worth income. On the sell side, his clients are in NJ, PA, upstate NY and CT, representing projects that range from $5M to $100M for industrial; $5M to $20M medical offices, and $15 to $30M for single tenant lease product. For the industrial market, he works with underserved cold storage market; solid B-class industrial products firms outside NY/NJ market; office and multifamily.
• Charles Heydt (Dresdner Robin) provided an overview of his planning group, which encompasses environmental review and engineering in three areas: 1) land development with property owners, developers, and civil engineers; 2) redevelopment plans, including zoning for specialized sites and town requirements; and 3) environmental planning. In the land use segment, industrial is very active; multifamily includes new construction; and small mixed use redevelopment projects including greenfield properties may combine ground floor retail with upper floor residential. He noted that office renovations are more robust, including cafes, lounges, and other amenities to attract class A tenants.
• Guest and Architect Tom Haggerty (SAA) highlighted several projects under development by his architectural firm in the NJ/NY area. His firm specializes in combining creative architectural design with out-of-the box thinking to repurpose industrial and office spaces outside of the normal range for usage. His NJ office is doing a lot of work outside NJ, in New Orleans, Houston, Michigan, and CA. One highlighted change-of-use project was Barnstable Academy, a school going into an office space in a former C-office building in northern NJ.
• Guest Dennis O’Neil (Consultant), an advisor in equity capital management, provided the group with an update on Qualified Opportunity Funds (QOE). The original concept was that a property could be bought and held for 10 years then sold with taxes due based on the first year. The program is still active and is now in effect through 2048 with possible adjustments to come.
• Speaker Jason Bram, Federal Reserve Bank of New York, provided an overview of “The US & Regional Economy, 2010 – 2022. Summary highlights:
o The national and regional economies have slowed, but labor markets remain strong and wage growth has picked up.
o New Jersey’s economy has fully rebounded from the pandemic: both employment & unemployment are back to pre-pandemic levels.
o New York City’s economy was hit hard and slow to recover; but this year it has been growing briskly.
o Regional businesses have become less upbeat about both current business conditions and the business outlook.
o Price pressures have receded somewhat but remain elevated.
o Office markets across the metro region have continued to struggle, while housing markets have been robust. NYC’s home sales market lags, but rental markets have been strong.