South Jersey Commercial Real Estate Today : New Jersey Commercial Real Estate Lawyer & Attorney : Chris Hogan Law Firm : Contacts, Liens, CRE : Philadelphia, Delaware, Cape May

I am getting back into the swing of posting on a regular basis.  Sorry if anybody missed me! :)  Let's start with a quick update on recent lobbying efforts by the NJAA, which does great work for apartment owners in NJ:

• The NJAA recently met w/ BPU Commissioner Nicholas Asselta to press NJAA's support for the adoption of regulations permitting sub-metering of utilities in rental housing, as recommended in the Lt. Governor's final Red Tape Report.  Hard to believe that NJ is the only state that does not allow sub-metering.  Seems to make alot of sense from a conservation and cost efficiency standpoint.  You can find a copy of the NJAA's Memo and the final Red Tape Report through the above link.  For existing rental housing, NJAA recommends using A-2216 from Assemblyman John McKeon (D-Essex) as the model for the BPU.  We'll keep an eye on A-2216 and provide updates as warranted.
• NJAA was a major supporter of S-82/A-427 which proposed to overturn the current "Time of Decision" rule as it applies to land-use applications.  The bill was signed into law by Governor Christie on 5/5/10.  Here is a copy of the text of the bill from S-82.  Before this bill, the general rule was that the zoning or planning board would apply the law in effect at the time that it rendered its decision rather than the law in effect when the application was initially presented.  As you can imagine, this rule made for some unhappy developers when applications were filed under one ordinance but then denied or limited when the ordinance was changed by time of decision.  Under the new law, a board is required to make its decision on an application in accord w/ the ordinances that are in effect on the date that the application is submitted.  This seems equitable to me.  A developer should be able to reasonably expect that the ordinances at time of application will be the ones deciding the application's fate.  For a contrary opinion, see here.
• A-1064, which proposes to amend the NJ CFA to eliminate awarding of attorneys' fees, filing fees and costs of suit for technical violations under the CFA, which NJAA supports, was unanimously amended and released from the Assembly Consumer Affairs Committee on 5/6/10.  If passed in present form, it would be a big relief for owners and managers of multi-family units.  Fingers crossed!  (The above link includes a link to the amended bill.)  We'll keep an eye on this bill as well and provide updates as warranted.

Nice work by the NJAA!

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If you own or manage apartments in South Jersey, I encourage you to check out Multifamily Insiders, which is a site dedicated to the Apartment Industry.  There are a variety of resources on the site, including job and vendor listings as well as blogs and discussion threads.  I seem to always find some useful/interesting information + there is a real sense of "community" building on the site.  (Full disclosure: I have signed up to be a member of Multifamily Insiders but have no ownership interest or other financial interest in it and absolutely no involvement in running it.  I just find it to be a useful site.)

Anyway, I wanted to pass along some recent blog posts from Multifamily Insiders which I thought you might find useful/interesting:

• Pablo Paz, National Safety and Maintenance Instructor for NAA Education Institute, warns that apartment properties will be subject to the EPA's new Lead-Based Paint Renovation, Repair and Painting (RRP) Rule which takes effect April 22, 2010.  For those unaware, among other things, the new Rule requires employees and contractors who perform any renovations, repairs, and painting in homes built before 1978 to be certified by an EPA-accredited training provider as to regulations and guidelines on how to work safely with lead-based painted surfaces.  The training has to be completed by the April 22/2010 deadline.  The post includes useful links to further information from the NAAEI and the EPA about the Rule and compliance.
• Brent Williams has an excellent series of posts about the ugly, the bad, and the good (somewhat) that he was subjected to during the lease renewal process at his apartment complex.  The posts contain excellent analysis and food for thought for all managers or owners.  MORAL OF THE STORY: customer service and attention to detail add value to a property and are worth the effort.
• On the topic of customer service, Eric Brown of the Urbane Lab has an excellent post on what he calls "Partnership Marketing" which, in this case, involves working w/ several businesses -- including local restaurants -- to provide custom shuttle service to residents at no cost to the property!  (You may recall Eric Brown/Urbane Apartments from an earlier post on marketing via social media.)  The free bus service clearly adds value to the property and it sounds like a real "win-win" for all involved.  What kind of "Partnership Marketing" opportunities might be available to your properties that would help add value?

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Can a garden increase a commercial property's value?  Sure, a garden adds aesthetic value, but how about to a property's bottom line?  And, how about if the garden is on the side of the building? 

Welcome to a concept known as a "Vertical Garden," a/k/a a Vegetal Wall, which was conceived by French scientist Patrick Blanc.  (A couple of pictures of existing Vertical Gardens are included w/ this post.)  I ran across the concept in the "First Look" section of the Winter/2009 edition of Development Magazine.

According to the article, Vertical Gardens contribute to reduction of greenhouse gas emissions and can also use recycled water, either from grey water from the building or recycled through the collection bay at the bottom.  Proponents have also found that a building's insulating properties are increased dramatically.

