How developers and local leaders can respond to changes in business, demographics
By Michael G. McGuinness
Economic, industry and demographic trends are changing the way business is done in New Jersey — and impacting the strategies of investors, developers and other commercial real estate professionals.
Dave Gibbons, CEO and president of Elberon Development Group and NAIOP New Jersey’s newly elected president, offers his take on how industry leaders are responding to and leveraging opportunities in the evolving marketplace.
Michael McGuinness: Now that funding for the Transportation Trust Fund has been secured, what types of infrastructure projects would it be most beneficial for the state to invest in near-term?
Dave Gibbons: To keep New Jersey working, we have to invest wisely and substantially in our infrastructure. Our firm owns and manages a portfolio of approximately 2 million square feet, much of which consists of warehouse space located within a few miles of the Port of Newark/Elizabeth. We see firsthand how our state’s infrastructure issues are affecting access to and from the port and impacting fi rst- and last-mile delivery.
With the explosive growth of e-commerce and New Jersey’s increasing importance as a distribution hub, our roads need the capacity to handle the resulting volume of truck and commuter traffic. The state needs to prioritize a host of relatively small projects, such as widening highway exit and entrance ramps, in order to help alleviate traffic congestion so that the region continues to thrive economically. I think a series of smaller projects could generate a significant return in the form of reduced traffic. On a much larger scale, construction of the new Hudson River tunnel should continue to move forward, subject to identifying and securing the necessary funding. Creating another access route in and out of New York City is imperative to improving critical regional transportation problems on both sides of the river.
MM: E-commerce is clearly driving change in the industrial real estate market. What trends do you see shaping facility development?
DG: When people click a mouse and order a product online, chances are the item is sitting on a shelf in a warehouse. The logistics chain is evolving to meet the urgent need to move that product from that warehouse to its final destination.
Development of e-commerce fulfillment centers is helping to address this critical last-mile delivery issue. Additionally, and related, an increasing number of smaller warehouses are being built closer to major population centers as “last-mile” facilities. Strong demand for industrial space continues, with a focus on both larger, regional distribution centers and smaller warehouses. Most types of new projects require proximity to a labor pool and regional highway networks as well as multiple site access points and adequate parking. New Jersey’s demographics, densely populated urban areas and critical transportation systems put the state in an excellent competitive position for this type of land use.
MM: What can municipal leaders do to incentivize transformational investment and development in their communities?
DG: The need has never been greater for municipalities and commercial real estate developers to collaborate and advocate for responsible economic development. Savvy local leaders are embracing development projects that suit their unique communities and investing significant resources in their infrastructure in order to attract residents, businesses and investors.
Developers want to work with towns that are responsive and willing to adapt their vision to meet market demands. If a 20-year-old zoning ordinance prevents the development of a mixed-use project that will attract families and young, talented professionals, it’s essential that municipal leaders be prepared to reconsider outdated views and take bold steps to reinvent their towns. In fact, the survival of their communities may depend on it.
Developers also want to partner with local governments that are well-managed and committed to improving their communities. These towns have efficient processes in place for ensuring timely project approvals. Developers are less inclined to spend years fighting to get municipal approvals and dealing with lengthy permit delays, opting instead to build productive relationships with towns where there is both demand and a welcoming administration.
MM: What tools can communities use to stimulate economic development?
DG: As a developer, I believe that payments in lieu of taxes, or PILOTs, are one of the most effective tools the government has to foster investment, development and job creation in the Garden State. In truth, without PILOT programs there would be little or no redevelopment in many of New Jersey’s urban municipalities. A PILOT sustains the revenue to the government derived from the property, often at a higher level than the revenue produced prior to redevelopment. At the same time, a PILOT makes the developer’s or the tenant’s obligation to the government after the completion of development predictable and fixed for the long term. For many projects, without a PILOT, it is likely the property taxes following redevelopment would be too high to make the project economically feasible.
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).