South Jersey Commercial Real Estate Today

New Jersey Landlord-Tenant 101: Post-Judgment Issues

Chris Hogan — Sun, 20 Mar 2011 16:30:17 -0500

This will be the last in a series of posts discussing some of the typical questions/issues raised by residential landlords in New Jersey. So far, we’ve touched on pre-tenancy issues, how to handle a security deposit and issues surrounding the eviction process (grounds, notices and defenses). We’ll finish with questions about what happens after judgment for possession is entered for the landlord.

Once a Complaint seeking possession is filed by a landlord, there can only be one of two possible results: possession of the premises stays with the tenant; or, possession is awarded to the landlord. (An award of money damages is not permitted and must be maintained separately.) The first step for a landlord in gaining possession is to secure a “judgment for possession.” A judgment for possession can be entered as follows: upon tenant default; by consent of the parties; following a trial; or, upon tenant breach of a settlement agreement.

Upon tenant default (failure to appear), and with limited exceptions (landlord acquired title from tenant or gave tenant an option to purchase) which first require adequate proofs in open court, judgment for possession may be entered directly by the clerk of the court upon submission of appropriate affidavits from the landlord and landlord’s attorney. A judgment for possession by consent must be written, signed by the parties, presented to the judge for approval and may require judicial review in open court. It also requires appropriate affidavits from the landlord and attorney. A judgment for possession after trial will have addressed all issues covered by the affidavits to the satisfaction of the judge. In a judgment for possession upon tenant breach of a settlement agreement affidavits are also used and the landlord must apply to the court for enforcement.

Here are the most common questions once a judgment for possession has been entered:

POST-JUDGMENT ISSUES

Q: OK, we have the judgment for possession, what now?

A: The next step is to apply for issuance of a “Warrant of Removal” from the Court. A Warrant of Removal is issued to a Superior Court officer (Constable) and is the judicial authority by which the Constable is commanded to remove “all persons” from the premises and put the landlord in full possession thereof. Except when a seasonal tenancy is involved, a Warrant of Removal cannot be issued until 3 business days after entry of the judgment for possession. Once the Warrant is issued by the Court, it must then be served on the tenant by the Constable. The Warrant must include language notifying the tenant of the right to seek to “stay” the eviction. (If granted, a “stay” could be up to 6 months if tenant can show significant hardship because of the unavailability of other dwelling options. On the plus side, to qualify for a "stay" a tenant must cure all rent arrearages, cannot be disorderly or damage the premises and pay rent on time during the “stay.”)

In residential tenancies, a Warrant of Removal cannot be executed until 3 business days after service on the tenant. In other words, even in the best of circumstances it will take at least 8 days from judgment for possession before eviction of residential tenants can be completed. If the landlord fails to apply for the Warrant within 30 days from judgment for possession or if the Warrant is not executed within 30 days from service on the tenant, the landlord will then be required to apply to the Court with written notice to the tenant and seek judicial permission for issuance or execution of the Warrant, as the case may be. In other words, a landlord should not rest on a judgment for possession. Upon executing a Warrant of Removal – i.e., removing the tenants from the premises, if necessary – a Constable may use as much force as necessary.

Q: Can I keep and apply the tenant’s security deposit?

A: Sorry, a landlord must still comply with New Jersey’s Rent Security Deposit Act (Security Deposit Act), N.J.S.A. 46:8-19 to N.J.S.A. 46:8-26, when a tenant is being evicted. Generally, within 30 days after termination of the lease – i.e., when a judgment for possession is awarded -- a landlord must provide a tenant with the following in person or via certified or registered mail: an itemized accounting of the interest earned on the security deposit and the deductions made from same under the lease; and, a sum equal to the security deposit plus accrued interest less any deductions made under the lease. (Different rules apply to displaced tenants and victims of domestic violence.) This rule applies even if the tenant is in default under the lease, but that does not necessarily mean that the landlord has to send a check to the tenant along with the itemized accounting.

Generally, failure to properly handle a tenant’s security deposit within 30 days of lease termination exposes a landlord to damages at double the amount of the deposit wrongfully withheld; emphasis on "wrongfully withheld." So, if a landlord sends an itemized accounting to the tenant within 30 days with deductions equal to or greater in value than the amount of the security deposit, and has lease language and evidence supporting the deductions, the landlord should be safe from any “double damage” claims by the tenant and no security should be returned to the tenant. The important things are to get the written accounting out to the tenant within 30 days (even a few days delay can be costly), to have evidentiary support for all deductions and to return any balance after deductions.

It sounds counter-intuitive, I know, especially in “non payment of rent” cases. The tenant owes the landlord money and the landlord is holding money from the tenant. However, under the law a landlord is holding the security deposit in trust for the tenant. In other words, it is still technically the tenant’s property. The temptation may be to hold onto the deposit and apply it to unpaid rent but the better move would be to comply with the requirements of the Security Deposit Act. If you comply with the Act and have grounds for keeping the entire deposit, have at it. However, if you are required to return some or all of the deposit to the tenant under the Act, than do so. Either way, consider suing the tenant for monetary damages caused by the tenant’s default, including any unpaid rent.

Q: The tenant’s gone but left a bunch of property behind. Can I toss it?

A: Maybe, but not so fast. There is still work to be done. A landlord must first comply with New Jersey’s Abandoned Property Act, N.J.S.A. 2A:18-72, et seq. Under the Abandoned Property Act, after proper notice, a landlord may dispose of tangible goods, chattels, manufactured or mobile homes or other personal property (except for motor vehicles) left upon the premises by a tenant only if the landlord reasonably believes that the tenant left the property with no intention of reclaiming the property and a warrant of removal has been executed or the tenant has provided written notice that s/he is voluntarily giving up possession of the premises.

