CONSTRUCTION AND REAL ESTATE are economic engines for the Garden State, fueling not only these sectors, but creating work for accounting firms, banks, environmental firms and law firms, as well. Here is a state-of-the-industry report, which discusses what to expect this year.
Associated General Contractors of America
By Kenneth D. Simonson, Chief Economist
New Jersey contractors can look forward to stable or growing markets in 2019 after a generally rough year in 2018. But there are several reasons to be cautious about the outlook.
The construction industry nationally experienced moderate but widespread growth in 2018. Construction spending increased 5.5 percent—without adjusting for inflation—in the first nine months of the year combined, compared with January-September 2017. Growth was nearly balanced among three major segments: public construction spending increased 7 percent, private residential spending was up 6 percent and private nonresidential spending grew 4 percent. Within those broad categories, nearly every component was also positive, with the exception of manufacturing construction.
Construction jobs have shown similar strong and even growth. From October 2017 to October 2018, construction employment climbed 4.7 percent, to 7.3 million, the highest total since April 2008. Employment among homebuilders and residential specialty contractors was up by 5.3 percent, while nonresidential general contractors, heavy and civil engineering contractors and nonresidential special trades added 4.4 percent to their headcounts.
The job gains were widespread geographically, as well. In the year ending in September 2018, 45 states and the District of Columbia added construction employees, while two states had no change. Unfortunately, New Jersey was one of three states with a decline, and it was steep. The Garden State has shed a higher percentage and a larger number of construction jobs over 12 months than any other state for quite a while: a loss of 9,600 jobs or 6 percent.
For 2019, early signs are that contractors nationally expect modest to moderate growth, similar to 2018. Growth should also be relatively balanced by sector again, with single-digit percentage increases in public construction and in private residential and nonresidential spending. Three-quarters of the participants in the AGC of America/Autodesk workforce survey, released in late August, said they expect to add to headcount in 2019. Job gains in New Jersey, which were limited in 2018 to the Atlantic City-Hammonton metro area and pockets of the state bordering Delaware and Pennsylvania, should be more widespread.
But there are three policy developments that could slow down construction growth in 2019. Already, tariffs, along with rising trade tensions and uncertainty, have driven up materials costs and caused some projects to be canceled or deferred. The tight labor market, exacerbated by hostile immigration policy and inadequate investment in career and technical education, means contractors are having to spend more on recruitment, training and overtime, and yet are missing deadlines in some cases. And rising interest rates may lead some public agencies and developers of income-generating properties to scale back their investment.
Despite these concerns, the outlook for the U.S. economy in general, and for construction specifically, remains positive. Contractors in New Jersey should expect to participate in that expansion.
New Jersey Builders Association
By Tom Troy, President; President, Sharbell Development Corp.
Residential construction has still not recovered from the Great Recession. In the years leading up to 2008, an average of 35,000 building permits for residential units were issued in New Jersey each year. From 2008 to the end of the recession, that dropped to under 15,000.
Since 2013, we’ve seen an average of about 25,000 to 30,000 permits per year. Multifamily accounts for the lion’s share of the activity—especially in transit-oriented and downtown locations—thanks in large part to the preference of Millennials.
That pattern may shift to the suburbs as Millennials get older and start raising a family, which may drive sales of single family and higher-end multi-family units. A separate development—a court decision on mandatory affordable housing—could also significantly support multifamily construction.
In March, a Superior Court judge established a framework for municipalities to allow the construction of more-affordable housing units. The case, which initially focused on Princeton, and West Windsor Township, is expected to impact activity across the state. We anticipate that much of the affordable housing built as a result of this litigation will also have significant market-rate components and is likely to include townhouse and other lower-density formats, depending on the individual location.
Residential activity in general is expected to benefit from other trends, like the relatively low unemployment rate, although there is some concern that wage growth is not as high as it could be. Still, when more people are working, demand for housing construction usually rises.
There are some headwinds. One is the new federal tax law, which caps state and local tax deductions at $10,000. This particularly impacts high-tax states like New Jersey, where property taxes alone may exceed the cap. Another potential drag is the gradual rise in interest rates—which have gone up from about 4 percent to 5 percent in the last year—that could remove some buying power.
