Plans to Revamp Shore Mall: A Road (Improvement) Too Far?

Here's an article from Sarah Watson of The Press of Atlantic City regarding plans by the current owner to redevelop the Shore Mall into an "open air plaza" with approximately 600,000SF of retail, restaurant and commercial space.  In essence, the owner, Cedar Shopping Centers, Inc. (CSC), is looking to "de-mall" the Shore Mall.

Anybody familiar with the Shore Mall knows that something has to be done to revitalize it before its too late.  I, for one, am not sure if the local market can support more "open-air" shopping -- there's already a bunch of it in the areas surrounding Shore Mall -- but CSC apparently has had some success with a similar plan in Camp Hill, PA.  Something has to be done with the Mall and the plan -- including a "boulevard-style road network" -- sounds intriguing and like it could fit the vast space available.  (The Mall appears to be on a large parcel of land.)

As noted by Sonny McCullough, Mayor of Egg Harbor Township, where the Shore Mall is located, the key to the plan is off-site road work to improve access to the Mall.  I agree 100%.  Anybody familiar with the area knows that access to/from the Mall is a tangled mess which undoubtedly discourages potential visitors.  (Hand raised.)  The plan apparently seeks to improve access from the Garden State Parkway and to create a dedicated, full-service intersection into the Mall, among other things.  All good things.

That's the good news.  Here's the bad: CSC is seeking grant money for the off-site road improvements.  Good luck w/ that.  Mayor McCullough acknowledges in the article that there is no grant money available -- no surprise -- and it is hard to see when any might become available in today's economic climate.  In other words, don't look for changes to the Shore Mall any time soon.  No grant money = no off-site road improvements = no redevelopment of the Shore Mall.  It all feels like a bit of a dog and pony show.  I'm left with the following questions:

  • What's behind the timing of the article?  There really was no new development or change in the plan and there is an admission that the money to get started is not available.  So why leak the application for grant money?  Who benefits from the timing and how?  Frankly, I can't see it.
  • Who's behind the article.  It seems pretty clear that EHT is behind it.  After all, CSC refused comment whereas the Mayor and Township Administrator are quoted throughout.  The question is why?  To put some pressure on state/federal politicians to find the grant money?  To put pressure on CSC?  Should we be readying ourselves for an argument from EHT that the Shore Mall is "too big to fail"?  

FINAL THOUGHT: I can't help but contrast CSC's wait for grant money w/ the decision of the developer of Gravelly Run Square in nearby Hamilton Township to spend $1M of its own money to extend a dead-end street in order to improve traffic access.  Granted, the scale of off-site improvements is significantly greater ($23M) at the Shore Mall, but the investment by Benderson Development and the fact that they're off the sidelines shows to me a confidence, or belief, in the project.  Meanwhile, I'm not sure at this point how much CSC believes in the success of the Shore Mall.  Here's hoping that they prove me wrong.

Would You Pay $1.6 Million for a Driveway?

We all know that a picture is worth a thousand words.  Well, in New Jersey, a driveway apparently is worth $1.6 Million.  So sayeth a Burlington County jury in a condemnation action involving the loss of one of three driveways at the Marlton Crossing shopping center to make way for an overpass along Route 73 at the intersection with Route 70.  Marlton Crossing, which is owned by a subsidiary of Centro Properties Group, is on southbound Route 73, about a quarter mile below the former circle at Route 70, and has more than 300,000 square feet of retail space.  It holds Champps Restaurant, Burlington Coat Factory and T.J. Maxx, among other tenants.  According to an article from the CourierPostOnline, the $63 million NJ DOT project (which began in April/2009) will replace the former circle with a Route 73 overpass, among other changes, and the former driveway is being replaced by a ramp from the overpass as part of the circle's elimination.  The driveway in question apparently has been closed for some time.