Before getting rid of the tenant’s abandoned property, a landlord must first give written notice to the tenant by certified/RRR or receipted first class mail. The notice should be sent to tenant’s last-known address, even if the rental premises in question, and any known alternative addresses with a “Please Forward” endorsement on the envelope. (There are additional notices required if we’re talking about a manufactured or mobile home.) The notice must include the following: a demand for removal of the property by a specific date which cannot be more than 33 days after the mailing date (different notice periods for manufactured or mobile home); notice that if the property is not removed in a timely manner the landlord may dispose of the property by sale and/or destruction; and, notice that if the tenant claims the property in a timely manner the landlord must make it available without requiring the tenant to pay any unpaid rent. After providing notice to the tenant, and except for perishable food and pets, a landlord must store all other property in a safe place and exercise reasonable care over it but is entitled to reasonable storage charges and costs incidental to storage.

If no response is received from the tenant, than the property is conclusively presumed to be abandoned. If the tenant responds to the notice – in writing or orally – before the deadline indicating that s/he intends to reclaim the property in a timely manner but then fails to do so, abandonment will not be presumed until the deadline or 15 days from the tenant response, whichever is later. Once the property is conclusively presumed to be abandoned – i.e., the landlord has jumped through the above hoops concerning notice to the tenant – than and only than may the landlord dispose of the property by sale, destruction or a combination of both. A landlord may deduct from any sale proceeds the reasonable costs of notice, storage and sale as well as any unpaid rent or charges not covered by the security deposit. After deducting those amounts, any remaining proceeds must be sent to the tenant along with an itemized accounting. If the tenant cannot be found after due diligence, than any remaining proceeds must be deposited with the Court and, if not claimed w/in 10 years, then goes to the State.

If the tenant actually shows up to reclaim the property in a timely manner, s/he is expected to reimburse the landlord for the reasonable cost of storage, including transferring the property to storage, and the landlord is only liable for damage to the property caused by landlord’s deliberate or negligent act or omission.

Good faith compliance with the Act constitutes a complete defense to any tenant action for loss or damage to property disposed of by the landlord. If a landlord fails to comply with the Act, the tenant cannot be held liable for payment of any storage or removal costs and the landlord could be held liable for up to twice the actual damages sustained by the tenant.

New Jersey Landlord-Tenant 101: Evictions -- Defenses

Chris Hogan — Sun, 13 Mar 2011 15:59:36 -0500

EVICTION ISSUES -- DEFENSES

One last post concerning the issue of residential evictions in New Jersey. So far, we’ve covered the grounds for eviction of a residential tenant and the various noticesthat are required in connection with same. Those posts turned out to be lengthier than originally anticipated, which just go to show that there are numerous “moving parts” to the landlord-tenant relationship, especially when it comes to evictions. In this post, we’ll touch on some of the standard defenses to an eviction action and in the next, and last, post in this series, we’ll highlight some post-eviction issues.

Here’s the question I get a lot from residential landlords, when I tell them that eviction might not be possible: “The tenant did or did not do “X.” What do you mean I can’t evict them?” This question usually comes after we’ve walked through the entire case. Unfortunately, sometimes, even when a tenant is “behaving badly” under the lease, there may be one or more things the tenant can point to which enables them to avoid eviction. Here are some of the defenses available to residential tenants:

Bankruptcy: the filing of a bankruptcy petition stays an eviction case unless judgment for possession was already awarded or the eviction filing is based on recent “endangerment” or “illegal use of controlled substances” in or about the premises. Even if those circumstances apply, a landlord still has to seek permission from the bankruptcy court to move forward.
Non-compliance with the Landlord Registration Act: if the landlord has not complied with this Act, the Court has no jurisdiction and no judgment for possession can be entered against the tenant.
Non-compliance with the Security Deposit Act: failure to comply with the notice requirements of this Act could allow a tenant to apply the security deposit to rent owed and thereby defeat a “non-payment” case.
Habitability: the issue of habitability can be raised as a defense to a “non-payment” case by showing that the tenant is entitled to an abatement or offset of rent for landlord’s breach of the warranty of habitability. All leases of residential premises in New Jersey include an implied warranty of habitability. The landlord warrants in part that there are no latent defects to the premises’ “vital facilities” and that the vital facilities will remain in usable condition during the entire lease term. To advance this defense, the tenant must have provided the landlord with timely and adequate notice with an opportunity to repair and the item of disrepair must directly affect the habitability of the premises. If the repairs are not done after notice to the landlord, the tenant may make the repairs and deduct expenses from future rents. If the landlord then pursues eviction based on non-payment of rent, the tenant in response can argue that s/he is entitled to offset, abatement or rebate. (This is generally referred to as a “Marini defense” based on the 1970 case from which it originated.)
Waiver: allowing a lease to renew and/or acceptance of rent by a landlord withknowledge of a breach of the lease may constitute waiver of all past breaches.
Retaliation: generally, N.J.S.A. 2A: 42-10.10 prohibits a landlord subject to the Anti-Eviction Act from filing for eviction or substantially altering a tenant’s lease in retaliation for any of the following tenant activity: seeking to enforce rights under the lease or the laws of New Jersey or the U.S.; seeking to remedy a landlord’s alleged violation of any health or safety law or regulation; or seeking to organize a lawful organization, e.g., a tenant organization. If any such actions are taken w/in 90 days of tenant activity, a rebuttable presumption that the landlord’s action is retaliatory is established.
Unconscionability: this defense usually comes up in connection w/ a rent increase. If the premises is subject to a rent control ordinance make sure any rent increase is done in compliance with same.
Failure to provide relocation assistance under N.J.S.A. 2A:18-61.1(g): if alandlord is forced to permanently board up or demolish the premises due to housing code violations which are economically unfeasible to correct, relocation assistance under N.J.S.A. 52:31B-1 must be provided before any Warrant for Possession will be issued.
Absence of timely or adequate notice to the tenant: as discussed at length in an earlier post, virtually all but one grounds for eviction (non-payment of rent) require some form of advance notice to the tenant before filing for eviction. If a landlord fails to comply with the applicable notice requirements, than the court has no jurisdiction and eviction will not be granted.
Payment of Rent: last, but certainly not least, payment of rent due and owing is a “defense” to an eviction case which is oftentimes welcome by a landlord. Payment of rent will result in dismissal of the case.

