Why redevelopment is the state’s best viable long-term growth vehicle
Ted Zangari, a Newark-based real estate and redevelopment attorney, is the head of the Smart Growth Coalition of New Jersey. The committee met frequently this summer and in the fall to develop a set of recommendations for the incoming governor on maintaining and boosting economic activity in New Jersey. I was the chairman of the committee responsible for the “making land” portion of the recommendations. The Smart Growth Coalition in a partnership with NAIOP hosted a conference highlighting all the recommendations on December 5th. This post is Ted’s keynote speech, lightly edited for publication.
– Morris A. Davis, Ph.D., Paul V. Profeta Chair of Real Estate and Professor of Finance and Economics; Academic Director, Rutgers Center for Real Estate
Eight years ago, our Coalition’s recommendations to the incoming Christie Administration declared that New Jersey faced twin crises:
- In the near-term, a demand problem: businesses and residents were leaving the state and new ones were not flocking here.
- In the longer term, we predicted a supply problem: once the outmigration trend is reversed and New Jersey begins retaining and attracting business and residents again, we asked, where will we put them in a state that’s almost fully built-out—with only 800,000 developable acres remaining, mostly in outer suburban and rural areas where many people– particularly recent college graduates and empty nesters — do not want to live or work?
Progress has certainly been made on the demand front, and I’d like to think that our Coalition had a hand in that effort. For openers, we proposed that NJ join 48 other states in enacting a Tax Increment Financing program; the TIF we proposed was enacted by Gov. Jon Corzine and called ERGG. ERGG has been singularly responsible for many of the construction cranes on the NJ skyline, from Newark and New Brunswick to Camden and Atlantic City. Our Coalition also proposed a new business incentive program to replace the then-expiring collection of programs [Business Employment Incentive Program (BEIP), Business Retention and Relocation Assistance Grant (BRRAG) and Urban Transit Hub Tax Credit (UTHTC) programs]; thus was born GrowNJ—a program that economists will no doubt look back on and credit for aiding in the state’s recovery from the Great Recession of 2008. Some may say, “Well New York businesses would have moved here anyway” but the reality is that in the absence of GrowNJ being there to close the cost-differential with Lehigh Valley, Orange & Rockland County and other lower-cost states, most companies would have jumped over NJ on their way out of New York City — and many NJ businesses would have joined them in that exodus.
Speaking of the Great Recession, our Coalition got Trenton to give developers not one but three permit extensions that allowed projects to restart as soon as the recovery took root, instead of having to start over again with the permitting process. The Coalition also brought to life the Licensed Site Remediation Professionals (LSRP) program and recommended a new, independently funded and operated nonprofit corporation to market the state to out-of-state businesses. We suggested the name “Advantage NJ” and it ultimately emerged as “Choose NJ.” ChooseNJ is quickly becoming as recognizable across the country as “Jersey Fresh”; it is heartening to walk into an international trade show and finally see a coordinated public-private effort showcasing our state at an impressive convention exhibit that rivals our competitors’ displays.
So, yes, progress on the demand side has been made. But New Jersey’s position remains fragile and we can easily slip backwards if policymakers badly handle tax policy, our pension indebtedness, our aged and crumbling infrastructure, or the other serious challenges affecting our state. Those challenges are beyond the scope of our Coalition’s focus; what we have been focusing on the past six months or so is the real estate supply problem.
In short, there is an alarmingly scarce amount of developable acreage remaining in places where people actually want to work and reside in New Jersey. What’s left to feed the state’s economic engine are the challenging – in other words, cost-prohibitive – redevelopment sites in our suburban downtowns and urban central business districts, along waterfronts, on brownfields, and around and above transit hubs. Redevelopment is New Jersey’s best viable long-term growth vehicle. Accordingly, the state must embrace redevelopment more ambitiously than ever while also permitting (not obstructing) responsible greenfield development throughout the planning areas of New Jersey – even in the Highlands and Pinelands.
The Coalition has set its sights on four areas where state and local government must pave the way for the private sector and our friends in labor to create the volume of housing units and commercial premises that will be essential to New Jersey’s economic growth in the years ahead:
- public incentives
- local land use law
- environmental and other regulations affecting land development and redevelopment, and
- the very serious shortage of available industrial sites in the northern New Jersey port district.
This morning you are going to hear from representatives of the working groups that have tackled these four areas.
Before we begin, permit me to share some overall observations—
> Regarding incentives…namely GrowNJ and ERGG…
As I noted earlier, GrowNJ has proved to be a financial equalizer in the jobs-competition with Lehigh Valley, lower New York State, and beyond. The predecessor programs [specifically, BEIP and BRRAG] never adequately fulfilled that role. Moreover, GrowNJ’s tiered dollar formula based on geography, coupled with a bonus point system that rewards locations near mass transit, in poverty pockets, etc., has made the difference in motivating many companies to select otherwise overlooked sites that serve broader public policy goals. This has been smart growth at its finest.
The GrowNJ statistics are impressive: 226 approved projects; 27 in Camden, 135 in other distressed cities, and 64 elsewhere in the state. $4.3 Billion awarded – with an estimated net benefit in new revenue to the state of $13.5 Billion. And the job count: 28,063 new full-time positions and 28,466 retained jobs.