Here's a recap per articles linked to above:  the NJ DOT exercised its eminent domain authority in August/2007 to take a narrow strip of property with highway frontage that included the driveway.  (A "partial taking.")  The center's owner, Marlton Plaza Associates, did not challenge the driveway's acquisition, but sued the DOT over the value of the 10,000-square-foot parcel.  The State argued that the owner should only be compensated for the value of the land that was taken.  The owner argued that it should be compensated for the taken land and for the damages to the shopping center caused by the driveway taking ("severance damages").   With regard to the claim for severance damages, proofs included evidence from a transportation consultant for the owner indicating that the loss of the third driveway from Route 73 would have a significant negative impact on the shopping center's internal traffic flow, particularly at peak shopping periods, compromising ease of access and reducing the overall value of the shopping center.  (Hello, upcoming Holiday Season!)  According to the NREI article (first link above), the Judge agreed with the owner and ruled that the jury could consider the issue of severance damages to the shopping center, not just the value of the land taken.  Advantage, property owner.

The case is significant for several reasons:

  • As astutely pointed out by the owner's attorney in the NREI article, federal stimulus dollars have fueled a nationwide deluge of street/highway projects in which eminent domain is oftentimes used to gain right of way from private property owners.  In other words, Uncle Sam is currently footing the bill for a tremendous amount of street/highway work and you could be next, Mr. Property Owner, if you get in the way.
  • The jury award of $1.6M was 8x more than the State's last offer.  NJ DOT apparently was inflexible on its last/best offer of $194,000.00.  (The owner sought $2.25M.)
  • Getting severance damages for this partial taking was no slam-dunk.  This case involved a partial taking that resulted in a change of access to the shopping center and "access" cases are incredibly fact specific and difficult to prove.  The general rule: a NJ property owner subject to a partial taking will not be entitled to severance damages for a resultant change in access if the remaining access to the property is "reasonable."  To be entitled to severance damages, the property owner must prove that the change of access has caused a significant limitation on design options or "on-site maneuverability problems."  In this case, there were still two driveways available after the taking so the State presumably argued that the remaining access to the shopping center was reasonable.  There does not appear to have been any significant limitation on design options, so the owner's transportation consultant must have knocked it out of the park at trial. 

The State reportedly is considering its options, including an appeal.

I would hope so.

The Mind of a CRE Broker

For owners/developers out there, I've been meaning to recommend a site by the name of Marketwi.se (correct spelling) which is run by a SVN broker by the name of John Reeder.  You can learn more about John here and hereJohn is based in California and concentrates in the land development and investment market.  Practice areas include land sales to residential and commercial developers, REO land sales, and the emerging solar land development market.

Marketwi.se touches on micro and macro issues concerning investment in commercial real estate and is beneficial if for no other reason than it aggregates the most popular CRE links from Twitter on a daily basis.  However, what I enjoy most is some of the commentary from John, who provides candid opinions on the CRE market and investment issues from a broker's perspective with a dash of humor.  Here are some recent examples:

Brokers play a role in just about every CRE deal.  If you are buying or selling commercial real estate, it wouldn't hurt to know what brokers are thinking.  Marketwi.se is a great place to start.

Survey: Little Value in Social Media for Apartments

I was checking out NREI Online the other day.  There was an interesting article about a recent survey indicating that tenants spend very little time visiting an apartment community's social networking website.  The survey is national in scope and is being conducted by J Turner Research, a multi-family research firm.  Here's what I found interesting about the survey results:

  • Over 90% of conventional tenants (persons not residing in student housing) responding to the survey have not visited their apartment community's social networking site.
  • The contrast between conventional tenants and student-housing tenants: only 7% of conventional tenants have visited the apartment's social media website vs. 40% for students.  I wonder if/when that discrepancy will impact the "conventional tenant" demographic.
  • Of the 7% of conventional tenants who visit the social media site, 62% are checking to see what other's are saying about the apartment, 57% are conducting preliminary research and 37% are looking for discounts/deals.  (Obviously, these percentages add up to more than 100%.  I assume that the responding tenants were allowed to check more than one box on certain survey questions.)
  • Only 11% of responding tenants visited the apartment's social media website to schedule an onsite visit and only 8% tried to initiate the leasing process through that site.