The next post and last post in this current series will discuss certain post-eviction issues faced by landlords.

New Jersey Landlord-Tenant 101: Evictions -- Notices

Chris Hogan — Wed, 09 Mar 2011 17:03:26 -0500

EVICTION ISSUES -- NOTICES

I’d like to continue talking about some of the issues that flow from the question of whether a tenant can be evicted. As discussed in the last post to this series, to answer that question we must first determine which eviction statute applies and whether the circumstances at hand qualify as grounds for eviction under that statute. Once we know if there is a statutory basis for eviction, we then have to determine if the tenant was entitled to any notice under the applicable statute before filing for eviction, if notice was required was it sent in a proper and timely manner and if the tenant has any viable defenses to eviction. In today’s post, we’ll pick up with the various notice requirements before a landlord can file for eviction.

As discussed earlier, in New Jersey there are two statutes under which a landlord can file to evict a tenant. To figure out which statute is applicable and, by extension, which notice requirements apply, we first have to determine where the owner of the property lives and the number of units available for rent.

Generally, the Summary Dispossess Act (“SDA”), N.J.S.A. 2A:18-53, et seq., applies to commercial tenancies, hotels/motels/guest houses renting to a transient guest or seasonal tenant and residential tenancies where the owner lives on the property and there are 2 or fewer units available for rent (think duplex or triplex with the owner living in a unit or an owner-occupied house with the garage lawfully converted to 1-2 rental units).

The Anti-Eviction Act (AEA), N.J.S.A. 2A:18-61.1, et seq., applies to all other residential tenancies in New Jersey. It covers single-family homes to 500-unit apartment complexes and everything in between. It is fair to say that the AEA covers over 90% of the residential tenancies in New Jersey.

There are generally 3 different types of notice, but not all apply to each of the grounds for eviction:

A Notice to Cease is a warning to the tenant to change his/her evil ways and fly straight. It is required only under certain grounds for eviction found in the Anti-Eviction Act. The AEA does not specify how a Notice to Cease should be served but, as a general rule, I recommend service of all notices personally or by certified/RRR and regular mail.
A Notice to Quit informs the tenant that the tenancy will be terminated under the eviction grounds at issue and, practically speaking, is required under all grounds for eviction except non-payment of rent. Under the SDA, a Notice to Quit technically must be served personally upon the tenant or upon a family member above the age of 14; in other words, service by mail is technically not an option. However, sending the Notice by certified mail might suffice if signed for by the tenant or a family member older than 14. Under the AEA, service of Notice to Quit may be done personally or by certified/regular mail.
A Demand for Possession is the final type of notice required and must provide the actual date by which the tenant must return possession of the unit to the landlord. Like the Notice to Quit, as a practical matter a Demand for Possession should be served in all cases except non-payment of rent. For purposes of service, a Demand for Possession is oftentimes combined with the Notice to Quit but, make no mistake, they are not one and the same. If you plan to combine a Notice to Quit and a Demand for Possession into one notice, you best make sure the requirements of both are satisfied.

As a general rule, all notices to tenants should be in writing and provide sufficient detail, especially as to the offending behavior and/or grounds for eviction. Most statutory provisions require it and it is just smart business in any event. The court prefers things in writing and the more detail the better.

The type and timing of the required notice to the tenant will depend on the particular grounds for eviction being prosecuted. Here is a summary of the notice requirements under the Summary Dispossess Act (“SDA”), N.J.S.A. 2A:18-53, et seq.:

Here is a summary of the notice requirements under the Anti-Eviction Act (AEA), N.J.S.A. 2A:18-61.1, et seq.: (Sorry if this Table is blurry, as this is my first time working w/ images of this size in a post. Please contact me office if you would like a clearer copy.)

Why is the issue of “notice” important: because failure to comply with the applicable notice requirements will deprive the court of jurisdiction. In other words, failure to provide timely/adequate notice to the tenant will likely result in dismissal of the eviction suit.

The next post in this series will discuss typical defenses to an eviction action.

New Jersey Landlord-Tenant 101: Eviction Issues -- Grounds

Chris Hogan — Mon, 28 Feb 2011 17:44:18 -0500

I’d like to jump back in to a series of blog posts touching on some of the residential “tenancy” questions that often come from New Jersey landlord clients. We’ll probably revisit this "New Jersey Landlord-Tenant 101" series periodically moving forward but, for right now, I want to finish up with some issues/questions related to the following topics: “pre-tenancy” concerns; how should a tenant’s security deposit be handled; how and when can a tenant be evicted, and what should be done with a tenant’s property after eviction.

So far, we’ve covered some basic questions concerning “pre-tenancy” issues and how to handle a residential security deposit. Now, I’d like to touch on some very basic residential eviction issues in a 2-parter.

EVICTION ISSUES – Grounds for Eviction

Q: The tenant did or did not do “X.” Can I evict him/her?

A: The short answer is: it depends. Generally speaking, it depends on which eviction statute applies, whether proper and timely notice was provided to the tenant and whether the tenant has any viable defenses to eviction. As to which eviction statute applies:

As a preliminary matter, please remember that “self-help” is never available when dealing with a residential eviction. A complaint seeking eviction must always be filed with the Court, permission granted and all Court Rules followed before a residential tenant can be evicted. In New Jersey, there are two statutes under which a landlord can file to evict a tenant and the permissible grounds for eviction differ under each. To figure out which statute applies, we first have to determine where the owner of the property lives and the number of units available for rent.

The Anti-Eviction Act (AEA), N.J.S.A. 2A:18-61.1, et seq., applies to all other residential tenancies in New Jersey. It covers single-family homes to 1000-unit apartment complexes and everything in between. It is fair to say that the AEA covers over 90% of the residential tenancies in New Jersey.