Affordability is another issue. Compared to much of the country, New Jersey housing is expensive, and some potential first-time buyers are being locked out of the market because of steep asking prices, even for entry-level homes. That can cause a cascading effect, since it slows the process for move-up sellers. We’re also seeing somewhat of a slowdown for retirees, who want to sell their homes and move to less expensive states. If their days-on-market rises, that means more inventory, which can put pressure on new home sales and construction.
We’re cautiously optimistic about 2019 and expect the home building market to remain relatively flat, or even increase a bit, as long as there are no significant shocks to the system, like sharp state tax increases or more regulations.
Speaking in my capacity as president of Sharbell Development Corp., I can say we’ve done reasonably well in the commercial office space, with increasing demand in particular from medical users and affiliated businesses. We anticipate increased activity in this segment during 2019.
Sharbell also owns and develops retail property—primarily single-tenant pads and non-anchor retail strips—and we continue to see softer demand, due in part to previous overbuilding and the continued move by consumers to online shopping. In general, though, 2019 should be a relatively good year for residential development. Associated
Construction Contractors of New Jersey
By Jack Kocsis, CEO
Through the Otteau Valuation Group, we just commissioned a five-year forecast of construction activity in New Jersey. Among the 10 market sectors studied, industrial and hospitality will be big growth markets, with steady annual growth in spending on construction of warehouses and data centers and, assuming some massive projects come to fruition, a strong annual growth rate in spending on hotels and other tourism construction. Enrollment in state colleges is rising, so we expect to see modest annual growth in construction spending in the education sector.
The Transportation Trust Fund, the gas tax revenues and, ultimately, a federal infrastructure bill, should help the heavy-highway sector see a steady annual increase in construction spending. Even the government sector, which slumped for quite a while, should see a strong boost in construction spending as the state economy improves. Bergman Real Estate Group By Michael Bergman, President and CEO
In today’s challenging and ever-changing real estate market, we focus on the importance of improving our office buildings for our tenants. Key trends in today’s market are providing for additional amenities and services to create more comfort and convenience for our tenants to enjoy and, in turn, creating added value for our investments. At Bergman Real Estate Group, we continually strive to make upgrades and improvements to the common areas of our buildings, coupled with adding new amenities, such as cafes, large conference and training rooms, fitness centers, bike share programs, coworking offices and upscale lounges with comfortable seating, barista cafes, game tables and media centers.
Bergman Real Estate Group recently purchased two properties in Bergen and Essex counties, 365 West Passaic Avenue in Rochelle Park and 75 Livingston Avenue in Roseland. In both properties, we have capital improvement projects planned in excess of $3 million to make these upgrades and added amenities. These planned renovations have already increased our leasing activity and resulted in 100 percent tenant retention. There are many options for tenants to consider in the market, so we want to ensure that our properties are competitive in meeting the needs of companies in today’s ever-changing workplace.
By Francisco (Frank) Salas, President
There’s a lot of infrastructure activity out there, which we expect to continue in 2019. The work includes roads, gas lines and other construction activity. We’re past the recession, and the economy seems to be chugging along, so residential and multifamily in particular will continue to show strength in New Jersey, New York and, generally, nationally. DMR Architects By Lloyd A. Rosenberg, President and CEO
In 2018, DMR Architects is preparing for continued growth in each of the segments it serves, including projects for real estate developers, healthcare institutions and the public sector. With a newly elected governor committed to growing the economy and investing in infrastructure, along with new initiatives inherent with any new administration, DMR projects measurable growth in the architecture and engineering industry, which may be tempered by the limited availability of experienced, skilled professionals.
By Marlyn Friedberg, Broker-Owner; Owner, Friedberg Real Estate School
The new tax laws limiting the deduct-ibility of state and local taxes have hurt the market somewhat. At the same time, fewer New York City residents are buy-ing homes in New Jersey since the city’s school systems have improved. With rising interest rates and concerns about the economy, many people, especially Millennials, are continuing to rent.
One concern going forward is the ability to build equity in your purchase. Recently we’ve seen some people selling their home for less than their purchase price. At the very high end, around $3.5 million and up, prices are down by as much as 15 percent.
At the lower end though, around $300,000 to $400,00, I’m seeing bidding wars break out. I had 17 offers recently on one such house in northern New Jersey. Additionally, to some degree, smaller is better. People want less land, since it’s easier to care for. Two-acre properties used to be hot, but now there’s not as much demand.
