12/1/22 Northern New Jersey Mastermind Group Meeting

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

• John Tregidgo (Dresdner Robin) reported on new soil standards issued by the NJDEP for PFAs (polyfluoroalkyl substances) and due to be generated in a month by the DEP – a game changer for environmental due diligence. PFAs are prolific in drinking water, public water supply wells, Teflon-coated products, and fire-retardant foams widely used in construction and manufacturing. When present in ground water, it may be remediated with activated carbon or minimized with an air permeable cap. Properties with historic fires routinely treated with fire repressing foams may face expensive remediation. The same may be true for industrial properties like the Marcal site on Route 80, which used a prolific amount of PFAs. Note: the EPA may ultimately regulate PFAs like PCBs.
• Paul Hacker (Axis Insurance) updated the group on the importance of cyber liability insurance and MFA programs for all businesses, large or small. MFAs (Multi Factor Authentication) provide a strong, layered password-less approach with a combination of two or more credentials to verify user ID – pin number, biometrics like face or voice recognition or fingerprints, special MFA codes. Paul reported that once in your system, a cybercriminal remains there for up to 300 days, targeting people and gathering intel, such as when invoicing and taxes are done, name of your accountant, etc. They then release malware virus locking the company’s system until the ransom is paid. Small uninsured companies hit with even a $5K to $25K ransom can be put out of business. Larger firms are extorted for an average of $1M to $5M – healthcare firms as much as $20M; companies can be locked in litigation to resolve issues for years. Note: Axis offers a free 30-minute program on cyber hacking.
• Mark Vizzini (Dresdner Robin) summarized the NJDEP’s new Emergency Flood Hazard Area regulations that go into effect December 5^th or 6^th with a 60-day review/comment period for tweaks. They will effectively raise the fluvial (non-tidal) flood areas by two feet, accounting for future projected rainfall when designing flood elevations. Since FEMA is not changing flood maps, flood insurance on a property may not be required. However, how will brokers or builders know if they are in a flood zone according to new NJDEP maps? There is still much to resolve as these regulations evolve.
• Gregg Manzione (Nationwide Consulting) reported that his clients are currently very cautious. Six months ago, they were anxious to bid on properties; now they are holding back, especially in residential and commercial. On a positive note, one client near the airport with tenants in the renewable fuel market report business is booming; they are getting government credits; one client who was doing 50 trucks a day expects it to double. Other clients are waiting for cap rates to go up.
• Greg James (NAI James E Hanson) described the current mortgage banking market as currently very cautious. In the net lease space, investment real estate with more than 10 years on a lease can be financed fairly fluidly, but only with banks with whom you have a relationship and a good track record. For triple B, brand new buildings with 15-year leases, banks have pencils down until at least April/May 2023. Looking to 2023/2024, it is unknown what will happen in the office market here or in NYC. On the other hand, Greg cited one NJ client who had a better year in 2022 due to two or three deals for office space for firms that downsized to smaller spaces in B plus buildings that offered more amenities – conference rooms, gyms, food courts, etc. The question remains who will back fill into the larger office spaces that become vacant. Banks will likely wait to finance business until inflation and cap rates come down. On the other hand, there are still buyers and financing for good industrial and A-plus multi family in NNJ.
• Charles Hecht (Dresdner Robin) reported a shift in land use, particularly in vacant office buildings that are being converted to multifamily. He cited a five-story 500K SF office building in Jersey City that is being transitioned to residential; they are currently working with the city to rezone the property for that use. There is also looking at opportunities to shift previously underutilized land to uses other than industrial or self-storage, such as office and residential.
• Bill Hanson (NAI James E Hanson) noted the reduction in the office market, citing that it has been ten years since he has seen new office construction, especially in western NJ. In many cases, offices have been repurposed or torn down for industrial warehouses or replaced with multifamily. The work from home trend will likely continue, which will require a redesign of offices with smaller space and more amenities.
• Guest Ed Castelli (Donnelly Energy) spoke to the current and future status of EV charging stations to meet the growing needs of consumers with electric cars. New buildings under construction include parking spaces with EV stations; there will also be stations added to shopping centers, vendors like StarBucks, car dealerships, current office buildings, and municipal lots as a courtesy. Ultimately, incentives will be offered to builders of new construction in all markets. Other issues discussed included the length of time it takes to charge an electric vehicle (30 to 40 minutes), charging for long distance driving, and how to dispose of spent batteries.
• Guest Al Moffit (GEI Consultants) noted that his firm is working closely with municipalities, schools, non-profits, businesses, and manufacturing on energy efficient upgrades in tandem with all the major utility firms in NJ. PSEG continues to support the transition to upgrades by offering 70% off incentives and the remaining 30% on utility bills at zero interest.  GEI is also working with clients to get ahead of the curve for the implementation of charging stations to accommodate the influx of electric cars.
• Guest Evan Koransky (Ten-X Commercial Real Estate) reported that his firm has seen a lot of recent transactions for value-added office properties but at lower bids than previously. Smaller properties in better areas are experiencing good activity, citing a vacant 8800 SF class C office space on Main Street in Denville that sold for $120/SF. On the flip side, they are seeing larger office building properties are getting fewer offers at lower bids, with 15 to 25% discounts off asking price. With work from home apparently here to stay, the sale of office space in northern NJ is challenging since those buildings are old and many require extensive upgrades.