Real Estate Forum - September 2011

NEWS FRONT
Novo Nordisk Redevelopment Leads NJ Office YTD

PLAINSBORO, NJ—Despite a fragile confidence in the market after Standard & Poor’s downgraded the US credit rating, the office leasing, development and acquisition cycle in New Jersey is in full-swing. This was proven by Novo Nordisk and a joint venture led by Ivy Equities and LCOR, in partnership with Intercontinental Real Estate Corp., which will undertake a $215-million redevelopment of a 770,000-square-foot office building at Princeton Forrestal Center. The deal counts as the largest commercial real estate transaction in the Garden State this year. The building will serve as the new US headquarters for the Danish pharmaceutical company, and will accommodate 1,500 employees and create 500 union construction jobs at 800 Scudders Mill Rd. here.

The deal even attracted the support of
Gov. Chris Christie, who said the redevelop-
ment is evidence that “the fiscal and regula-
tory reforms we’ve implemented in New
Jersey are fostering an environment condu-
cive to growth, business expansion and job
creation.”
Observers note that the state’s proximity
to New York City has boosted interest in
industrial space, particularly in the north-
ern and central parts. The older and smaller
buildings in the north are particularly use-
ful for food companies, which must deliver
to Manhattan several times daily. Larger
users are taking massive, newer spaces in
the central portion of the state, particularly
near Exit 8A on the New Jersey Turnpike, to
serve the Northeast region as whole.

million through the state’s Urban Transit Hub Tax Credit program.

Newark’s success is just one example of a particular interest in the state’s urban centers, particularly for transit-oriented developments close to New York City. Gaia Real Estate Investments, in conjunction with Israeli partners Phoenix Insurance and Menora Mivtachim Insurance, purchased 2 Journal Square in Jersey City from Hartz Mountain Industries for $78 million, the first office acquisition for its principals under the Gaia name.

The state government’s efforts will likely fuel more growth. On July 26, Christie expanded the program to include new tax benefits for mixed-use projects, in-state job relocation and affordable housing near public transportation hubs or stations. The legislation also makes certain areas in the Meadowlands eligible for incentive grants.—Debra Hazel

How to Navigate the Bumpy Road of Foreclosures

The real estate and broader economic downturn has increased the appetite of investors to acquire distressed real estate debt with the intention of foreclosing and taking ownership of the property. In many jurisdictions, such as New Jersey, foreclosure is a prolonged judicial process. As lenders and investors prepare for the foreclosure sale, they need to be aware of potential issues and procedural pitfalls.

By the day of the foreclosure sale, the lender has successfully navigated through the judicial system, having dealt with any defenses and counterclaims raised by the borrower, most of which are typically without merit and raised only as an attempt to delay the inevitable. In New Jersey, the borrower may obtain two 14-day adjournments of the sale. Occasionally, a borrower will also file a last-minute bankruptcy petition to further delay the sale.

Foreclosure sales in New Jersey are conducted by the sheriff in the courthouse of the county in which the property is located. Although the Fair Foreclosure Act established some uniform procedures for foreclosure sales, the sheriff still has considerable leeway in establishing conditions of sale that can significantly impact the foreclosing lender. Certain counties permit the announcement of an upset price (the maximum amount that a lender will bid), while others do not. For a lender, the announcement of an upset price may provide protection against low-ball bidders seeking to obtain properties at unrealistically low prices. Some other counties

By Dean E. Loventhal

require all bidders to provide evidence that they have the required 20% deposit before they can bid, protecting the foreclosing lender from “sham” bidders. It is important for the foreclosing lender to understand the nuances of the procedures established by the local sheriff in planning for the foreclosure sale.

In New Jersey, the winning bidder (including the lender should it prevail) is responsible for paying the realty transfer and sheriff’s fees, all of which are calculated on the amount of the bid. Although lenders typically commence their credit bidding at $100, lenders need to take into account these potential expenses when determining how high they are willing to credit-bid. The realty transfer fees are $6.05 for every $500 of consideration in excess of $1 million (with a sliding scale for amounts less than $1 million) and, if the property falls within an applicable classification, the 1% “mansion tax” will apply if the successful bid is in excess of $1 million. The sheriff’s fees are also computed on the bid amount and equal 6% on the first $5,000 and 4% on the balance (with a minimum fee of $50). Moreover, the lender needs to consider that any subsequent sale will also be subject to the realty transfer fees, which the seller typically pays in New Jersey. The foreclosing lender also needs to take into account the cost of a new owner’s policy of title insurance, which many prudent lenders obtain on foreclosed properties.

In anticipation of the foreclosure sale, credit bidders should think about all potential issues, costs and procedures.

Dean E. Loventhal is a real estate attorney in the Parsippany, NJ office of Kelley Drye & Warren LLP. He may be contacted at dloventhal@kelleydrye.com. The views expressed here are the author’s own.