Here is a summary of the permissible grounds for eviction under the Summary Dispossess Act:

When a tenant “holds over” in the rental unit after expiration of the lease term. (It is important to note that in this case no “cause” is needed to justify the eviction. If covered by the SDA, and subject to timely/adequate notice, the mere fact that the tenant remains in possession past the established end of the lease term is sufficient. This is in direct contrast with the AEA, which expressly requires “good cause” for evicting a tenant.)
When a tenant remains in possession of the unit after failing to pay rent that is due and owing to the landlord.
When a tenant is so disorderly as to destroy the peace and quiet of the landlord, other tenants or the neighborhood. (Subject to timely/adequate notice.)
When a tenant willfully destroys, damages or injures the property. (Subject to timely/adequate notice. Willful destruction is tough case to make.)
When a tenant constantly violates the landlord’s rules and regulations; provided that the tenant accepted them in writing or they were made part of the lease. (Subject to timely/adequate notice.)
When a tenant otherwise breaches the lease; provided that the landlord has reserved a “right of reentry” in the lease for the breach in question. (Subject to timely/adequate notice.

By contrast, the Anti-Eviction Act requires “good cause” for eviction and specifies 18 grounds for same. In short, unless and until a tenant’s actions or circumstances fit within one or more of the specified grounds for eviction in the AEA, s/he cannot be evicted and has a virtual lifetime lease to the unit. That is why it is so important to address problematic tenants head-on when the opportunity presents itseld. Here is a quick summary of the permissible grounds for eviction under the Anti-Eviction Act without reference to the various “notice” requirements:

Tenant fails to pay rent due and owing.
Tenant is disorderly, destroying peace and quiet.
Tenant willfully or grossly negligent in destruction of the premises.
Tenant substantially breaches landlord’s rules/regulations.
Tenant substantially violates the lease agreement; provided that a “right of reentry” is reserved.
Tenant substantially violates a public housing lease provision prohibiting illegal use of drugs or other illegal activities.
Tenant fails to pay rent after reasonable increase.
Landlord must abate housing or health code violations.
Landlord seeking to permanently retire building or Mobile Home Park from residential housing market.
Tenant refuses to accept reasonable lease changes at end of term.
Tenant habitually makes late payment of rent.
Landlord seeking to convert property to condominium or cooperative.
Landlord of a building or Mobile Home Park -- constructed as or being converted to condominium, cooperative or fee simple ownership -- seeking to personally occupy unit or sell it to person who intends to personally occupy it.
Tenant’s occupancy of unit is conditioned upon employment by landlord and employment is terminated.
Tenant is convicted for drug use, possession, manufacture, etc.
Tenant is convicted for assault/threats against landlord, landlord’s family or employee.
Landlord can prove by a preponderance of the evidence that the tenant is liable for theft, assault/threats or drug use, possession, etc. (No conviction required.)
Tenant convicted of theft from landlord, the premises or another tenant.

Remember: evictions can be very fact-driven situations – with a lot of “she said/she said” – so it is important to document the grounds for eviction when they occur and send the proper notices. If you have a potential eviction situation, I’m always happy to kick it around.

The next post in this series will finish up with eviction issues. We’ll tackle notices and potential defenses to eviction.

2011 New Jersey Property Tax Appeals: Things to Know

Chris Hogan — Wed, 23 Feb 2011 15:34:30 -0500

February 1^st has passed. By now, if you own or manage commercial real estate in New Jersey you should have received a Notice of Assessment (green card) for each property from your municipality’s tax assessor. How do you feel about the assessment? My guess: not good.

The deadline for filing a property tax appeal is April 1, 2011 (unless a revaluation is taking place, in which case it is May 1, 2011). Hopefully, you have already decided whether to pursue a property tax appeal for one or more properties. If not, there is still time, but you should not delay any further. Here are some things to consider:

Did you know that it is the amount of the assessment, not the amount of taxes, which is the subject of the appeal?
Did you know that the 2011 assessment is supposed to reflect the fair market value of the property as of October 1, 2010?
Are taxes paid in full on the property through Q1 of 2011? Failure to pay taxes through Q1 of 2011 will result in dismissal of an appeal.
If you received a request for I/E information on the property from the municipality, did you complete it in full and return it within 45 days of receipt? If not, any tax appeal will likely be subject to a motion to dismiss which is difficult to overcome. (Please see my related post on Chapter 91.)
Do any of the following circumstances apply to your property: the assessor has overvalued new construction or renovation; there has been a revaluation or other change in the assessment by the assessor; a partial taking of the property by way of eminent domain; denial of an application to the planning board or board of adjustment; partial destruction of the property; a flaw in the structure, materials, or design that diminishes the function, utility, and value of the property, e.g., inefficient floor plan, inadequate parking (functional obsolescence).
Did you know that the threshold assessment amount for direct appeal to the Tax Court was raised to $1M from $750,000.00? If your assessment is below $1M, make sure that it is headed to the County Tax Board, not the Tax Court, with notice to the municipality and the assessor.
Do you know the “Equalized Value” of your property? Hint: it may not be the assessment amount on the Notice of Assessment. (Please seem my related post on the importance of Equalized Value when weighing a property tax appeal.)
Did you know that New Jersey’s real property tax laws provide assessors with a margin for error when establishing assessments? Generally speaking, assessments are deemed valid when the property’s fair market value (FMV) falls within a corridor which ranges between 85% of the property’s Equalized Value and 115% of the property’s Equalized Value. This corridor is also known as the Common Level Range.

For example, in Linwood, NJ, a 2011 assessment on a property that had a FMV of $1M as of 10/1/10 will generally be sustained if the assessment is between $752,675.00 [$1M x (65.45% x 115%)] and $556,325.00 (1M x [65.45% x 85%)]. An assessment above $752,675.00 would be reduced to $654,500.00 (1M x 65.45%). Likewise, an assessment below $556,325.00 would be increased to $654,500.00 (not what we're looking for).

Here's another way to look at Common Level Range: Linwood's Average Ratio for 2011 is 65.45%, making its Common Level Range 55.63% (Lower) to 75.27% (Upper). If the ratio of the property's assessment to FMV(Assessment/FMV) results in a percentage above 75.27%, than the assessment should be reduced; if the percentage falls between 55.63% and 75.27%, it will not be changed; and, if it falls below 55.63% it will be increased.