As noted in the article, it is clear that social media is not driving leasing activity at this point.  My questions: is that such a bad thing?  Is that the purpose of an apartment's social media site?  Should it be?  I'm all for leveraging technology, especially online leasing, but can't that be done on a different online platform?  Shouldn't the apartment community's social media website be for building relationships w/ tenants and prospective tenants?  If the answer to the last question is yes, then the next question becomes: what can be done to add value to the social media website in order to get more "eyes" on it?

I'd love to hear from any apartment managers out there.  Are you using social media and, if so, how has it been going?

Shoppers Value Convenience. Who Knew?

I want to pass along an article from the 7/19/10 edition of the Press of Atlantic City by Sarah Watson concerning a developer's willingness to spend more than a million dollars to extend an existing dead-end so as to create an access road to alleviate area traffic.  For those familiar w/ the area, the planned development is called Gravelly Run Square, which recently received preliminary approvals from Hamilton Township.  It would be across the Black Horse Pike from Hamilton Commons (Regal Movie Theater) and current plans call for 296,000 sf of space within 8 buildings similar in design to Hamilton Commons, which was also developed by Benderson Development, the developer in question.  (Fingers crossed for a Fresh Fields!)  It is expected that work on creating the access road will begin in 2011.

Now, a developer agreeing to create an access road is not news.  Alleviating traffic congestion is admirable in and of itself and SOP to get projects approved.  (Also greatly needed in that area, as the article points out.)  But there is more to it than just reducing traffic and getting the project approved.  For one thing, the access road will benefit commercial properties other than Gravelly Run Square.  For me, though, I love the fact that the developer clearly saw the access road as a way to increase the value of the project.  Check out this quote from the developer:

“In order for businesses to succeed, they need to be convenient and traffic needs to be able to move as efficiently as possible,” Wainberg said, in response to questions as to why a commercial developer would invest so much time and money into an off-site road. “We’ve done projects of this kind everywhere, and we know what it takes for projects to be successful. They have to be well-planned.”

 

In other words, shoppers value convenience.  Duh!  Seems obvious, but not everybody is willing to go that extra mile. (Excuse the pun!)

If you develop/own/manage retail space, is there anything you can do to make the shopping experience more convenient for your visitors?  Granted, you may not be able to do anything about parking or traffic, but are there any smaller or unconventional ways to make the shopping experience more convenient?  If so, wouldn't greater shopping convenience add value to the property? 

NJ Legislature May Ask Taxpayers to Wait for Property Tax Refunds

I thought NJ property owners would be interested to hear about Assembly Bill No. 3056, introduced on 6/24/10, which provides a taxing district with a 3-year window in which to refund excess taxes to a taxpayer who successfully appeals a property's assessment.  Not only that, but A-3056 would allow the district to pay the refund in installments, and, with respect to successful appeals from at the tax board, eliminate payment of interest on refunded sums.  The law currently requires the refund to be paid in full within 60 days, with interest at 5% per year under N.J.S.A. 54:3-27.2 on refunds from a successful tax board appeal.

I think the Statement offered in support of the bill says it all:

"This bill requires that, in the event a taxpayer is successful in a real property tax appeal, the taxing district wherein the real property is located shall pay to the taxpayer any excess taxes paid, without interest, within three years of the date of the final judgment. Current law requires full payment of any excess taxes paid, including interest calculated at a 5% annual rate, within 60 days of the final judgment.

This legislation is intended to relieve municipalities of the burden of paying property tax refunds within a relatively short period of time. The sponsor notes that may [sic]municipal governments are experiencing greater fiscal pressures due to the current
economic conditions. This bill would allow municipalities to better manage the payment of property tax refunds by budgeting for them over a defined period of time."