We’re also seeing more North Jersey and New York City residents at the high end buying a weekend and vacation house in the Hamptons, instead of at the Jersey Shore. I grew up in Philadelphia, and we used to go to the Jersey Shore for vacation, but my kids laugh at that.
By Bob Kilroy, Executive Director of Operations
I’m very optimistic about 2019. We’re suppliers to the service industry, with clients that include electrical contractors, healthcare, education, hospitality, property managers, the do-it-yourself market, state and municipal government contract vendors and others. Because we draw revenue from multiple sources, if one segment drops, like private industry, another, like the public sector, goes up. Also, if someone’s not building new structures, they’re repairing and maintaining existing ones, which also means more business for us.
We’re seeing a terrific building boom in Jersey City, which makes my commute a nightmare, but is great for business. We’re also witnessing a lot of activity in Bergen and Essex counties, thanks in part to the American Dream construction, and the rebirth of Newark. The American Dream activity, in particular, also has a ripple effect on hotels and other businesses that service it, driving up activity among contractors and businesses that we supply.
By Merilee Meacock, Partner
We have seen a distinct trend towards increasing project complexity in regional and national real estate over the past year and believe this will continue in 2019. This has been driven by everything from funding sources, intersecting programs and building uses, to complex relationships between stakeholders, users and clients.
Individuals’ desire for connection is incredibly potent. Connectivity compels consumer demand for immediacy, which requires architecture that localizes global distribution, centralizing this activity in urban centers on complex sites. Connectivity sparks innovation, which thrives at the physical and intellectual intersections of disciplines where interactive collisions can serendipitously occur.
These connective spaces and moments foster engagement amongst a very diverse population. We see this at varying levels: in elementary schools, in higher education, in the workplace. In 2019, we will see an increased demand for projects that build community, foster collaboration and reignite our desire for human connection.
Mack-Cali Realty Corporation
By Michael J. DeMarco, CEO
Based on current economic conditions, our team at Mack-Cali believes that there will be more activity in the commercial real estate space in 2019. At the same time, we recognize that the overall cost of construction is increasing, with the costs of both construction materials and labor on the rise. That could be viewed as a cause for concern; however, we would also welcome a little inflation in the market. We believe that interest rates and unemployment rates, as well as New Jersey’s ability to have a sound financial plan in place with regards to tax rates, will be the most influential factors affecting commercial real estate next year.
March Associates Construction, Inc.
By Bryan Murray, Director of Business Development
In the New Jersey market, I think growth will continue although it will be more selective in what lenders will fund and the risk that developers will take. The mixed-use/multi residential sector should continue to grow, but at a slower, more controlled pace. The industrial distribution sector will continue to grow with smaller buildings closer to strong final destination markets.
I can see a small uptick in re-purposed retail centers—malls with a focus on entertainment and food—as well as large corporate or office campus-type facilities expanding their offerings to tenants with restaurants, banks, cleaners and other daily service-type businesses. The trend of eat, work, live, play stays very relevant as convenience, location and ease of access are paramount to this new and growing consumer base.
NAI James E. Hanson
By William C. Hanson, SIOR, President
Once again, industry will be the keyword in the commercial real estate brokerage community as we look ahead to 2019. With sustained demand pressure from e-commerce and distribution firms on the limited supply pipeline, northern New Jersey’s overall industrial sales and lease rates will continue to break records and create substantial development opportunities to the west, south and north.
Prism Capital Partners, LLC
By Edwin Cohen, Principal Partner
Corporations are recognizing that investing in their real estate enables them to create the type of workplace lifestyle—rich with enhanced amenities, image and atmosphere—needed to develop teams rich with top-quality labor. One of the most important site-selection factors for tenants in the current climate involves establishing themselves in locations that can and will attract the talent needed to foster business growth and profitability. Today’s best-in-class professionals are drawn to career opportunities that not only deliver appealing 9-to-5 environments, but also are established within communities that offer the housing, dining, retail, culture and recreational opportunities that contribute to vibrant, balanced lifestyles.
All of this provides robust upside for the commercial real estate community today and into the future by creating strong justification for the advancement of development and redevelopment projects that are revitalizing and redefining the regional market. In turn, these initiatives, geared specifically to the changing needs of our business and residential populations, will advance New Jersey’s long-term economic health.
Residential Home Funding Corp.