WARNING: obviously, an appeal would not be recommended where the assessment is currently below the Lower Level of the town's Common Level Range. You would just be inviting a cross-appeal from the town and an increase in your taxes.

BOTTOM LINE: with vacancies and rents showing little improvement in 2010, the time may still be right to appeal the current assessment on a property. A reduced assessment will result in reduced taxes, thereby decreasing expenses, and making the property more attractive if on the market for sale. However, as highlighted above, NJ’s real property tax appeal laws are complicated. Moreover, given NJ’s current budget fiasco and ongoing cuts in aid to municipalities, it is fair to assume that many local tax rates are going to go up further and that the municipalities are going to fight tooth and nail for every penny of tax revenue. If you are going to challenge the assessment on a property, make sure that you do it with an experienced appraiser and attorney by your side.

Don't Let Chapter 91 Stop Your NJ Property Tax Appeal

Chris Hogan — Sat, 12 Feb 2011 17:43:58 -0500

With property values still too low and most assessments still too high, many NJ property owners are justifiably weighing the merits of a property tax appeal. For owners of commercial real estate, one important question to ask is whether you are compliant with “Chapter 91” of the New Jersey Statutes concerning assessment of real estate. You may not be familiar with “Chapter 91,” but trust me when I tell you that non-compliance can stop a NJ property tax appeal dead in its tracks. I’ll explain how and what to do below, but first a brief overview:

Chapter 91, codified at N.J.S.A 54:4-34, is the section of the statutes that allows assessors to serve owners of income-producing property with a request for a report on income from the property (an “I/E Report”). The purpose of Chapter 91 is to afford assessors access to financial information that can theoretically help them get the assessment of the property right the first time and thereby avoid litigation. The assessor must comply with certain statutory requirements when sending the request to the property owner, which will be discussed below. A request for an I/E Report is sent at an assessor’s discretion but must be timely, so that the assessor can use the information by January 10th in setting the assessment for the upcoming tax year. (The requests are typically sent out during the summer or early fall of the pre-tax year.) Once served with a request for an I/E Report, an owner has 45 days in which to file a response.

Here’s the kicker: IF A PROPERTY OWNER FAILS OR REFUSES TO RESPOND TO A REQUEST FOR AN I/E REPORT WITHIN 45 DAYS, THE OWNER IS PROHIBITED FROM PURSUING AN APPEAL OF THE PROPERTY’S ASSESSMENT. In other words, any appeal filed by an owner who is non-compliant with Chapter 91 will be subject to dismissal w/o any hearing on the merits. The draconian nature of this sanction and its strict enforcement cannot be over-stated. Even if the owner’s response is only a couple of days late, the property is not currently producing income, the income is minimal and ancillary, the request is believed to be illegal, the owner only recently purchased the property or a timely but incomplete response is filed, the appeal is barred, no ifs, ands or buts, if a response is not filed w/in 45 days. An owner cannot “cure” non-compliance with Chapter 91 and municipalities usually move quickly to file a motion to dismiss.

Given the harsh impact, one would think that property owners would never fail to respond to a request for an I/E Report w/in 45 days, but it happens more than you might think. Some owners simply refuse to reply or ignore it b/c a property tax appeal is not being considered at the time. Sometimes the request is filed away for later attention and simply forgotten or it takes too long to get in front of the “right” person. Some owners don’t think that the property qualifies as “income-producing” or otherwise objects to the request. (Even if you object to the request, a timely response setting forth the objection and, if appropriate, providing non-objectionable information, should be filed.)

So, what should a property owner do if faced with a motion to dismiss for non-compliance w/ Chapter 91? Well, for one thing, don’t concede the motion until the following potential defenses are fully investigated:

Was the request for an I/E Report sent in writing via certified mail, as Chapter 91 specifically requires an assessor to do? [Warning: if an assessor sends the request via certified and regular mail, the certified goes unclaimed but the regular mail is not returned, notice to the owner is presumed if the regular mail was properly handled including postage and addresses, so a “lack of notice” defense in that case won’t fly.]
Did the request include a copy of Chapter 91? This is also mandatory w/ the burden of proof on the assessor. Failure to include a copy of the statute makes it inapplicable -- i.e., non-compliance cannot defeat an appeal -- b/c an owner must be properly notified of the consequences of failing to respond.
Does the request explain in clear and unequivocal language what information is being sought and the consequences for failing to respond? [See above.]
Was the request timely so that the owner has a full 45 days to respond and the assessor can use the information for the upcoming tax year, i.e., by January 10^th?
Was the property never income-producing? If the property was income-producing at one time, a response should be filed even if just to notify the assessor that it is no longer income-producing. Even if the property was never income-producing, to be safe, a response indicating as much should be filed.
If a response indicating that the owner is unable to answer the request was filed in a timely manner, is there “good cause” to justify why the owner cannot supply the information w/in 45 days? {There is a limited "good cause" defense to non-compliance, but it is limited and tough to meet.]

If none of the above defenses are available, a non-compliant owner can always hope that the municipality fails to file a timely motion to dismiss or, it can pursue a “reasonableness” hearing which is a limited, an unattractive option (no ability to challenge the assessment) and something to be discussed some other time.

MORAL: if you own commercial real estate and receive a request for an I/E Report from the assessor, don’t ignore it or forget it. File a timely response -- even if the property is owner-occupied or not currently income-producing -- keeping a copy for your records and sending it directly to the assessor via certified and regular mail. If the information is available, provide it; it can’t hurt. If the information is not available, explain why. If the request is objectionable, explain why. This way, you preserve your right to file a property tax appeal. Better safe than sorry.