TRANSLATION: even though you won your appeal, the government would like to hold onto your money for a while longer and skim the vig.  Another translation: the house always wins!  Interesting that there is no mention of the importance of the refund to the taxpayer.

Now, granted, it is early and this bill may not go anywhere.  Still, its mere introduction is a scary sign of the times and forecasts tough sledding for property tax appeals in the coming years.

We'll keep an eye on this bill for everybody.  

Are You a Great Commercial Landlord?

Andrew Zezas is a tenant's rep who blogs at Corporate Advisor.  He recently had an interesting post that included his list of 20 attributes found in "great" commercial landlords.  The list is clearly written from a tenant's perspective and, while I don't agree with his entire list, there is at least one attribute on which we can agree: great commercial landlords know that service is key!

Do you qualify as a "great" landlord under Andrew's list?  If not, would you want to?  Any attributes with which you disagree?

 http://www.flickr.com/photos/thedepartment/85386723/

The "Green" Dilemma: Is it Worth It?

I ran across an article by Diane Mastrull of The Philadelphia Inquirer that does a nice job of capturing the dilemma facing owners and managers of existing office space when it comes to going "green"; namely, does the ROI justify the expense?  A couple of things about the article caught my eye in particular:

  • According to green-building advocates, in the last few years employers have reported a growing number of job applicants asking about workplace-sustainability efforts.  Really? This surprised me given the employment climate over the last couple of years.  Has sustainability become an employment deal-breaker?  If anybody can point me to studies on this issue, I would be much obliged. 
  • One of the owners profiled in the article -- APF Properties -- started out wanting to pursue a silver LEED rating upon purchasing 1601 Market Street (managed by Cushman & Wakefield's Philadelphia office) but quickly had to downgrade to qualifying for LEED certification to start given the fact that $200k in capital improvements would be needed to seek a silver rating.
  • Developer Donald Pulver, of the Oliver Tyrone Pulver Corporation, which has built a mini-empire of office space along the Schuykill River and otherwise has an impressive portfolio, does not see the upside to LEED certification, indicating that "what you get versus what you pay was not worth it to us."

MY TAKE: the song remains the same.  Green building is laudable across the board and can serve as a point of distinction for purposes of marketing and rent.  However, most owners of existing office space will be reluctant participants unless and until the ROI outweighs the cost.  This will be especially true when Class C properties are involved.

 

Property Tax Appeal Q&A: Harry Renwick, Part II

To file a property tax appeal, or not to file, that is the question. (Apologies, again, to William Shakespeare.)  April 1st is the deadline for most property tax appeals in New Jersey. (May 1st if the municipality is undergoing a revaluation in 2010.)  With April 1st fast approaching, it seemed like a good time to check in w/ Harry Renwick of Renwick and Associates.

As you will see, Harry has spent close to 50 years as a professional real estate appraiser and has extensive experience w/ real property tax appeals in New Jersey. (Full disclosure: my office does use Renwick and Associates as an expert in property tax appeals and we are proud to do so.)  I felt that his perspective on tax appeals would be helpful to any property owner or manager who has decided to file a tax appeal or is considering it.  Harry graciously agreed to participate in a Q&A session w/ me.  Because of the amount of information, the session has been broken down into 2 posts. This is Part II.  You can read Part I of the Q&A here.  (The highlighting in the answers was done by me.)  I hope that you find the following information useful:

  • Are there any important factors that should be considered in deciding whether to file a tax appeal?  One of the most important things is to accurately define within which sub-market the subject property is competing. Once the appropriate sub-market is defined, you can then identify market data which are truly comparable to the subject property and, therefore, an appropriate basis for analysis. (Comparing apples to apples, rather than apples to oranges.) There are thousands of competitive sub-markets that may come into play and have to be considered when properly establishing a property’s value, making use of a qualified professional essential.