By Marc Demetriou, Branch Manager and Mortgage Consultant
Interest rates have gone up a bit, but historically they’re still in a relatively low region and haven’t scared people off yet. Overall, the housing market is still strong, especially in the $1 million and under range, but the higher range is slowing a bit, especially for homes costing $2 million and up. The new tax law, with a cap on state and local tax deductions, has hurt the million-dollar and up market a bit, because of the higher property taxes in that class. Costs tend to be high in the New York-New Jersey market; it’s the cost of being here, so some people opt for less expensive homes with somewhat lower property taxes. Values have crept up a bit, but I don’t think they’re going crazy this time. The housing market appears to be “normal,” although its health will depend a lot on the stock market and the general economy. Many Millennials have thought they’d be sidelined because they’re strapped with student loan debt, and some have worried that it might be difficult for them to qualify for a mortgage. While some may indeed be unable to qualify, I do a lot of Millennial consulting, and make them aware of different programs, and discuss ways that they may qualify.
By John White, Jr., Regional Chief Operating Officer
The market has been steadily busy for the last several years in nearly every sector we operate in. While we expect this boom to slow eventually, in New Jersey, one area of continued growth is healthcare. Healthcare systems strive to provide the best absolute care, which means upgrading their facilities regularly to add more capacity or new technologies or to upgrade outdated spaces. We are currently working on a major cardiovascular unit expansion at Morristown Medical Center as well as several projects for Atlantic Health Systems and others. The healthcare market will continue to be a strong one throughout 2019.
Terrie O’Connor Realtors
By Terrie O’Connor, Founder, President
A shortage of homes for sale have pushed prices higher. Inventory shortages affected our market in 2017 and 2018 and will likely continue to do so in 2019. The Federal Reserve is keeping inflation in check by raising interest rates. That said, the economy is strong, and employment is high, so there is steady demand for homes and rising interest rates should not dampen home sales.
Accounting Logistics, LLC
By Peter Cagiao, CPA, President
A client was experiencing cash flow constraints as well as pressure from its lender to provide reporting results. It did not have a proper accounting policy for recognizing revenue and was reporting a huge loss. Management needed systemic changes to return to profitability.
We implemented a construction-specific software program that enabled the company to accurately recognize revenue and record costs on a job-by-job basis. Because of the software change, the projects were now accounted for on the percentage-of-completion method.
Accounting Logistics prepares jobs-in-progress reports that properly recognize revenue and reconcile project activity on a job-by-job basis. Management evaluates the reports and makes real-time decisions that increase its efficiencies and profitability on the projects. As a result of the new reports, the company was able to return to profitability and refinance its line of credit that provided additional funds to invest for the company’s working capital needs.
BDO USA, LLP
By Luis Torres, Assurance Partner, New York Metro Practice Leader, Construction Industry Group
Our client—a large private construction company in New Jersey—needed guidance in preparation for implementing the new Revenue Recognition standard, ASC 606. The client—who has in excess of 50 contracts—had begun the adoption process internally, but ran into challenges due to resource constraints, expertise gaps and the sheer number of contracts that needed to be individually analyzed. To help the company focus its efforts, BDO proposed a customized in-person training session to discuss process, allocation of resources and next steps in dissecting the nearly 100 pages of guidance. Through the training, BDO was able to set the company up for success, ultimately making management more confident in its ability to prepare for adoption and the steps it needed to take to get there ahead of the Jan. 1, 2019 implementation deadline.
By Jack A. Callahan, CPA, Partner, Construction Industry Leader
Implementation of ASC 606, the new accounting standard for recognizing revenue and associated direct costs, is a pressing issue today for our construction clients. Because transitioning to this standard is complex and time-consuming, CohnReznick created a revenue recognition checklist to walk our clients through the process and identify key decisions they must make to complete the process. We have also engaged a major construction accounting software system provider to develop the charts of accounts and job costing systems to facilitate their new procedures. Simultaneously, we are helping contractors revamp their financial statements, which will be required for the sureties and banks they work with. Since compliance with the new revenue recognition standard is still a work in progress for many clients, our success story will rely on their successful implementation of ASC 606 and their understanding of the impact this new accounting standard will have on their reported results.