New Jersey Landlord-Tenant 101: Security Deposit Issues

Chris Hogan — Thu, 20 Jan 2011 13:38:54 -0500

I am periodically contacted by New Jersey landlords with what I call “tenancy” questions concerning a current or prospective residential tenant, e.g., what happens if the Landlord Registration Statement was not properly filed/served/posted, how should a tenant’s security deposit be handled, can this or that tenant be evicted, and what should be done with a tenant’s property after eviction. I am always happy to add my two cents, as making informed decisions can help a landlord to maximize the value of their property. I thought it might be helpful to cover some (not all) of the basic questions and related topics in a series of blog posts. In the first post, we talked about some of the pre-tenancy issues that come up. Today, we’ll talk about security deposit issues.

SECURITY DEPOSIT ISSUES

Q: When must a landlord comply with New Jersey’s Rent Security Deposit Act (Security Deposit Act), N.J.S.A. 46:8-19 to N.J.S.A. 46:8-26?

A: The Security Deposit Act applies to all residential landlords except for owner-occupied premises with not more than 2 rental units. BUT: even residential tenants generally not covered by the Act -- i.e., owner living on-site with no more than 2 rental units – can invoke the provisions of the Act with 30 days notice to the landlord, so pretty much any landlord in NJ could be subjected to it.

Q: How much can be held as a security deposit?

A: A residential landlord cannot hold more than 1½ times the monthly rent as security. Obviously, there is little sense in holding less than the maximum amount permissible. Upon any annual rent increase, a landlord cannot ask for more than 10% of the existing deposit as additional security. A refundable “pet deposit” is considered part of the security deposit when calculating whether a landlord is holding security in excess of the maximum permissible amount.

Q: How must a security deposit be handled under the Security Deposit Act?

A: Security deposits must be maintained in NJ-based financial institutions. A landlord handling 10+ units is required to place a tenant’s security deposit in either an insured money market fund or a federally insured bank account with interest set at least quarterly and payable at a rate equal to the average rate of interest paid by the bank or fund on similar money market accounts. A landlord handling less then 10 units is required to place a tenant’s security deposit in a federally-insured bank account with interest payable at a rate equal to the bank’s savings account. A landlord may place all security deposits in one account so long as the landlord complies with all other requirements of the Security Deposit Act (notice, etc.). A landlord handling units for “seasonal use or rental” (no more than 125 consecutive days for residential purposes by person having permanent residence elsewhere) does not have to place security deposits in a money market fund or bank account.

It is important to remember that all interest earned on the security deposit now belongs to the tenant (2004 law change) and that the interest must be paid to the tenant or credited toward payment of rent due on an annual basis (either lease anniversary or January 31).

It is also important to remember that no deductions may be made from the security deposit of a tenant while the tenant remains in possession of the rental unit. In other words, a landlord is not permitted to apply the security deposit against unpaid rent or damages while the tenant is still living in the unit. In contrast, a tenant is permitted to apply the security against unpaid rent if the landlord is non-compliant with the Act. (See below.)

Q: What notices must be provided to a tenant and when?

A: A landlord must give each tenant supplying the security deposit with the following written notice: the name and address of the investment company (money market fund) or bank holding the security deposit; the type of account; the current rate of interest; and the amount of the deposit. A landlord must provide this notice as follows:

Within 30 days of receipt of the deposit from the tenant.
Within 30 days of moving the deposit from one bank or investment company to another or one account to another, unless change in bank or account occurs less than 60 days from the annual interest payment in which case the change notice can be provided with the notice accompanying the annual interest payment (see below). In the case of a bank or company merger, the landlord has to provide the required notice to the tenant within 30 days of notice of the merger.
At the time of each annual interest payment.
Within 30 days after transfer or conveyance of ownership or control of the rental property.

Q: What happens if the required notices under the Act are not provided?

A: If a landlord fails to provide the notice(s) required under the Security Deposit Act, a tenant can provide the landlord with written notice that the security plus an amount representing interest at 7% annually should be applied on account of unpaid rent. In addition, the tenant is not required to make any further security deposit and the landlord is not permitted to make any further demands for additional security. The same relief is available to a tenant if a landlord fails to invest/deposit the security or to pay/allocate the interest to the tenant. In other words, if a landlord fails to handle the security as required by the Act, the tenant can apply the security to unpaid rent and the landlord cannot replace it. A landlord is given a small reprieve against this dramatic relief: if a landlord fails to pay the annual interest or provide the annual notice (see above), a tenant must first give the landlord written notice and 30 days to comply before the security can be applied against unpaid rent.

Q: How should a security deposit be handled when a tenant leaves the unit?

A: Generally, within 30 days after termination of the lease, a landlord must provide a tenant with the following in person or via certified or registered mail: an itemized accounting of the interest earned on the security deposit and the deductions made from same under the lease; and, a sum equal to the security deposit plus accrued interest less any deductions made under the lease. (Different rules apply to displaced tenants and victims of domestic violence.) This rule applies even if the tenant is in default under the lease. In other words, even if a landlord believes that a tenant has defaulted under the lease, the landlord must still comply with the above requirements, but that does not necessarily mean that the landlord has to send a check to the tenant along with the itemized accounting. (See below.)

Q: What happens if a security deposit is improperly handled when a tenant leaves the unit?

A: Generally, failure to properly handle a tenant’s security deposit within 30 days of lease termination exposes a landlord to damages at double the amount of the deposit wrongfully withheld. For landlords, the emphasis should be on “wrongfully withheld.” In other words, the tenant is not necessarily entitled to double the amount of the full security deposit; instead, the tenant is only entitled to double the amount of the security that the landlord was not permitted to hold on to. So, if a landlord sends an itemized accounting to the tenant within 30 days with deductions equal to or greater in value than the amount of the security deposit, and has lease language and evidence supporting the deductions, the landlord should be safe from any “double damage” claims by the tenant and no security should be returnable to the tenant. The important things are to get the written accounting out to the tenant within 30 days (even a few days delay can be costly), to have evidentiary support for all deductions and to return any balance after deductions.

The next post in this series will discuss the various grounds for eviction available to a landlord in New Jersey.

