(Editor’s note: This story originally published Jan. 16 in the magazine edition of Real Estate NJ.)
By Michael G. McGuinness
The political events of 2016 have ushered in a New Year that will be marked by dramatic change at both the federal and state levels.
Nationally, the election of Donald Trump to the presidency may well bring sweeping reforms in areas that impact us all, including taxes, health care, trade and infrastructure investment. Here in New Jersey, the Christie administration is winding down and the governorship and the Legislature are up for election in November, making it unclear what priorities Trenton will focus on over the next 12 months.
While this makes forecasting for 2017 challenging, there is no doubt that the need has never been greater for commercial real estate, labor, business and local government leaders to collaborate and advocate for responsible economic development and the policies and conditions that will foster investment and job creation in the Garden State.
THE NEW ADMINISTRATION: REASON FOR OPTIMISM
There is much speculation about the impact of the 2016 elections on the commercial real estate (CRE) industry. Major issues are being vetted at the federal level that will have repercussions on public policy advocacy efforts here in New Jersey. These include tax reform, infrastructure investment and energy.
Comprehensive tax reform — driven by President-elect Donald Trump’s promise of lowering tax rates and expanding the tax base by eliminating loopholes in the current tax code — will be the focus of legislative activity in the first 100 days of the new administration. It remains unclear as to whether industry-sensitive provisions would be maintained. Will tax deferred like-kind exchanges for real estate (1031 exchanges) be continued? Will depreciation of real estate assets be radically altered, which could result in the immediate expensing of buildings? Will the interest on business borrowing remain tax-deductible? Candidate Trump said that he would eliminate capital gains tax treatment for carried interest.
Trump has also been unwavering in his support for massive investments in rebuilding the nation’s infrastructure, and the prospect for an infusion of federal dollars to benefit New Jersey’s economy is a distinct possibility. This would open the door for the increased use of public-private partnerships to get the work done cost-effectively, quickly and on time.
The president-elect’s aggressive stance on expanding energy production is relevant to the extent that any proposed energy legislation could affect energy efficiency building codes, but more restrictive federal mandates are highly unlikely. Overall, there is reason for optimism as Trump’s pro-business approach may benefit an industry that shares many of his priority goals for tax reform, job creation and reduced regulation.
LOCAL PRIORITIES: A PUSH FOR PROGRESS
With change in governance on the horizon in New Jersey, it will be a busy year for our industry as we build on progress made in 2016. Last year’s hard-fought battle to secure stable funding for the Transportation Trust Fund is a game changer that will lead to future economic expansion in our state, which is the third-largest industrial market and fifth-largest office market in the nation. The ongoing transformation in the port region — with initiatives ranging from infrastructure improvements to enhanced efficiencies in moving goods and people — will also benefit everyone.
To improve New Jersey’s desirability, policymakers must acknowledge and support new business models, such as those fostered by the sharing economy (e.g., ride-sharing services such as Uber, co-working centers), and avoid regulating good ideas out of business. Furthermore, “home rule” and current zoning are often obstacles to economic progress and hamper the ability to respond to quickly changing market needs and demands. The home rule mindset often conflicts with the need for regional planning that is implemented locally. To keep New Jersey working, we must invest wisely and substantially in our infrastructure: water (supply, wastewater and stormwater), energy, data technology and transportation are critical to our ability to attract and retain investors, jobs and a younger and talented workforce.
Funding for these initiatives remains a huge challenge, given the out-of-control pension and health care costs, potential Medicaid increases and education needs. Outside of borrowing, new revenue sources are limited to cutting expenses, raising taxes and/or growing the economy with more jobs. Our new governor will have his or her work cut out for him or her.
As the amount of developable land shrinks, we need to maximize brownfields redevelopment projects in order to jump-start environmentally impaired site reuse. This can be done in part by providing for more equitable statewide funding for preliminary investigations. We also need to update New Jersey’s antiquated liquor license laws, as the scarcity and cost of licenses under the current laws are keeping many towns from realizing their full development potential. Capital chases talent and younger talented professionals are attracted to communities that offer easy access to 24/7 amenities and live/work/play environments. Savvy local officials and developers know that towns that are walkable, safe and green and offer the arts and restaurants (with liquor licenses) afford people with opportunities to get together and get involved. These are all powerful magnets for vibrant growth.
Government agencies need to remember that private investments avoid unnecessary risk-taking and therefore shy away from locales that are mismanaged and incompetent. Unacceptably lengthy permit delays and approvals hamper projects that are trying to respond in a timely way to market demands. Fortunately, more towns are taking bold steps by rezoning and confronting long-held views about what development should look like. Better incentives and tools are needed to foster the redevelopment of outdated suburban office properties for mixed-use projects. It is imperative that municipalities determine how best to capitalize on the investments being made at the state and regional level and embrace this kind of forward thinking. A town’s economic future may well depend on how they succeed in meeting this demographic challenge.
As New Jersey faces increased competition regionally, nationally and globally, we must continue to work together as an industry — and with our partners in local government, labor and the broader business community — to educate our policymakers and enact public policies that will improve our state’s business climate and the quality of life for our residents.
Michael McGuinness is CEO of NAIOP New Jersey and has guided the commercial real estate development association’s progress since he joined the staff in 1997. In addition to overseeing daily operations, programs and staff, McGuinness directs the chapter’s legislative activities and manages the Developers Political Action Committee (DPAC).