 HOW IT WORKS: A Vertical Garden is composed of 3 parts: a metal frame, a PVC layer and felt.  The frame is hung on a wall or can be self-standing.  It provides an air layer acting as a very efficient thermic and phonic isolation system.  A thin PVC sheet is then riveted on the metal frame.  This layer brings rigidity to the whole structure and makes it waterproof.  After that comes a felt layer that is stapled on the PVC.  The felt is corrosion-resistant and allows for uniform water distribution.  Watering is provided automatically, 4-5 times a day, through a drilled hose running along the top of the Vertical Garden.  Since there is no soil involved, the water must be supplemented w/ low concentrated nutrients through an automatic device.

According to the article, more than 200 Vertical Gardens have been installed around the world.  A check of Patrick Blanc's website shows only 7-8 in the U.S. so far, including installations in Tacoma, WA, and Charlotte NC.

I have no green thumb, but I like the idea b/c it could reduce HVAC costs and it could differentiate the property from competitors. 

The success of a Vertical Garden depends on using the right choice of plants according to the local environment.  Anybody know what kind of plants might work best in South Jersey?  :)

While a Vertical Garden can be of any dimension, it would seem that the highest return would be found w/ a larger building.  Obviously, not every type of building would be a good fit, as I doubt that a "big box" would want a garden growing on the side of the building, but I would think that a mid-rise office or multi-family building would work, as would certain retail and public buildings.

Who wants to be the first to grow a Vertical Garden in South Jersey? 

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Here's a post by Dee Allomong of Let's Talk Property Management about the onset of a possible "rental renaissance" tied to the impending reset of option-ARM mortgages in the U.S.  (Full disclosure: I am a member of Let's Talk Property Management but have no ownership interest in it and absolutely no involvement in running it.  I find it to be a useful site.) 

If Dee is right, and I think she is, the renaissance will be led by those suddenly finding themselves in the "sell to rent" group.  Check out the graph in Rental Housing and Real Estate Market Trends for 2010 from PropertyManager.com, to which Dee also links.  There is a mountain of option-ARM mortgages still to reset and we might not get to the other side until 2013.

So, we should expect a significant increase in the tenant pool, but is that a good thing for managers of multi-family properties?  I'm not so sure.  On the one hand, more tenants should eventually equal more demand, which is a good thing.  On the other hand, won't many of the "sell to rent" group look for residential to rent first?  Furthermore, won't there by credit issues?

The key to creating value from the "sell to rent" group will be found in screening and marketing.  If you are a multi-family property manager, when is the last time your screening procedures were reviewed and updated?  Are you able to identify the credit risks and proceed accordingly?  Similarly, are you able to identify the cream of the crop from the "sell to rent" group?  If so, what are the demographics and how can you reach them?

If anybody out there has reliable demographics on the "sell to rent" group and any experience in trying to reach it, please drop me a line.

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 Here are a couple of articles from newspapers serving the South Jersey area that caught my eye over the weekend:

The first is by Diane Mastrull of The Philadelphia Inquirer about an upscale multi-family property in New York using a wastewater-recycling system designed, installed and managed by American Water, which is based in Voorhees, NJ.  The name of the property is the Visionaire, located in Battery Park, which opened in September/2008 with LEED Platinum certification, the highest of the U.S. Green Building Council's sustainability standards.

The information about American Water's efforts to become more efficient and green is interesting, but what caught my eye was the fact that the owner's decision to use the system at a cost of nearly $2 million was an incentive from NYC: a 25% reduction in water rates.  According to Russell Albanese of the Albanese Organization, developer of the Visionaire:

The city's rates have been increasing on average 11 percent a year, so the savings over time should become more significant.

The second article was from Erik Ortiz of The Press of Atlantic City about the generally still-bleak outlook for local malls and retail in Atlantic County, NJ.  What caught my eye was the efforts by the new owners of Heather Croft Square to increase occupancy which apparently will include new frontage.

The moral of the stories for me: sometimes you have to spend money to make money.

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By way of update on an earlier post, it appears that the NJ Legislature failed to reach Bill A-1628 on 1/11/10 and the 2009 legislative session closed w/o the act becoming law.  However, Senator Joseph F. Vitale has moved quickly to post Bill S-819, which is substantially similar to A-1628, although not identical, including some new definitions among other things.  A copy of A-1628 can be found here and a copy of S-819 can be found here for comparison purposes.