New Jersey Landlord-Tenant 101: Pre-Tenancy Issues

Chris Hogan — Sat, 15 Jan 2011 11:26:45 -0500

I am periodically contacted by New Jersey landlords with what I call “tenancy” questions concerning a current or prospective residential tenant, e.g., "what happens if the Landlord Registration Statement was not properly filed/served/posted," "how should a tenant’s security deposit be handled," "can this tenant be evicted," and "what should be done with a tenant’s property after eviction." I am always happy to add my two cents, as making informed decisions can help a landlord to maximize the value of their property by avoiding costly mistakes. I thought it might be helpful to cover some (not all) of the basic questions and related topics in a series of blog posts. First up: pre-tenancy issues.

PRE-TENANCY ISSUES

Q: Is a written lease required to create a landlord-tenant relationship?

A: Although admittedly rare, an oral “lease” for residential space can be enforceable if it satisfies basic contractual requirements, e.g., offer, acceptance, consideration. As such, it is important for a landlord to be careful when talking with a prospective tenant and accepting deposits. When “oral lease” cases make it to court, the court looks to the intent and actions of the parties. (Keep in mind that one party’s occupancy of real estate owned by another usually but not always creates a landlord-tenant relationship, e.g., sale/lease-back may not qualify as landlord-tenant relationship.) Needless to say, a written lease is preferable and highly recommended.

Q: Does a landlord have an obligation to accept an applicant as a tenant? In other words, is a landlord forced to accept an applicant who just doesn’t “feel” right?

A: A landlord in New Jersey may be as discerning as it wishes when selecting tenants, as long as it does not discriminate based on "race, creed [religious beliefs], color, national origin, ancestry, sex, marital status, domestic partnership status, familial status [children], affectional or sexual orientation, mental and physical disability, nationality, or source of lawful income," according to New Jersey’s Law Against Discrimination. Interestingly, a landlord can screen tenants based on income-levels, but cannot deny tenancy based on the source of the lawful income, e.g., Section 8 assistance. Landlords can and should do background checks and screen for creditworthiness, as long as it is done consistently to all applicants and not as a pretext to deny tenancy based on a discriminatory basis.

Q: Under New Jersey law, is there any information that must be provided to a tenant and what happens if it is not provided?

A: New Jersey statutes require a landlord to provide the following information/notice to a tenant at or around the start of the tenancy:

Under N.J.S.A. 46:8-19, a landlord must provide certain information concerning how and where a tenant’s security deposit is being held within 30 days of receiving the deposit. [New Jersey’s Security Deposit Act will be discussed in greater detail during the next post in this series.]
Under N.J.S.A. 46:8-28, except for 2-unit/owner-occupied rental properties, a landlord is required to file with either the local municipality (1-unit; 2-unit/non-owner occupied) or the Department of Community Affairs (all other cases) what is commonly referred to as a Landlord Registration Statement (a/k/a a Landlord Identity Statement), which generally identifies the owner of the premises, the owner’s local agent, a maintenance contact, an emergency contact, and those holding mortgages on the premises. Under N.J.S.A. 46: 8-29, a copy of the Statement must be provided to a tenant at time of each new tenancy.
Under N.J.S.A. 46:8-39, a landlord with 10 or more units is obligated to provide a tenant with information regarding the availability of crime insurance and the location of applications for same within 30 days of occupancy.
Under N.J.S.A. 46:8-46, a landlord with more than 3 units available must provide a tenant at time of occupancy with a copy of the “Truth in Renting” booklet from the Department of Community Affairs, which generally sets forth the legal rights and responsibilities of tenants and landlords in New Jersey.

Under New Jersey’s Security Deposit Act, failure to provide the required notice in a timely manner enables a tenant to make written application for the security deposit (and interest) to be applied on account of rent due and the landlord cannot demand any additional security deposit. Failure to provide the notice required under the remaining 3 statutes could subject a landlord to liability for civil penalties under New Jersey’s Penalty Enforcement Law as follows: $500.00 (Landlord Registration Statement), $200.00 (notice of crime insurance), and $100.00 (Truth in Renting booklet). In addition, a landlord will not be entitled to a judgment for possession against a tenant unless/until the Landlord Registration Statement is filed/served/posted.

The next post in this series will discuss a landlord’s obligations under New Jersey’s Security Deposit Act.

We welcome all NJ "tenancy" questions!

IREM SNJ 101 Q&A

Chris Hogan — Fri, 10 Dec 2010 15:25:58 -0500

The fine folks at IREM SNJ 101 have been kind enough to allow me to contribute to their newsletter, including a Q&A article for the upcoming newsletter, which I hope will become a regular feature. The initial questions addressed dealt with some of the usual, problematic issues facing managers of commercial real estate: bedbugs; documenting tenant communications; and tenant bankruptcy while in arrears. With thanks to IREM SNJ 101, the questions and answers are repeated below:

Q: With the current epidemic of bedbugs in our environment, is there any way to institute a sharing of expense for extermination inasmuch as it is impossible to determine who/how the bedbug was brought to the office/apartment community?

A: Although landlords have a general obligation under New Jersey law to keep units free from pest infestation, currently there is nothing to prevent a landlord from trying to pass the cost along to tenants. However, that may change. As of December/2010, there is legislation pending in both chambers of the New Jersey legislature (A2935/S275) that would hold the owner of “multiple dwelling” buildings solely responsible for the eradication of bedbugs. Your local municipality may also be considering or have already passed (Jersey City) a local ordinance mandating that landlords solely cover the initial cost of extermination. So, as a preliminary matter, please check state and local law before taking steps to recoup extermination expenses from a tenant.

If there is no state or local legal prohibition, you could provide proper notice and then ask tenants to sign an addendum to the standard lease with language calling for the tenant to contribute his/her fair share if/when extermination is required in the unit. This may prove tough to accomplish with existing tenants, who already occupy the space under a valid lease. Some existing tenants may simply not cooperate while others may feel that it is the landlord’s obligation to maintain the space as pest-free as part of its “habitability” obligations. The question then becomes whether it is worth risking the loss of the tenant over the added fee. It should prove easier to convince new tenants to sign the addendum, but you may be vulnerable to claims sounding in discrimination if all existing tenants are not also subject to the added fee.

