Newark CRE Growth in 2019: Attorney Anne Babineau Describes Increasing Interest in Opportunity Zones and Industrial Assets

NEWARK, NJ — Anne Babineau leads the statewide multi-disciplinary redevelopment practice at Wilentz, Goldman & Spitzer. She has worked with clients undertaking redevelopment projects throughout New Jersey and has been involved in projects at all stages from redevelopment area designation through project completion, counseling clients on redevelopment plans, designation of redevelopment areas, property acquisition and government approvals. She has negotiated and drafted contracts between redevelopers and public entities for implementation of redevelopment, tax abatement, and financing assistance including loan and grant agreements, and she has handled litigation and appeals in federal and state courts. Babineau will be a featured speaker at CAPRE’s Fifth Annual Newark Commercial Real Estate Summit, so we connected with her to learn more about the latest on the ground in Newark, and why it’s finally hit a critical mass.

CAPRE: Thanks for chatting with us today Anne. Where has your focus been lately in Newark?

Babineau: I’ve been working for one of the largest warehouse logistics facility developers on four different projects in the eastern section of the City, and so I have experience in the Industrial Market in Newark.

In addition, as a former member of the Board of Trustees of the New Jersey Institute of Technology, I continue to serve on an advisory board, providing input to NJIT as they work to implement the City’s Redevelopment Plan in the area around the campus.  Residential and mixed use development will truly create a Gateway between the University and the Broad Street Train Station.

CAPRE: What activity is most exciting to you with regards to industrial real estate?

Babineau: My perception is that Newark has truly appreciated the value of warehouse logistics centers. The City’s geography is such that they’re perfectly situated to provide a very important support for the Port of Newark. With the dredging of the harbor, there’s been a lot of investment to strengthen the Port’s growth.

It has been difficult finding land that can be developed for such warehouse logistics facilities proximate to the Port.  That’s where redevelopment has really become critically important. There is a lot of relatively small parcels of land that must be acquired to provide sites for warehouse logistics centers.  That provides a significant challenge.

CAPRE: What lesson would you impart based on your experience with such challenges?

Babineau: No one likes condemnation, so finding ways to be creative and purposeful with your land acquisition is critical to your success. The area closest to the Port was declared a redevelopment area as long ago as the 1960s. it’s amazing how much of it remains to be redeveloped even today.  The elevation levels and soft soil conditions in that section of the City also present costly obstacles to development.

CAPRE: Let’s switch gears a bit. What about on the mixed use or residential side? What’s driving the pace of commercial real estate activity on that side?

Anne Babineau, Wilentz, Goldman & Spitzer

Babineau: The area of Newark around the Broad Street (Erie Lackawanna) Station has historically not attracted developer interest but now there has started to be an area of significant interest and growth. One example,Verizon’s historic headquarters on Broad Street was a gem, architecturally, yet it had been in one of the tougher Downtown areas. L&M’s redevelopment of that building evidences how the market at that end of Broad Street is now experiencing a rejuvenation.

You know, it makes all of the sense of the world. It’s an easy walk to the station, it’s right along the light rail. But sometimes you have to wait until an area has enough critical mass, before you can change the perception of the area. You’d think that the New Jersey Performing Arts Center would have changed all of that, and it’s been an important part of that change since the early days when we served as counsel to NJPAC during development, but its taken a while for the area to get stronger and stronger as each project that’s come in on that end of town.

CAPRE: So it sounds like that critical mass has arrived.

Babineau: SJP’s idea of taking the Westinghouse Site, a badly contaminated property that is probably a block away from the Broad Street Station, and generating that kind of very siginificant interest in the area – that’s a great example of that market’s strength.

NJIT has been working near that area for 10+ years; they’ve certainly achieved a lot. Their Gateway Project – it’s what its name implies –It’ll be a gateway into the NJIT area from the Broad Street Station, a vitally important transit connection to NYC and to the west as well.

CAPRE: What is unique about Newark, as opposed to some nearby sub-markets?

Babineau: Newark has always been pivotal for the region. It’s a regional hub, so what helps Newark helps a lot of places. When it comes to these incentive programs you read about a lot these past weeks, I think that Newark is a great example of how those programs can move a city forward in a very significant way. One of the warehouse projects I worked on, the tenant brought 800 jobs to Newark. Then you have Panasonic, and you have the Prudential Building, the incentives have been a major help to Newark.

Add to that the leadership of Ras Baraka, and the City Council, and you have a more positive story about Newark than I have ever seen before. The City Council has been supportive on things like tax abatement.  The Mayor and Council have also been doing everything they can to foster local and minority hiring, so that the projects don’t just benefit the people working in the buildings, but the people who build the buildings.  That kind of thing just spreads the strength of Newark to as broad of an audience as possible.

CAPRE: What are you looking forward to about CAPRE’s Fifth Annual Newark Commercial Real Estate Summit?

Babineau: I’m looking forward to talking about the Opportunity Zones. Our Firm has seen a lot of interest from people with capital gains looking for projects in places like Newark where they can invest and avoid taxation on the capital gain as well as taxation on the appreciation of the value of the assets and businesses that are created in the opportunity zones.

CAPRE: Tell us about the latest on that front.

Babineau: Watching the evolution of the investors’ interest in these zones has been pretty fascinating, and Lillian Plata and I will recount in a Ted Talk style our story of watching the development of interest in Opportunity Zones, as well as some lessons learned. The regulations from the IRS has helped to make it more flexible, more manageable to employ the Opportunity Zone benefits. Meeting the requirements are not for everyone. For example holding for ten years is not something that many investors are willing to do.  But with the new regs there’s a better sense of clarity regarding the requirements. It has the potential to unleash many millions of dollars for investments in opportunity zones.

The thing to remember is that projects in these Opportunity Zones are real estate investments – and they have to have the elements of a good investment.  In development sometimes it’s just about location, location, location. But most times in Opportunity Zones, its support from the municipality that is very important in ensuring that the project will pencil. The pro forma continues to be incredibly important.

CAPRE: Indeed. We’ll see you July 18!