Another factor to consider is properly establishing a property’s “highest and best use” and the potential pitfalls in doing so. For example, it may turn out that an older, single-story office building at a high-traffic intersection has a higher/better use as a retail entity. In such a case, the filing of an appeal w/o expert assistance could result in a cross-appeal by the town and a higher property value and tax burden. (Beware of cross-appeals by the taxing municipality.)

  • What is a revaluation and how can it impact on prosecuting a tax appeal?  A revaluation involves a periodic updating of all of the taxable and tax-exempt properties within a community.  A revaluation generally serves 2 purposes. One purpose is to re-establish the current Market Value of all properties and their equitable share of the overall budget levies.  Because property values become distorted over time by changing market conditions and other factors, this step is essential in order to insure equity within the system. (Make sure that each property carries its fair share of the tax burden.)

The second purpose is to stabilize the tax rate.  Revaluation almost always results in a higher overall community value which when divided into the current levies will have a proportionate downward influence on the tax rate.  To the surprise of many, stabilization of the tax rate typically results in greater amounts of revenue being raised for each penny of the tax rate.  For example: Assume that a town’s total assessed value immediately before a revaluation is $500M.  Each penny of a town’s tax rate is equivalent to one percent of the town’s total assessed value so, in this example, a penny from the town tax rate = $50,000.00 and each penny-increase would add another $50,000.00 in revenue to the town budget.  However, if a revaluation resulted in a new total assessed value of $1B for the town’s taxable properties, then each penny of the town tax rate would result in $100,000.00 worth of revenue.  In other words, depending on market conditions, a revaluation may enable a town to maintain or reduce the tax rate, which resonates w/ the public, while still increasing tax revenue.


Only in a revaluation year is the appeal deadline extended to May 1st as opposed to April 1st during a non-revaluation year.  In a revaluation year the new valuation appearing on the tax bill (green card) is assumed to be an accurate representation of the current resale value of the property as of Oct.1st of the pre-tax year; that is not the case in a non-revaluation year.


Owners of commercial real estate should be wary of revaluations b/c towns usually tend to shift the tax burden to Class 4 properties, i.e., away from residential properties where the voters live!

  • What is an equalization rate and why is it important A town’s equalization rate is used to set a property’s Market Value based on the town’s current assessment of it and determine the fairness of the assessment.  (Remember: under the NJ tax system, the assessed value of a property is supposed to closely approximate the Market Value. However, Market Value can change over time whereas the assessed value typically remains constant until the next revaluation. The equalization rate is the mechanism used to translate the town’s current assessed value of the property into Market Value a/k/a as the Equalized Value.) The equalization rate, a/k/a the town-wide ratio to true value (Market Value), is a ratio established for the community by the County Board of Taxation through the sampling of usable (arms length transactions) current sales of properties across all property classes as they compare to the values established under the last revaluation.

Example: Assume that the last revaluation set a property’s assessed value at $1M and the town has an equalization rate of .50. In such a case, the Indicated Current Market Value (ICMV) of that property would be $2M. In other words, the town is really placing a value of $2M on the property for purposes of tax burden.  Now, if the current appraised value of the property is lower than the ICMV – e.g., $1.5M – then a successful appeal may be possible.  An appraised value at $1.5M w/ a .50 equalization rate means that the property should be assessed at $750K, not $1M.  Obviously, an assessed value of $750K should ultimately result in lower taxes against the property.

