Michael G. McGuinness is the CEO of NAIOP New Jersey — Courtesy: Michael McGuinness
By Michael G. McGuinness
As we seem to be nearing the final stages of the global pandemic with more people getting vaccinated, federal stimulus monies pouring into our state and a new federal administration that is much more friendly to New Jersey, many of us are feeling that 2021 is going to be a good year. That sentiment may sound familiar to Who fans, like me. On “1921,” from the Who’s rock opera “Tommy,” Roger Daltrey repeatedly sings, “I’ve got a feeling ’21 is gonna be a good year…”
In all, more than $25 billion in federal aid will be coming to New Jersey and its residents in some form from the $1.9 trillion American Rescue Plan Act signed earlier this year. Although $6.4 billion is earmarked for state government, another $9 billion is going to a combination of municipal and county governments, public schools, NJ Transit and colleges and universities. An additional $9.5 billion in direct stimulus payments is going to residents. This infusion of federal dollars comes as the state’s fiscal outlook has brightened due to an improving revenue forecast and the emergency borrowing of $4 billion.
As Gov. Phil Murphy stated at NAIOP’s March 19 Public Policy Symposium, he is working to reopen the economy with the help of three highly effective vaccines. As of this writing, 38 percent of the state’s targeted population of 4.7 million people have been fully vaccinated, and the balance should get there by June 30. The idea of a “vaccine passport” is gaining traction, especially in the private sector, as that model is already being used in other countries. Also, thanks to the Economic Recovery Act of 2020 enacted earlier this year, businesses and developers can now access new incentives to create new jobs in response to changing market dynamics and help replace the thousands of jobs that vanished during the pandemic.
The stars have further aligned as President Joe Biden has indicated he would prioritize Gateway, and the Hudson Tunnel project is poised to be a potential beneficiary of his forthcoming multitrillion-dollar infrastructure bill. While Gateway stalled under the Trump administration, new U.S. Transportation Secretary Pete Buttigieg signaled it would move forward when he committed to completing a crucial environmental review by midyear.
How these billions will be used in New Jersey remains a huge question, as federal guidance is still forthcoming. The state Legislature will certainly want to have a say. With budget season heating up, much detail remains to be seen. The federal aid does come with restrictions, as it cannot be used to fund any major tax cuts, benefits or pension contributions. However, it can be used to pay down some of New Jersey’s $44 billion in debt, as requested by some legislators and business groups. Last year, the state incurred $4 billion in debt to pay for COVID-19 expenses and keep government open. Retiring older bonds with higher interest rates and debt service makes sense and would help free up money to invest in updated technology, workforce training and infrastructure. But we must not use this one-time infusion of money to create recurring expenses. Because agencies can use this money through December 2024, “we have the ability to take a multiyear approach to the spending plan,” says New Jersey Business & Industry Association CEO and President Michele Siekerka.
Likewise, “The outlook for commercial real estate for 2021 and beyond is promising with the economic forecast increasingly positive with vaccinations gathering momentum and the third federal stimulus making its way through the economy,” Hessam Nadji, CEO and president of Marcus & Millichap, said at the firm’s March 31 webcast (co-sponsored with Institutional Property Advisors): “Roaring ’20s Revival or Fed-Induced Downer?”
There are, however, significant property type and geographic variations. Top performers include necessity retail, warehouse/distribution and urban multifamily, with hospitality, leisure and senior housing struggling to rebound. More confidence in the performance of these asset classes has led to clarity, price discovery and more transactions. The impact of the record $5.7 trillion federal fiscal stimulus (equivalent to 26 percent of GDP) injected in one year is unprecedented. Commercial real estate remains a very compelling investment, given the amount of liquidity, incredibly low interest rates and the anticipated stimulus impact from pent-up business expansion and consumer spending.
The overall economy still faces headwinds, and we are 9.5 million jobs shy of where we were at the beginning of the pandemic (the greatest job losses have been among low wage earners). While unemployment may be close to 6.2 percent, the “under-employment” rate is over 11 percent. Although the 10-year Treasury rate has tripled since last August, it has not caught up to where it was (1.88 percent) pre-pandemic. Federal Reserve holdings are at a record low, and the valuation of the stock market as a percentage of GDP is beyond previous levels (sustainability is a concern). Supply chain volatility, future hiring dynamics and the increasing amount of sublease space (especially in urban areas) are also looming concerns. Nevertheless, CBRE’s U.S. Real Estate Market Outlook for 2021 predicts that the year’s strongest GDP growth will take place in the second and third quarters, when it will exceed 5.5 percent.
New Jersey has much to look forward to if President Biden’s $2.2 billion infrastructure bill, the “American Jobs Plan,” is enacted. Our economy is critically dependent on moving goods, people, energy, water and data to consumers throughout the eastern U.S. and beyond. “There’s no greater infrastructure priority in the country than the Gateway Project,” said President Biden just four years ago, noting that, “Unless we build the new tunnels and repair the old ones, we are courting disaster.” The Gateway Program includes replacing the Portal North Bridge in New Jersey, repairing the dilapidated, century-old Hudson River train tunnel, and adding two new tubes between New Jersey and Manhattan. The Hudson Tunnel portion will expand rail capacity along the Northeast Corridor (which accounts for 20 percent of the country’s GDP) and is estimated to cost over $12 billion.
For those of us who live here, it comes as no surprise that a significant amount of our infrastructure is among the oldest and worst in the country, and there is no excuse for failing to invest in repair, replacement and modernization as needed. President Biden’s plan would solve a host of ills, make New Jersey more resilient to future disruptions and help us compete for jobs and talent in the post-COVID economy. You name it, it’s in there — roads, mass transit, trains, bridges, expansion of broadband services, modernization of decrepit water systems and the electric grid, removal of lead pipes, investments in renewable energy sources and electric charging stations and workforce training.
New Jersey is now on the receiving end of a string of good fortune with more federal help on the way. My hope is that we’ll be collaborative, disciplined and strategic in deploying these resources in the most resilient, equitable and cost-effective manner to help as many people and businesses as possible. Yes, I think 2021 is gonna be a good year!
Michael McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.
