From left: Mark Crawford, Eugene Diaz, Joe Taylor and Dave Gibbons all took part in NAIOP New Jersey’s recent CEO Perspective forum.
By Joshua Burd
Savvy developers are always keeping their eyes on demographics and public policy — and the ability to navigate both can be the difference between success and failure in New Jersey.
Just ask seasoned executives like Eugene Diaz, principal of Prism Capital Partners LLC.
Diaz said state incentives have played a major role in leasing properties such as the former Hoffmann-LaRoche campus in Nutley and Clifton, now known as ON3. But he also said Prism’s strategy in the office sector has been guided by a sea change in New Jersey’s workforce over the past 20 years — from an economy of low-wage, low-skilled clerical employees to one driven by high-wage, highly skilled technical and professional service workers.
That means corporations are now less concerned about finding the largest, most cost-effective space to house their employees and more focused on attracting the best and the brightest.
“So people can say the Jersey office market is weak,” Diaz said. “I’m raising my hand the other way to say that if you buy the right asset, you’ve got a really good story to tell and some really great opportunities to make money, because the rent just doesn’t matter as much to that company today as it does getting the right space to get the right employees that are going to grow that corporation’s bottom line.”
The role of demographics and government were in focus recently as NAIOP New Jersey hosted its annual CEO Perspective event. Joined by a crowd of professionals and developers, Diaz and three other executives highlighted key trends and policies that are shaping New Jersey’s real estate sector, while raising questions about what could impact the industry in the near term.
For instance, the state’s white-hot industrial sector is driven by the rise of e-commerce as a consumer pattern, but also dependent on labor and infrastructure. Joe Taylor, CEO and president of Matrix Development Group, said those factors have been at play in the growth of high-tech fulfillment centers in New Jersey and Staten Island, where it recently inked a nearly 1 million-square-foot lease with Amazon.
He noted that, “for an Amazon and the other big users we’re talking to there,” it’s as much about labor as it is about transportation access. Maintaining and growing that labor pool is a challenge in New Jersey, he said, raising the need to provide “the kinds of education for people, and for young people in particular, to work in these facilities and work their way up in these facilities.”
With the state’s gubernatorial election only weeks away, Taylor urged New Jersey’s next chief executive to focus on both labor and maintaining the state’s transportation network.
“We’re not the only ones with this location … but our location near the boroughs for last-mile delivery is unsurpassed,” Taylor said during the Sept. 27 event in Jersey City. “That said, the new governor has to do a far better job than the old governor did, in my opinion, in getting infrastructure as a much higher priority and funding it currently rather than pushing it down the road.
“There are things that have to be done to create more mobility and more reinvestment in these roads. … Otherwise we’re just going to stumble on ourselves.”
Moderated by Dave Gibbons, NAIOP’s New Jersey chapter president, the panel also touched on how local governments are using payments in lieu of taxes and other incentives. Diaz said that, because municipalities cannot rely on the state to help with off-site improvements, “they’re turning to the developer and the private market to say, ‘You fix it if you want it.’ ”
That has increased the degree of difficulty in negotiating PILOT payments, the panelists said, even if local governments are more open to the idea as a way to guarantee tax revenue.
“We’ve had a good seven- or eight-year run and for the first couple of projects we did, of course we had to get approvals and there were some incentives, but they were easier then,” said Gibbons, the CEO and president of Elberon Development Group. “I think as the market has continued to accelerate and become better and better, we’ve found municipalities asking for more.”
Incentives at both the local and state levels have played an increasingly critical role in development. As such, the panelists urged the next governor to continue incentive programs such as the Grow New Jersey tax credit. Diaz said that, when it comes to repopulating the former Roche campus on Route 3, “there isn’t a deal that we’re doing that doesn’t have incentives coming along with it.”
He added that other states are stepping up their incentive programs to stay competitive, a sentiment echoed by Mark Crawford of Duke Realty. Crawford, the company’s vice president of acquisitions and leasing, said the programs play an equally important role in industrial deals, even with the health of the market and the rise of online retailing.
“E-commerce is creating more jobs than any industry in the country,” Crawford said. “New Jersey has to be careful not to allow other states to provide better incentives to lure away these companies.”
Demographic shifts can sometimes be hard to predict. At Parkway Lofts in Bloomfield and East Orange, where Prism converted a historic industrial building into 361 luxury apartments, Diaz said the firm “designed the building to meet what we thought what would be high millennial demand.”
Instead, the project captured what is “the largest cohort that we see moving into our multifamily projects right now” — empty-nesters. The group includes “move-down renters,” who are no longer using the school system but wish to stay in the community and “can essentially trade a tax payment for a rent payment and put all the equity back in their pocket.”
The top demographic at Parkway Lofts is the 49 to 59 age range, Diaz said, followed by 39 to 49 and then millennials. It’s a trend that reflects New Jersey’s graying population and high property taxes.
“We actually missed,” Diaz said. “It positively impacted the overall development, but it gives you a sense on how the market is changing and evolving, particularly on the multifamily side.”