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ℹ️ IFOM - Interesting Fact of the Month
🔝 TOP STORY - PILOTs (Payment In Lieu of Taxes)
📚 PILOT Education
📰 NEWS - What’s happening in the neighborhood?
📈 💵FINANCE & ECONOMICS - Markets & Rate + Weekly Economic Calendar

IFOM a.k.a. INTERESTING FACT OF THE MONTH

Phil is, well, not that good at his job.

Phil, the groundhog has been waddling out of his burrow at Gobbler’s Knob in Punxsutawney, PA to forecast the seasons on Groundhog Day since 1887. As a CRE owner/operator/investor/developer, if you are feeling like you’re stuck in Groundhog’s Day, it’s probably a good thing that Phil isn’t advising you. So, Just how good is Phil at his job?

It turns out, you’d be a better forecaster if you simply flipped a coin, but what do you really expect from a Groundhog?

Contrary to popular belief, Phil doesn't actually have to see his shadow; he just has to cast one to make his wintry prophecy. Data from the Stormfax Almanac's data shows that Phil's six-week prognostications have been correct about 39% of the time, so less than the odds of flipping a Quarter.

Thankfully, our team is much better at what we do - when we exclusively list a property, those deals transact at 97% of the list price. We appreciate Phil’s dedication to forecasting over the years, but leave the underwriting to us!

Keep on Cash Flowin’

TOP STORY

👨🏼‍✈️Princeton BOE Tells Council to Share PILOT 💰

While there remains a lot of questions surrounding the recent drone activity in Northern New Jersey, those aren’t the kind of Pilots that I am talking about. There is another interesting thing happening in a certain NJ municipality that could have far reaching implications if it were to be adopted. The Princeton BOE is looking for a piece of the PILOT 🥧. This “ask” raises some interesting questions regarding the historical manner in which PILOTs have been used by municipalities to incentivize development. 

The question remains - will anything come of this? and if so, how will it impact other municipalities across the State of New Jersey. We will keep an eye on this for you, but in the meantime please reach out with any questions. Depending on the scale and scope of your project, PILOTs can often be the determining factor on whether a project makes dollars and “sense” to develop/redevelop. If you have questions or would like to discuss how our team can help you - reach out

👨🏼‍✈️ ✈️ So, What is a PILOT anyway? No, not that kind of Pilot.

Definition
The Long-Term Tax Exemption Law, N.J.S.A. 40A:20-1 et seq., authorizes Long Term Tax Exemptions, and was created to help NJ municipalities efficiently and responsibly improve their ratable base and redevelop properties that meet the standard for an Area in Need of Redevelopment.
A PILOT (Payment In Lieu of Taxes) is a financial agreement where a property owner, or a business that benefits from tax exemptions, makes a payment to a local government instead of paying regular property taxes. These payments are often negotiated to help fund local services that benefit the property or the community, such as infrastructure, public safety, and education. PILOT agreements aim to provide some financial support to local governments while still encouraging economic development or preserving the mission of tax-exempt entities.

Purpose
PILOTs (Payment In lieu of Taxes) can be a useful tool to bring new investment to a given municipality and yield benefits to current and future residents. In lieu of paying property taxes on the improvements created by the project, the Developer makes annual service charges known as “payments in lieu of taxes” or “PILOTs” which are based on a percentage of annual rental income generated from the project. As rental income increases, the payments made to the municipality increase.

Who Benefits?
Property owners who receive the PILOT agreement benefit by paying a reduced tax burden, while the municipality gains potential economic advantages from the new development.

When and Why are they Used? 
PILOTs are used to provide an incentive to a Developer to undertake and complete specific projects, sometimes to fulfill a municipality’s affordable housing requirement, to minimize or change the scope of the project from what could be approved, or on a property with environmental problems. They are used in conjunction with areas designated for redevelopment that are underutilized, dilapidated or otherwise meet the standard for an Area in Need of Redevelopment. The Developer must evidence that but for the tax abatement the project would not proceed as designed. Without the use of this tool, the project would not be economically feasible in its current form, yielding an inadequate rate of return. The Developer also benefits by having predictable, stable payments over a long-term period. This stability is often necessary for the Developer to be able to obtain bank financing for the project.