Here are some of the highlights from S-819:

• It specifically includes condominium and cooperatives as covered under the Bill.
• It requires installation of a "water conservation device" before an occupant can be billed separately for water or sewage.  It defines what constitutes a "water conservation device" for shower-heads, faucets and toilets. 
• The landlord/condominium/cooperative is responsible for reading the sub-meter and billing the occupant.
• The occupants are to be billed on same billing cycle as the provider bills the landlord, etc.
• The sub-meter must only measure consumption for the unit in question. In other words, the sub-meter can't measure any "common area" or like consumption.
• Landlords, etc. still can't charge an administrative fee for costs in billing.  Moreover, installation and set-up costs for the sub-meter also can't be charged to the occupant.
• An occupant who fails to pay the sub-metered bill w/in the specified payment period -- which can be no less than 28 days -- can be assessed a late fee up to $25.00.  (This is new.)
•  Water and sewerage charges subject to sub-metering are exempt from local rent control ordinances governing allowable increases.
• As in A-1628, a landlord has to respond to an occupant's report of a leak w/in 24 hours.  However, in a big change from A-1628, S-819 requires the landlord to repair the leak w/in 36 hours of notice.  Further, this provision could be read to mean that if the landlord fails to meet either of those deadlines -- 24 hours for response/36 hours for repair -- the occupant shall be entitled to a credit as spelled out in this provision.  (A-1628 gave the landlord up to a week to "substantially repair" the leak.)
• The "billing dispute resolution" provisions found in A-1628 are not included.
• On receipt of a sub-metered bill and w/in time for payment of same, an occupant may request that a person w/ expertise in installation and operation of sub-meters, and w/ no financial relationship to landlord, etc., test the sub-meter in question for accuracy. If the testing indicates that the sub-meter is inaccurate on the high side, the landlord shall pay for installation of a new sub-meter, pay for the cost of the test, and provide the occupant w/ a bill reduction and/or credit for the current and prior billing periods for the amounts overcharged. If the test of the sub-meter shows that it is accurate, the occupant must pay for the test and the landlord can charge him/her is occupant fails to pay for it.
• Contrary, to A-1628, there is no restriction on when sub-metered billing on units not subject to rent control can be implemented, other than notice to the occupant, installation of the sub-meter and water conservation device and adoption of applicable rules by DCA.  (A-1628 forced a landlord to wait until lease renewal.)  The restrictions from A-1628 concerning units subject to rent control are included in S-819.

We'll keep you up to speed on all developments concerning S-819.

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I recently had a client who allowed a commercial tenant to fall behind close to $100,000.00 on rent obligations before contacting my office to file an action for possession (eviction).  It was a classic albeit perhaps extreme case where the tenant's business had taken a bad turn, there was some money coming in on a sporadic basis and the tenant made repeated promises that it was going "to make things right."  (Unfortunately, proving the adage that "no good deed goes unpunished," the tenant has turned the eviction in to a federal case -- literally -- which is still ongoing, but that is a story for another time.) 

For many landlords, commercial and residential, deciding when to evict a tenant is more art than science. The existing tenant is the "devil you know," so to speak, and, like my recent client, many landlords are reluctant to let go.  Moreover, the people on the front lines for the landlord have a feel for the tenant, the current situation and whether the tenant can get up to speed.  However, there often comes a time when the cord must be cut.  The question is when?  A tough call, no question, since there is cost involved in finding a new tenant.

I encourage landlords to develop a hard/fast rule and live by it, e.g., file for eviction once tenant becomes "x" months late.  Take the "art" out of the equation and focus on the "science."  When setting the line before eviction, a landlord should figure out: how long the eviction process usually takes; and, the average length of time for finding a replacement tenant.  The higher that number is in terms of months, the shorter the line should be.

REMEMBER: a space occupied by a non-paying tenant is the same thing as vacant space!  The damage to the value of the property is the same.

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Bill #A1628, which would advance water conservation by allowing sub-metering of water and sewer service in rental housing across the state and has been long supported by the NJAA, has been posted for a vote in the New Jersey General Assembly for Monday, January 11, 2010.  In brief, the Bill would allow for installation of sub-meters and billing of tenants for water and/or sewerage service used by their unit.  Among other requirements, the use of sub-metering would have to be disclosed in the tenant's lease in a "clear and conspicuous" manner" and "in plain language" and the bills sent to the tenant would have to include certain specified information.  As it presently reads, the Bill is fair and comprehensive.  A copy of #A1628 in its present form can be found here. 

The NJ Legislature is currently in what is commonly known as its "lame-duck" session and the Assembly has a number of bills posted for consideration on 1/11/10 so it remains to be seen what, if any, action will take place on #A1628 on 1/11/10.  Yes, there would be an initial cost outlay.  However, passage of this Bill would be a positive thing for apartment owners and managers in the long run, as it would enable them to better monitor, control and recoup costs for water and sewer.  Let's hope that the Assembly gets to it and passes it and then it would be on to the New Jersey Senate.

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Ran across some interesting survey results at The Property Management Blog from what seems like a relatively small sample.  The results should come as no surprise but it is still nice to see confirmation that successful companies leverage technology to increase market share and efficiency; this is especially true of industry-specific, integrated software.

What I found interesting was the percentage of respondents who do not use technology to track on-line leads and the findings questioning the effectiveness of social media.  By way of comparison on this last point, check out Eric Brown.  According to Multifamily Pro, Eric has done great things with Urbane Apartments in the Detroit/SE Michigan area using only social media since 2004.  So, maybe there is something to social media after all.

Here's another post from The Property Management Blog on the same issue; namely, using technology to increase value.

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