Real Estate Forum

NEWS FRONT
Industrial Is New Jersey’s ‘Good News’ Sector

NEWARK—Gary Gabriel from Cushman & Wakefield may have been among the first to sound the mantra: “Industrial is the new multifamily” when he spoke of the sector’s burgeoning strength at a recent RealShare breakfast in Newark. There is a rising chorus from various analysts, however.

In a Q1 report, Cassidy Turley said the market is continuing to “gather steam,” with 679,329 square feet of absorption and growth for the second continuous quarter. The report adds to the positive reviews the state’s industrial market has been getting lately, noting “stellar” leasing in the Meadowlands and a 5% drop in vacancy at Exit 12 of the New Jersey Turnpike.

Overall vacancy for Northern and Central Jersey declined to 7.5%, from 7.7% at the end of 2012. Meanwhile, the average asking rental rate of $5.75 per square foot has steadily increased since the first quarter of 2011, when they slumped to $5.61 per foot.

More plaudits came from Cushman & Wakefield. “Demand has intensified, especially in the northern counties, where the Meadowlands and Port submarkets combined for more than a million square feet—nearly half—of the state’s total absorption” during Q1, says Gil Medina, C&W’s executive managing director.

There were 15 deals made for 100,000 square feet or more during the first quarter, which Tri-State research director Jason S. Price tells GlobeSt.com amounts to about half of all the deals. That level of activity effectively erased the addition of nine 100,000-square-foot parcels to the market during the quarter.

Sales activity was also strong for the quarter. C&W reported that seven million square feet of industrial property was traded.“ For context, 12. 8 million square feet was sold in all of 2012,” says Price.

Industrial constitutes the hottest property sector right now, said Kevin Welsh, SVP with CBRE, at the RealShare breakfast. He particularly favors the Meadowlands, followed by the port markets and the Exit 8A submarket. Welsh noted that rents have been appreciating significantly along the 8A corridor, which usually is the last to recover.

Institutional players, while remaining
strong in multifamily, have become more
active with industrial buys, Welsh said. The
lure of the Turnpike corridors is one factor,
but so is the capital-intensive nature of office,
traditionally an institutional mainstay.

Residential Building Banned on NJ Waterfront

On Dec. 15, 2012, in the wake of Hurricane Sandy, the Federal Emergency Management Agency issued a new set of Advisory Flood Insurance Rate Maps for the New York and New Jersey coastal area. FIRMS are the official depiction of flood hazards for each community and the properties located within it. Since many of the existing FIRMS for this area were more than 25 years old, the purpose of the newly released AFIRMS was to provide an updated set of maps to support Sandy reconstruction efforts.

The maps were originally scheduled for release in 2013, but FEMA accelerated their release so that rebuilding at the coastal shore areas could be done in accordance with more recent flood elevation data.

FIRMS are used to determine national flood insurance program requirements and to indicate where state or local floodplain development regulations apply in a given community. Each FIRM shows the areas subject to flooding by a storm or flood event that has a 1% chance of being equaled or exceeded in any given year. The highest risk areas are designated on the FIRMS as A Zones and V Zones. V Zones are areas along the coast that are subject to inundation by the 100-year flood and three-foot breaking waves. Virtually the entire Hudson River waterfront area in Hudson County is newly designated as a V Zone on the AFIRMS.

FEMA acknowledges that the AFIRMS are merely advisory and will not form the basis for the NFIP until they are final and officially adopted. The agency anticipates issuing more thoroughly developed “preliminary” maps in June.

Notwithstanding that the AFIRMS are merely advisory, on Jan. 24, 2013, the New Jersey Department of Environmental Protection adopted an emergency rule formally incorporating the AFIRMS into New Jersey’s Land Use Regulation Program. Pursuant to pre-existing coastal zone regulations, all residential development is prohibited in V Zones and commercial development is discouraged. Hence, all residential development on the Hudson River waterfront is prohibited and commercial development discouraged as a consequence of the emergency rule.

By hastily adopting the AFIRMS into state law only days after their publication, without considering either their accuracy or their impact on other regions of the state, NJDEP has inadvertently done great damage to the expanding urban waterfront in Hudson County. In Jersey City alone, 5,658 units of affected residential development have already been approved and 10,554 more have been planned. Obviously, this ban on development would create a significant financial hardship on urban waterfront developers who have invested billions of dollars in land and permitting costs.

Yet it seems unlikely that New Jersey’s pro-business administration intended to bring development in this part of the state to a screeching halt. After holding a public hearing and receiving 185 written comments from the public, NJDEP on March 25 adopted the emergency rule with no changes as a final rule. Only time will tell whether the harshness of these rules is ameliorated by a significant reduction of Hudson County V Zone designations on the next set of FIRMS or a later amendment for the Hudson River waterfront area from the blanket ban on residential development in the V Zone.

(This column originally appeared in slightly different form on GlobeSt.com.)

By Marilynn R. Greenberg

Marilynn R. Greenberg is a partner at Riker Danzig, Scherer, Hyland & Perretti LLP. She may be contacted at mgreenberg@riker.com. The views expressed here are the author’s own.