Goldstein Lieberman & Company LLC
By Phillip Goldstein, CPA, Managing Partner
One of our newest real estate clients faced a common conundrum. A key individual on their accounting staff suddenly died; should they hire a replacement? Goldstein Lieberman & Company already handled taxes for the company and was a trusted advisor. We made the case for outsourcing the entire accounting function. Hiring and training staff members requires a large expenditure of time, money and manpower, plus employee benefits are costly. The investment and reinvestment in accounting technology and the commitment to training is ongoing. Fraud is more frequent when finances are entrusted to one or a few interim employees. Today, our client relies on our team of experts in areas specific to the real estate industry—an area we are experts in. They appreciate the returns outsourcing has yielded and never have to worry about hiring/firing/employee quitting or technology investments, etc. again. It’s a win-win for everyone.
Grassi & Co.
By Scott Stern, CPA, CCIFP®, Construction Principal
Four years ago, one of our demolition contractor clients contacted us to help them with an audit project. Once we went in to perform the audit, our professionals quickly realized this company needed our consulting services to help them reorganize and grow to the next level. Through our guidance and restructuring of their internal accounting departments, the utilization of technology, the flow of work throughout all departments, and human resources consulting provided by our professionals, this company has grown organically to approximately $60 million. We are currently assisting them with obtaining financing for the purchase of their future headquarters. Our approach to our clients’ business growth has always been to be a partner in that growth.
PKF O’Connor Davies, LLP
By Michael Andriola, CPA, CFE, CCIFP®, PSA, Partner
A banker referred a contractor who was having difficulty meeting bank covenants. The former CPA took the liberty of posting certain financial adjustments to “help” the contractor close their books. While this helped meet the covenant over the short term, it created a much larger, long-term problem. Without identifying the root of the problem, the contractor continued to bid on work based on what he thought were healthy margins. In reality, however, the contracts barely covered his overhead. A significant loss on one large job exposed the disconnect between the CPA and the contractor. When I came on board, I worked with the contractor on a re-statement of prior period financial statements and provided a few lessons on proper job costing. The client is now profitable (almost debt-free) and able to close his own books. Estimating job completion and strategizing on costs are essential to the success of a contractor.
Raich Ende Malter & Co. LLP
By John Boykas, CPA, Partner-in-Charge, Construction
Sometimes accounting is not just about numbers. A long-time contracting client approached me with a story of a friendly competitor who was in financial difficulty. My client did not directly compete with this contractor, as they serviced different industries, but he had known the owners for more than 25 years. My client asked if we could help. We obtained current and historic financial information and evaluated the situation. Due to current overhead and prior job difficulties, the troubled business was very unstable and could not continue as an operating entity. My client and I formulated a plan in which many of the troubled company’s employees, including the current ownership, were hired to operate a separate division within my client’s operation. This allowed my client to offer their contracting services to a different industry. More importantly, it allowed the failing business to repay its debts and saved the jobs of more than 75 employees.
Sobel & Co., LLC
By Mariana Moghadam, CPA, Director, Real Estate Practice
Our client is in a partnership that owns a residential building and is preparing to sell the property. The sale proceeds won’t be reinvested in another property, so the partnership must recognize the gain from the sale and the partners will be required to pay taxes on the gain. We advised our client to invest the capital gain in a Qualified Opportunity Fund (QOF) to defer taxes on the original gain until the earlier date on which the QOF investment is disposed of, or Dec. 31, 2026. He can elect to exclude up to 10 percent or 15 percent of the gain from taxation if he holds the investment for five years or seven years, respectively. Ultimately, if the investment is held for at least 10 years, any appreciation in the QOF investment is generally exempt from federal taxation—if appropriately elected.
Wilkin & Guttenplan, P.C.
By Sefi Silverstein, CPA, Shareholder
Tax planning for clients requires a balancing act of relevant tax laws. Two years ago, an elderly client advised me he was in the process of selling his last property—a tract of land. This was not a significantly large dollar transaction in the scheme of things. The closing was scheduled to occur at year-end. Based on projections, I recommended the client (who was very comfortable with the buyer) consider an installment sale: request one-third of the proceeds in December; one-third 30 days later in January (but a different tax year); and the final installment the following January. By spreading the gain over three tax years, the client’s tax bracket floated under the radar of higher tax rates. Additionally, the outcome included other positive tax benefits resulting in total tax savings of approximately $50,000 for this elderly couple.