But with vacancy rates in the northern industrial market now at 30-year lows, with the office market roaring back in many submarkets, and even large-empty buildings at Sanofi, Roche and BellLabs bouncing back, policy makers in Trenton are asking “should business incentives continue?”
Likewise, cities across the state are coming back in large part because of residential and commercial ERGG-funded projects. The unique added costs of redevelopment – brownfield remediation, land assemblage, structured parking, etc. on top of mandates for affordable housing and use of prevailing wage labor – would have prevented these projects from moving forward in the absence of financial subsidies. Nevertheless, with budgetary constraints growing, Trenton legislators will no doubt also question whether developer incentives are still necessary.
The Coalition has concluded that the GrowNJ and ERGG programs should be continued but adjusted. These programs and others are needed not only to sustain and increase demand, but more importantly, to assist with the urgent land supply problem we’ll be emphasizing. Our message on incentives to Trenton is “mend it, don’t end it.”
> Regarding local land use laws…
Underneath the express policy rationale of the Municipal Land Use Laws (MLUL) – “uniformity in the approval process” – lies the reality: pursuing approvals and developing land in New Jersey is anything but uniform. Every municipality has its own zoning ordinance and its own planning and zoning boards, establishes its own standards and fees, and, to some extent, creates its own procedures.
It is time to consider the “tax” effect of home rule because – far from facilitating uniformity – home rule has given us a lack of predictability and consistency in the approval process. The reputation of New Jersey’s home rule tradition is well-known to corporate site selectors and developers across the country. Unlike other taxes, which are quantifiable, the home rule tax is the leading variable expense, in terms of outright dollars and wasted time, in far too many projects. Even those who have developed land in New Jersey for decades cannot realistically predict how long it will take to get through the entitlements process or how much will it cost.
Our Coalition will recommend a serious effort to make the local land use process more predictable and to identify and implement amendments to the MLUL that lead to greater consistency in the entitlements process and a substantial reduction in the cost and time expended in pursuit of development approvals.
The challenges of local land use are even more complicated for those undertaking transit-oriented development (TOD). A persistent problem inhibiting TODs is the lack of coordination between NJ Transit and the municipalities in which train stations are located. Despite all the “transit friendly” talk in our state, there is simply no joint vision or strategy between NJ Transit and the train towns to promote, facilitate and implement TODs. This failure is impeding if not precluding what is arguably the most attractive potential source of smart growth development in our state and must be addressed early in the next administration and legislative session.
> Regarding environmental and other regulations…
The Red Tape Review Commission, borne out of yet another Coalition recommendation to the Christie Administration, has done a good job of hacking away at unnecessary regulations that have acted as a drag on the state’s economy, including land development – but there is much more to be done. Our Coalition will present an assortment of technical fixes which, collectively, would go a long way towards promoting the supply of smart growth development that’s necessary to fuel economic growth in our state.
> Finally, regarding the serious shortage of available industrial sites in the northern New Jersey port district….
Demand for warehouse, distribution, data center, logistics, R&D, and manufacturing space has increased significantly in the last ten years. As I noted earlier, in the Port District of northern New Jersey – that 25 mile radius technically measured from the crown of the Statue of Liberty – we are experiencing the lowest vacancy rates in over 30 years. And vacancy rates in other industrial sub-markets around the state are also down significantly.
As a result, there are only a handful of large-scale remediated, assembled, entitled and otherwise shovel-ready sites remaining in the Port District of northern New Jersey.
The primary reason for the lack of sites is clear: few redevelopers have the time, patience, and risk tolerance to take on a land assemblage involving hold-out property owners, eminent domain, environmental clean-up, multi-year permitting, etc. Most redevelopers of large, complicated sites operate in multiple states where development on greenfields is still possible and where redevelopment is easier; in other words, they have choices on where to build. Not even incentives or the crazy rental numbers and selling prices in today’s market are enough to entice them into taking on these challenging, potentially career-killing projects. Government must step in and fill this void.
As our Coalition will explain, what New Jersey needs is a concerted effort at every level of government, led by the state, to assist the private sector in “making land” while also encouraging redevelopers to continue to tackle the re-use of large-tract contaminated factory sites that sit there each day leaching and emitting pollutants, tax-appealed down to nothing, producing no jobs and no taxes. We suggest a variety of concepts to reduce or eliminate the hurdles inherent in remediating, assembling and entitling large-tract sites.
Consider this: If a manufacturer wanted to bring a few thousand jobs to the Port District in northern New Jersey, we would not be able – today or anytime soon – to point the business to a single shovel-ready site or even a vacant existing structure. Worse yet, if the company required only a one million square foot building – or even a half-million square foot building – it would still be hard pressed to find a shovel-ready site or existing vacant building within the Port District.
So while our policymakers in Trenton grapple with the devastating tax policies coming out of Washington, staggering pension indebtedness, neglected and failing infrastructure, and the other serious challenges affecting our state, our Coalition will be there to make sure that at least the demand and supply sides of real estate and economic development get the attention, funding and policies they desperately require.