  • What is an I/E report and why is it important?  An I and E report is a request for income and expense information, sent out by the town assessor, to all Class #4 (income producing industrial, commercial or multi-residential) properties. The community has the right to request this information under the Chapter 91 laws and failure to comply can result in the loss of the right to appeal. [CBH note: failure to return an I/E report to the taxing municipality in a full and timely manner can subject an appeal to a motion to dismiss from the municipality.]
  • How and when do you think the South Jersey commercial market will rebound?  Which segment do you think will rebound first?  My crystal ball is no better than most of the professional prognosticators. Having said that, one thing is for sure: commercial always lags behind residential.  I don’t foresee any uptick in commercial until excess residential inventory is absorbed.  We also need to regain a normal balance between “new construction” inventory and “re-sale” properties.  Absorption of residential inventory and a re-balancing between new construction and re-sale are sure signs of job creation and improved purchasing power.  Job creation and improved purchasing power generally translates to increased office and retail demand.  I hate to say it, but I don’t see improvement in commercial for another 2-3 years.
  • Final thoughts?  Yes, the tax system in New Jersey is very difficult for the average taxpayer to understand.  Many property owners enter into the appeal arena with the intention of lowering their total annual amount of tax and are surprised to find out that the only element that can be placed under appeal is the current market value as of the effective appeal date.  An expert should be employed that understands the subtleties and vagaries of the tax laws and tax system and their impact on the valuation process.  My recommendation is first to enter into a consulting arrangement in order to pre-test the probabilities of a successful appeal.

Thanks, Harry!
 

Equalized Value: Learn It Before Filing a Tax Appeal

If you own CRE in NJ, how do you feel about your latest assessment?  Given how bad the 2009 market was, many of you are probably looking at the assessment and thinking about filing a property tax appeal.  (The appeal deadline is 4/1/10, unless there is a revaluation taking place.)  That's good.  Just know that in many cases the amount of the assessment is not an accurate indicator of the "true value" of your property and, therefore, not the number that should be considered.  Instead, you need to know the Equalized Value for your property when deciding whether a tax appeal is warranted.

Many owners do not realize that the assessment amount on the Notice of Assessment (green card) may not necessarily reflect the true value at which a property is being assessed and taxed by the municipality. This can turn out to be an expensive misunderstanding.

Keep in mind that in NJ property taxes are supposed to be based on the fair market value (FMV) of the property and that the annual assessments are supposed to reflect the FMV of the property.  However, as time passes between revaluations, that is often not the case.  Between revaluations, assessments generally remain unchanged from year-to-year whereas market values are constantly changing.  To address market fluctuations, each year the Division of Taxation analyzes current sales of properties across all property classes in a municipality as compared to the values established under the last revaluation. This results in what is known as a municipality’s annual Equalization Ratio (a/k/a Average Ratio) The Equalization Ratio for a particular municipality can be obtained from the assessor or County Board of Taxation. You can also find 2010 Equalization Ratios here.

The Equalization Ratio is used to translate the current assessed value of a property to its true assessed value a/k/a “Equalized Value.”  The Equalized Value is supposed to reflect the FMV of the property based on the current assessment and county data.  It is calculated by dividing the total assessment from the Notice of Assessment by the municipality’s Equalization Ratio.

For example, the 2010 Equalization Ratio for Linwood, NJ, is 61.99% whereas in Margate, NJ it is 84.28%. Thus, a $1M assessment in Linwood reflects an Equalized Value of $1,613,163.40 ($1M/61.99%). Meanwhile, a $1M assessment in Margate reflects an Equalized Value of $1,186,521.10 ($1M/84.28%).

Why is Equalized Value important?  Because the Equalized Value tells an owner the true value at which the municipality has assessed the property and, in turn, is collecting taxes under the tax rate.  Only by comparing the Equalized Value to the appraised FMV of a property can one begin to determine whether a tax appeal is warranted.

So, if you are still trying to decide whether to file a tax appeal, don't just look at the assessment, look at the Equalized Value of the property.  (You should also talk to an appraiser and attorney experienced w/ tax appeals, because the "fun" does not stop w/ "Equalized Value" when pursuing a tax appeal.)
 

Property Tax Appeal Q&A: Harry Renwick, Part I

To file a property tax appeal, or not to file, that is the question. (Apologies to William Shakespeare.)  April 1st is the deadline for most property tax appeals in New Jersey. (May 1st if the municipality is undergoing a revaluation in 2010.)  With April 1st fast approaching, it seemed like a good time to check in w/ Harry Renwick of Renwick and Associates.