By Louis Sandor III, Partner, CPA, CCIFP®, Practice Leader, Construction Services Group
A leading construction and development services firm in the Northeast experienced rapid growth and recognized the need to make appropriate enhancements to its operations and techno- logy infrastructure. The organization approached Withum to conduct a needs assessment related to their timekeeping software and related processes. Withum reviewed relevant documentation, conducted interviews with key professionals and observed the software functionality to understand integration points, user experience, potential inefficiencies and manual intervention related to timekeeping. Withum identified insufficient functionality of the existing software, opportunities to enhance organizational policies and protocols and a path forward to proactively respond to continued growth. Furthermore, Withum identified alternatives that could enhance the organization’s efficiency by improving the user experience, driving accountability to ensure accuracy and providing metrics to enable strategic decision-making. The client was then able to evaluate next steps, refocus on its core business and provide high-quality service to its clients with confidence.
Bank of America Merrill Lynch
By Todd A. Gomez, Market Executive, North Region, Community Development Banking Group
We helped finance renovation and upgrades for 429 units of aging, affordable housing that serves seniors and families in Newark, New Jersey. Improvements include rehabilitation of residential units, the addition of resident services, enhanced security, as well as a new community center for residents and the surrounding neighborhood. The bank crafted a solution utilizing HUD/FHA financing under the 223(f) program which provides for renovations of up to $40,000 per unit, 90 percent LTV and a 35-year fully amortizing loan at a competitive interest rate. The $64 million 223(f) loan was paired with a $28 million low-income housing tax credit investment by Bank of America Merrill Lynch, providing $92 million in development financing. When the deal closed, the sponsor received a 20-year Housing Assistance Payment (HAP) contract from HUD to continue subsidizing rents. In addition, the City of Newark provided a long-term tax abatement, tied to the affordability of the property—demonstrating the impact of public-private collaboration to create safe, affordable housing in New Jersey.
By Rick Steele, Regional Manager, Commercial Real Estate Lending
When Mountain Development wanted to turn a vacant, 350,000-square-foot, former pharmaceutical company headquarters in Roseland into a Class-A, multi-tenant office complex for the regional legal and professional community, M&T Bank was able to structure the right financing. Working with the developer and prospective building tenants, M&T provided a series of expedited loan draws that turned an empty building into a vibrant, fully leased property. The building is now home to Lowenstein Sandler and Connell Foley, among other highly regarded firms, providing good jobs in the community and an attractive, amenity-rich work environment.
In addition to the interior tenant space design work, renovations included an entirely new and larger fitness center and a contemporary cafeteria, meeting spaces, an exterior lounge with fire pits and green wall, a data center and even a salon and spa.
Spencer Savings Bank
By John C. Duncan, Executive Vice President, Chief Lending Officer
At Spencer Savings Bank, we pride ourselves in providing the best customer service possible and having our commercial real estate lender customize a loan that’s right for the customer. Recently, a customer approached us wanting to gut-renovate and expand an existing building upon which we hold the mortgage. Spencer was able to make this happen for the customer. We were able to convert the permanent loan to a bridge/construction loan, enabling the customer to expand the apartment building by adding two floors. The bridge/construction loan had a term of 24 months, and the project is estimated to be complete in Spring 2019 (18 months). Once the project is completed, we will convert to a new, larger permanent loan in excess of $7 million. Spencer offers unparalleled lending expertise, competitive pricing and local decision-making with professional execution and expedited closings.
By Thomas Iadanza, Senior Executive Vice President, Chief Banking Officer
We recently worked with a long-time client to provide construction financing for a 47-unit, luxury, ocean-front condominium project in Long Branch, New Jersey. This urban renewal project is part of a tax pilot program designed to spark new life into one of the Jersey Shore’s most iconic destinations. After decades of decline and neglect, Long Branch is in the midst of an economic revitalization. This project will spur additional growth as dozens of blighted properties are being demolished to transform the beachfront area. We were able to partner with our client to provide flexible and responsive financing that addressed the challenges she faced in getting the project to the finish line. The project, which is currently in development and approximately 40 percent sold out, is slated to be completed in the fall of 2019.
Cole Schotz P.C.
By Richard W. Abramson, Esq., Member; CIANJ Chairman of the Board
We recently represented the developer of a 1,202-unit self-storage facility in Hillside, New Jersey. Our representation included the negotiation of a Purchase and Sale Agree-ment, a Construction Loan Agreement, a Development Services Agreement and a Design-Build Agreement pursuant to which our client has engaged a Design-Builder for the design and construction of the project. The most significant issue that our client faced was managing risk. In order to close the transaction, our client’s principals provided various guarantees to its lender and partner under the Construction Loan Agreement and its Joint Venture Agreement, respectively. We were successful in passing a significant portion of that risk on to the Design-Builder. This represents an important lesson that practitioners should always keep in mind. For a fee, developers take on risk. To the extent feasible, practitioners must minimize that risk or pass such risk on to third parties.
