NAIOP NJ’s Annual Meeting includes Election of 2018 Officers and Trustees
SHORT HILLS, NJ – The significant economic stimulus spurred by federal tax reform will positively impact demand for commercial real estate, according to the keynote speakers at NAIOP New Jersey’s Annual Meeting and Commercial Real Estate Outlook. Over 300 industry professionals attended the sold-out event at the Short Hills Hilton, which included the election of the commercial real estate development association’s 2018 officers and trustees.
In his opening remarks, NAIOP NJ President Dave Gibbons of Elberon Development Group, said, “We had some meaningful wins in 2017 and there is a lot to look forward to in 2018. Our association will work with the Murphy administration to advance our agenda, and high on the list is modernizing economic growth incentives and retaining the benefits of local PILOT agreements, investing in transportation, enhancing the LSRP program, addressing our talent shortage and making New Jersey more affordable.”
Echoing Gibbons’ message, NAIOP CEO Tom Bisacquino said, “The New Jersey market is healthy in almost every respect, and we will continue to use our voice, both at the local and national level, to advocate for policies and regulations that impact you and your companies’ ability to be successful in this industry.”
Bisacquino, who recognized members that have supported NAIOP NJ for 25 years or more, has helmed NAIOP Corporate since 1991. He noted that in addition to lobbying on behalf of NAIOP’s more than 19,000 members nationwide, the association provides valuable industry research, education, networking and business development opportunities.
New Tax Bill Includes Positive Provisions for Commercial Real Estate
Tax reform topped the list of issues on the minds of attendees. According to Bisacquino, the recently passed tax bill includes important changes that are positive for the commercial real estate industry.
“NAIOP has been working for nearly a decade to protect provisions such as the 1031 like-kind exchange, the treatment of carried interest and the deductibility of business interest. A lot of what we care about was on the chopping block, but those provisions turned out to be relatively unscathed.”
Highlighting several promising outcomes of the new tax bill, Bisacquino noted that it did not eliminate the 1031 exchange, which allows people to trade equity from project to project without tax consequences. It includes the continuation of the deduction of commercial mortgage interest, and continues to treat carried interest as capital gains at a lower tax rate instead of ordinary income. However, it extends the period of time for holding the investment from one to three years before the lower capital gains tax can apply.
Citing the cut to the corporate tax rate and other benefits to businesses, Bisacquino said, “A landlord cannot do better than his or her tenants. Corporate America needs to prosper for commercial real estate to prosper. So if the tax bill is good for corporate America, it should have a very positive effect on the demand for our space.”
Funding for infrastructure will continue to be NAIOP’s top policy focus at the national level and in New Jersey. “We are working this issue hard going forward, along with priorities such as environmental energy efficiency rules and capital credit availability,” said Bisacquino. “Commercial real estate is a powerful economic engine, building communities, creating jobs and advancing the economy. Congress must ensure capital and credit markets meet the current and future needs of the industry.”
Demographics, Globalization, Recession are Key Change-Makers
Spencer Levy, Americas head of research for CBRE, delivered a dynamic keynote on the outlook for the overall economy in 2018 and how industry, demographic and political trends are likely to impact New Jersey’s commercial real estate markets.
Levy agreed with Bisacquino’s assertion that the new tax law protects CRE interests and provides a significant economic stimulus. “It will increase liquidity by encouraging more capital to come back from overseas, lower the cost of capital by reducing the corporate tax rate, and encourage capital spending by extending bonus depreciation for people for certain capital expenditures,” Levy said.
While the new tax plan is expected to raise taxes for some in the state, Levy believes talent acquisition and retention will have a greater economic impact. “New York and New Jersey were high-cost places for doing business yesterday, and they will be high-cost places to do business tomorrow. That is not going to stop people from coming here. They want live, work and play, and they want the infrastructure. New Jersey has those things in spades.”
Levy predicts that if the tax plan and relaxed financial regulations stimulate growth as expected, it will benefit the industrial, office and multifamily markets. He noted that the diverse mix of industries in New Jersey and influx of overseas capital into the state could help advance the urban-suburban trend, including retail.
“The single most overblown story in real estate last year was that retail is dead. The second most overblown story is that e-commerce killed it,” said Levy. “The number one disruptor of retail isn’t e-commerce, it is demographics. It is changing population patterns and money moving in and out of neighborhoods. The fundamentals are still good in those areas that have good demographics.”
Levy contends that demographics, globalization, jobs and recession are among the greatest change-makers, and that a recession “has an equal chance of happening next year or in four more years. While no one wants a recession, it can be a clearing event that allows the economy to grow again.”
He added that the alternative may be worse. “We are rolling along at 2 percent growth and may never get beyond that. It’s called secular stagnation, and it keeps businesses from spending.” Levy sees the biggest risk factor to the region as a “black swan event” such as a stock market correction, but that would likely be triggered by another major event.
Levy’s overarching message to the commercial real estate community is to be prepared for any eventuality. “In a lower return environment, you make money by lowering your cost of capital as well as looking for cheaper capital partners overseas.”