As you will see, Harry has spent close to 50 years as a professional real estate appraiser and has extensive experience w/ real property tax appeals in New Jersey. (Full disclosure: my office does use Renwick and Associates as an expert in property tax appeals and we are proud to do so.)  I felt that his perspective on tax appeals would be helpful to any property owner or manager who has decided to file a tax appeal or is considering it.  Harry graciously agreed to participate in a Q&A session w/ me.  Because of the amount of information, the session has been broken down into 2 posts. This is Part I.  (The highlighting in the answers was done by me.)  I hope that you find the following information useful:

  • Tell us about your background/experience and what Renwick and Associates does 46 years as a professional real estate appraiser.  I hold a Senior Certified General Real Estate Appraiser (SCGREA) license designation in N.J.  I also hold a Certified Tax Assessor (CTA) designation in N.J. and I am a licensed real estate Broker.  Our company specializes in litigation matters involving all types of real estate. We provide real estate consulting and appraisal services which place defensible valuations on property for the purpose of settling disputes in matters involving real estate.  The disputes typically involve: real estate tax, federal income tax, eminent domain (condemnation), consumer fraud, insurance claims, economic (market) rent, equitable distribution of estates, bankruptcies, isolation of development rights etc. More information can be found at www.renwickandassociates.com.
  • In general, what is an appraisal?  An appraisal provides a defensible estimate of a property’s value as of a specific date in time. The appraisal is based on a set of disciplines required under state law. The appraiser is attempting to analyze comparable lease, cost and sales data that would be considered by participants (buyers/tenants) in a defined market. The results of this analysis are then correlated in to a final estimate of value.
  • What role does an appraiser play in a property tax appeal in NJ?  An appraiser performs an appraisal of the property and typically serves as an expert witness in support of the tax appeal if/when one is filed.  (At Renwick and Associates, we provide a preliminary evaluation at no charge to give the client an idea as to whether an appraisal and appeal would be worthwhile.) When appealing an assessment, the taxing municipality will have the benefit of an “expert” in support of its position. The property owner is best served to have its own expert to combat the assessor’s position.
  • Can you provide us w/ your current take on the SJ commercial market?  Anything of note in any of the following segments: multi-family; retail; or office?  The current multi-family market is generally experiencing higher than normal vacancy and credit rates directly related to the limited number of qualified tenants and the disruptions in the market related to the recession and the need to attract new qualified tenants. Operating Expense ratios are also trending upward which has a dampening effect on Annual Net Operating Income. Retail and office properties are generally following the same trend except vacancy and credit losses are considerably higher due to an over supply of space and limited number of new qualified tenants. Capitalization Rates are trending higher within each market as a direct response to the higher risk presented within the recessionary market. This also has a diminishing affect on the internal rate of return from these investments.  In short, things are tough in the South Jersey commercial market, especially in the retail and office segments.
  • Why can a property tax appeal be important in today’s economic climate?   The tax laws in New Jersey and many other states employ a standard of Market Value as the basis for the equitable distribution of budget levies over the municipal or city tax base. Under the tax system, a property’s assessed value is supposed to closely approximate its Market Value as of October 1st of the pre-tax year. In today’s economy, w/ sharply declining real estate markets, the assessed value of a property may no longer accurately represent the property’s Market Value.  If the current assessed value is proven to be inequitably high, based on a current appraisal, then substantial financial relief may inure to the property owner. 

In short: if it turns out that the current assessed value of a property is too high, a property tax appeal is the way to get it lowered and save the owner money.  If the owner is not passing through the tax burden to a tenant in full, then a high tax level would reduce Net Operating Income which, in turn, reduces the value of the property. In addition, having tax levels on a property which are competitively high can drive away potential buyers or tenants.

Check back in a couple of days for Part II of the Q&A w/ Harry Renwick regarding property tax appeals in New Jersey.

Round-Up: Multifamily Insiders

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?

A New Way for a Garden to Add Value

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? 

 

 

Local Press Round-Up

 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.