Coughlin Duffy LLP
Heidi Minuskin, Esq., Partner
A widow inherited from her husband a defunct manufacturing business with the underlying real property to fund her retirement. While the property was valuable because of its size and location, its environmental issues made it unsaleable. With no income from the business, the widow needed funds to make the property saleable. Through our negotiating with a financing company, we obtained a reverse mortgage. Funds were then made available to her to address the environmental and construction issues, which ultimately resulted in the property being sold for an amount to help fund her retirement.
By Peter J. Torcicollo, Esq., Co-Chair, Commercial & Criminal Litigation Dept.
An American Arbitration Association panel recently awarded the firm’s client, High Concrete Group LLC, nearly $1.9 million in damages and rejected respondent Tutor Perini Corporation’s (TPC’s) $6.5 million counterclaim against High Concrete in its entirety. The arbitration, initially filed by High Concrete in May 2013, stems from a rehabilitation project on the Tappan Zee Bridge for which High Concrete was contracted by TPC to provide composite, precast concrete deck panels. High Concrete asserted claims against TPC for delay damages, unpaid change order requests, improper back-charges and improperly retained contract balance. TPC asserted a counterclaim against High Concrete seeking delay damages. After the conclusion of hearings spanning 47 non-consecutive days, the panel awarded High Concrete $1,890,384.64 (including $662,278.08 in counsel fees and costs) and rejected all of TPC’s claims, finding them “incredible,” “unsustainable,” and “belied by the record.”
Greenbaum, Rowe, Smith & Davis LLP
By Dennis A. Estis, Esq., Partner, Litigation Department; and Chair, Construction Practice Group
Our developer client successfully converted an old warehouse in Jersey City into a residential condominium, but problems arose with water penetrating into units and the common areas. The unit owners engaged an engineer who reviewed the problems and issued a report. The developer engaged its own expert to determine the extent of the problems and determine what should be done to remediate the building. Once both reports were exchanged, the association, the developer and their attorneys met on several occasions to reach an agreement as to how to resolve the problems. The parties agreed on a specific repair methodology and obtained bids to perform the work. The developer agreed to pay the association a lump sum equal to the cost of correcting the water penetration problems. The problems were amicably resolved, and both parties saved substantial monies in legal fees—and the association realized a water-tight building.
NPZ Law Group, P.C.
By David H. Nachman, Esq., U.S. Managing Attorney
NPZ represents real estate companies involved in real estate investment and development in the United States. E-2 investor visas, EB-5 Green Card investor visas, as well as H-1B and L visa classifications are the means to bring qualified foreign nationals in a specialty occupation to work in the United States. For example, NPZ assisted a vice president of business development to obtain work authorization on a fulltime and temporary basis under the non-immigrant L-1A Intra-company Transferee visa. NPZ assisted another real estate company to hire a financial reporting analyst through the non-immigrant H-1B visa. Bringing talented individuals with specialized knowledge to invest and develop real estate in the United States bolsters the U.S. economy on a local and national level.
By Patrick J. McNamara, Esq., Partner, Environmental and Land Use Law Group
Scarinci Hollenbeck has been involved in every phase of the redevelopment of Pier Village in Long Branch, New Jersey, since 2001. Additionally, the developers of the project changed hands, which led to changes in plans for Phase III, which in turn led to the need to secure amended land use approvals. Our project team has been continually successful in securing these amended approvals. I am pleased to say that the third phase of Pier Village is well under construction and is set to be completed by the summer of 2019. Despite all the hard work and seemingly endless number of obstacles along the way, I have found this project to be very rewarding for me in playing an active role in reclaiming a vital part of Long Branch’s history.
ENVIRONMENTAL BUSINESS & LICENSED SITE REMEDIATION PROFESSIONALS (LSRPs) Site Remediation and Other Key Issues Impacting New Jersey’s Commercial Real Estate Developers
Leading site remediation, environmental risk and environmental law practitioners recently came together to examine some of the most critical site remediation issues facing New Jersey’s commercial real estate developers.