*PSA: Consult your Real Estate attorney and CPA for specific impact to you.
**Pro Tip: Reach out to our team and we can make an introduction to the “right” professionals in our network.

NEWS

What else is happening in your neighborhood?

Union County

🏭 Industrial Outdoor Storage Deal in South Plainfield trades for $33M
An investment group has purchased a nearly nine-acre industrial outdoor storage site in South Plainfield for $33.25 million, represented by NAI James E. Hanson. The buyers, Oliver Street Capital and Bain Capital Real Estate, acquired the property at 115 St. Nicholas Ave. and 115 Skyline Drive from Trans American Trucking Services. Its strategic location near Interstate 287, along with favorable zoning for industrial outdoor storage, made it an appealing investment.

✂️ Cut the Red Tape! Governor Murphy’ s plan to boost housing
While the governor and his allies have big ideas on a “top down” approach to the state’s housing shortage, his ideas are being met with push back from local officials. Senator Troy Singleton’s (D-Burlington proposed legislation includes requiring municipalities to adopt state-approved land use ordinances for ADUs, allowing for mixed-use developments with 20% affordable housing in areas with high vacancy rates, and providing state funding for towns that promote walkable development near transit. Advocates believe these measures could address the state's shortage of approximately 200,000 affordable housing units, but many Republican officials worry about state interference in local planning. Singleton argues that these proposals will equip municipalities to better meet their affordable housing obligations while reducing bureaucratic barriers to homeownership.Time will tell where these policies land.

Middlesex County

🚆 North Brunswick Train Station is on Track
The North Brunswick Train Station project has achieved a significant milestone, reaching 30% design approval and securing a funding agreement with NJ Transit for its final design phase. Managed by the Middlesex County Improvement Authority (MCIA), the project is now approaching 60% design completion, with construction drawings covering essential elements such as the passenger platform, pedestrian bridges, and structural support. The station, part of a larger transit village project on a former Johnson & Johnson property, received $50 million in state funding in 2017 and aims to improve transit access along NJ Transit’s Northeast Corridor.

➕🔢 Miscalculation: East Brunswick Mayor says State got it’s math wrong
East Brunswick, New Jersey Mayor Brad Cohen says state officials made a huge error when they issued affordable housing quotas in October of last year. State law requires towns across the state to deliver what New Jersey considers to be their "fair share" of affordable homes over the next 10 years based on a number of factors, including average income and availability of developable land. For East Brunswick, that number was 314 homes based on an estimate that town officials had 175 acres of developable land at their disposal. But Cohen said the state included protected wetlands and farmland, land that was already being developed, and about 15 acres set aside as open space in one of the country's most densely populated states. In an analysis filed to the state on Jan. 3, East Brunswick's township planner said the real number is actually 44 acres, a significantly smaller number. As a result, Cohen has asked the state to revise the township's affordable housing requirement down to 265 homes.

Outside of The Garden State

🏠 State Farm seeks emergency 22% rate hike in California
State Farm General, California’s largest home insurer, is seeking an emergency rate increase for homeowners following the Los Angeles wildfires last month. If approved, the hike would average a 22% increase for policyholders. The recent wildfires have been one of the most expensive natural disasters the insurance industry has faced in its history. The company warned that further “capital deterioration” as a result of the wildfires could harm its ability to pay out insurance across the board, including customers with a mortgage possibly losing the ability to “use State Farm General insurance on the collateral backing for their mortgage”. State Farm currently insures about 1 million homeowners in the state of California, and also has an additional 2.8m other policies active across the state. While this may seem irrelevant to owners in NJ, the potential impact on Insurance Premiums here could be impacted as carriers look to diversify their risk across geographies and against the potential for more “local” natural disasters like hurricanes.

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ABOUT

Each month we will highlight something relevant and newsworthy to you - the owner, investor, operator, and developer of Multifamily and Mixed use real property in Northern NJ.  You can expect a mix of news and market information that will make you more informed than you were before you read it.  Our goal is to give you something insightful - to increase your knowledge, improve your cash flow, and make it enjoyable to read over a cup of coffee.

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