Experts from Atlantic Environmental Solutions Inc. (AESI), Chiesa Shahinian & Giantomasi (CSG) and Alliant Insurance Services (Alliant) participated in a panel discussion entitled “New World of Site Remediation” that featured unique perspectives on topics, including regulatory and legislative changes, environmental insurance options and potential revisions to the New Jersey’s Site Remediation Reform Act (SRRA).
“Since its inception in 2009, the site remediation program has helped to accelerate redevelopment across the state and has saved many real estate transactions from failing,” explained AESI President Michael Novak, LSRP. “As the program evolves, it will continue to help enable the remediation of contaminated properties, which presents opportunities, challenges and questions for all stakeholders involved.”
Novak joined speakers Christopher Alviggi, Alliant vice president, and CSG members Robert H. Crespi, Esq., and Dennis M. Toft, Esq., chair of CSG’s Environmental Law Group, for the interactive panel discussion, which was moderated by CSG member David J. Mairo, Esq.
Regulatory and Legislative Changes Impact CRE Developers. A number of proposed regulatory and legislative changes were highlighted, including those related to the use of alternative fill, capping of soils contaminated with volatile organic compounds and forthcoming litigation connected with natural resource damage (NRD).
“Until recently, industrial real estate developers have been able to import tainted soils as backfill without the approval of the New Jersey Department of Environmental Protection (NJDEP), as long as those soils meet specific requirements and the LSRP files the proper paperwork,” said Novak. “This process has streamlined brownfields redevelopment and generated needed cost savings, which has enabled property owners to remediate more problems. However, for most scenarios going forward, the NJDEP will no longer pre-approve the practice and approve or reject applications on a case-by- case basis.”
Also new is the issuance of a revised ecological evaluation document that broadens the standard used to investigate contaminated sites. “This has been coming for a long time,” said CSG’s Toft. “The NJDEP is taking a more active role in defining environmentally sensitive resources at a particular site, possible contamination causing environmental concern and whether there is a migration pathway for contaminants to reach these resources. For developers, this means natural resource damage needs to be carefully considered and factored into projects.”
CSG’s Crespi noted the significance of the NJDEP’s change in the definition of persons responsible for remediation in enforcement actions. “It represents a broad expansion of liability and puts corporate officers squarely in the crosshairs for regulatory enforcement. Companies need to be far more vigilant in the execution of remediation at their sites.”
Stakeholders Weigh in on Efforts to Update the SRRA. The panel also addressed the status of efforts to update the highly successful site remediation program since the adoption of the SRRA. The NJDEP recently facilitated a number of stakeholder meetings to discuss possible changes to the language in the law, now known as “SRRA 2.0.”
According to Novak, “One potential revision that could negatively impact the commercial real estate and site remediation industries involves language expanding discharge reporting requirements to include any discharge discovered by a purchaser during due diligence.”
The change would require a prospective property buyer to report any discharge to the seller, who would then have to provide the information to the NJDEP. Attendee Alex Conte, executive vice president with the commercial real estate firm Blau & Berg Co., noted, “When it comes to redevelopment, it is generally the unknown contamination or future surprise contamination that concerns property owners. Has an alternate policy been presented by lobbyists to satisfy both sides of the equation?”
Novak stated that there is “really no middle ground,” and Toft added, “We
understand from an environmental standpoint why regulators would want to force reporting of a discharge for information generated by prospective property purchasers. However, the concern is whether such a change would have a chilling effect on the market and deter owners from listing properties or encourage more properties to be remediated. We believe it will have a negative effect.”
Novak noted that most of the proposed language changes to SRRA reflect the NJDEP’s focus on improving and maintaining the integrity of a system which involves sensitive communications between the NJDEP, property owners and LSRPs. “Overall, most members of these three groups state they are happy with the SRRA and the LSRP program, and the focus is on making it an even more efficient and effective tool for redevelopment.”
According to Alliant’s Alviggi, a major retrenchment is currently taking place among environmental insurance carriers. “There is a general uneasiness about the new administration’s possible expansion of pursuing NRD claims. Additionally, the carriers have expressed concerns in covering claims triggered by contamination migration and vapor intrusion.”
“Our goal is to help developers to close deals by providing meaningful pollution liability insurance, but most carriers will not provide blanket coverage for existing known conditions,” said Alviggi. “The market is pushing back, and the trend is to provide shorter-term policies and upload the premiums to fund the greatest probability of risk.”