If you pursue an addendum, make sure that it specifically describes the dollar amount involved, which should be reasonable, and specifically identifies the payments as “additional rent” so non-payment can be included in any subsequent legal action involving the tenant. The addendum should be used prospectively – i.e., don’t try to recoup exterminator payments incurred before the addendum is signed -- and it should include language establishing the value or benefit the tenant will receive as “consideration” for the additional payment. You are basically trying to increase the amount of rent paid, so be sensitive to applicable federal or local “rent control” ordinances and make sure that the appropriate notices are sent.

Q: What are some acceptable ways of documenting the activity of and communication with residents who are becoming problematic in the community? We can spend all day writing down the “he said/she said” comments. Email? How many ways to send? Phone conversations? Off hand comments of neighbors and their validity?

A: I encourage clients to try to document communication -- good and bad -- with all tenants in some written form, whether it is via letter, email, file memo or change order for work on the unit. This becomes doubly important with problematic tenants who, let’s face it, present a higher risk for litigation. As taxing as it might be, written documentation of the landlord’s version of events can prove crucial during litigation, especially if written at the time of the event and if unrefuted. Judges like written support for a witness’s testimony. It can enhance credibility and help the judge decide the case. A written file should be kept on all tenants (not just the problems) in the regular course of business to help with evidentiary issues. This is a case where an ounce of prevention can truly be worth a pound of cure.

The “he said/she said” stuff, phone calls and neighbor comments can be recorded in memo form, which should be done immediately after the “event” with all parties identified. (Neighbor’s comments may be valid and relevant and should be confirmed with the neighbor and then recorded. However, they may turn out to be hearsay unless the neighbor is willing to testify.) If the issue is of immediate importance and/or you dispute the tenant’s version of events, a brief, objective letter or email should be sent confirming your version of events. Try to ignore personal attacks from the tenant and stick to the facts: who, what when, where, why. (If using email, try to confirm delivery and print a hard copy to the file.) Any notices to quit or cease should be sent by certified/RRR and regular mail to confirm timely receipt.

Q: One of our residents filed for bankruptcy on 10/15. They owed Sept and Oct rent. They haven’t paid November. Can we evict them?

A: Yes, but you will more than likely first have to get permission from bankruptcy court and may have to wait to see if the tenant “assumes” the lease. When a tenant files a valid bankruptcy petition, the tenant is protected by the “automatic stay” provisions of the Bankruptcy Code which generally prohibit any further legal action against the tenant unless the court authorizes it. In other words, once the tenant filed, you now have to get permission from the bankruptcy court to file for eviction. There are two exceptions to the “stay” for residential evictions -- having a judgment for possession already in hand or evicting based on property endangerment or use of controlled substances – but consider getting court permission even under those circumstances.) You could ask the court to lift the “stay” so you can file for eviction based on unpaid rent to date, but the court is unlikely to do so until the assigned bankruptcy trustee decides whether to “assume” or “reject” the lease.

The trustee’s job among other things is to decide whether to “assume” or “reject” the lease. The time period in which the decision is made varies depending on whether the petition was filed under Chapter 7 (liquidation) or Chapter 13 (individual reorganization), but the trustee eventually has to decide, even if by failing to act by a certain deadline, and the landlord can try to force a prompt trustee decision, which is crucial if the tenant is not paying rent and/or a new tenant is available. When the trustee decides to “assume” (continue under) a residential lease, among other things the tenant must cure any rent arrearages, or provide assurances as to prompt cure, and provide assurances that they will stay current on rent. So, if the trustee “assumes” the lease, then current grounds for non-payment eviction should theoretically become moot. When the lease is “rejected,” the lease is automatically deemed to have been breached, even if rent is current. At that point, the landlord can ask the bankruptcy court to lift the “automatic stay” so that it can file for eviction in state court. So, too, if a tenant fails to pay post-petition rent or falls behind after assuming the lease, the landlord can ask that the “stay” be lifted for an eviction action. (Under Chapter 7 “no asset” cases, the trustee almost always rejects the lease. Under Chapter 13 cases, the trustee is more likely to assume the lease, if there are assets to cure and a benefit to the tenant in staying in the lease, e.g., proximity to work.)

Google Can See Through Walls

Chris Hogan — Sun, 21 Nov 2010 14:59:02 -0500

I want to pass along a post from The Source about Google apparently ramping up efforts to provide interior shots of commercial properties in certain markets. (As noted by Lani Rosales at Agent Genius, Google put this idea out to the market several months ago, but Google floats alot of ideas; now, it seems like Google is actually making it happen.)

Google describes the interior shots as "Business Photos" which will appear in a business' Place Page. According to the FAQ for Business Photos, Google is currently looking for interior shots of "restaurants, hotels, retail shops, and other storefront businesses" and businesses can upload their own photos if they're not in a market where Google is currently taking photos. (Sorry, lawyers, doctors and "chain" restaurants, Google is currently not interested.)

Needless to say, I think this is a wonderful development, and the key for me is that any business can upload interior photo shots to its Place Page. (You don't have to wait for Google to come to your neck of the woods.) If you are a manager or owner of retail, mixed-use or even multi-family space (model apartments/condo's), where's the bad in uploading some quality interior shots to flesh out and better describe the space available? Some may argue that you could lose some visits from prospective tenants, but I look at it the other way: quality photos could be the hook that convinces a "fence-sitter" in your target market to visit the property; plus, if interior photos drive them away from the space, they probably weren't a "keeper" anyway.

I look forward to seeing some interior shots from some properties in South Jersey.

CRE Lenders Loosening Purse Strings?

Chris Hogan — Sat, 13 Nov 2010 15:59:08 -0500

Is it just me or has the Internet recently been awash with articles proclaiming that good things are starting to happen with commercial real estate? OK, maybe it's just me, but it sure seems like more and more people along the front lines are seeing some light at the end of the tunnel. Here are a few examples:

Here's a post from Retail Traffic about the some increase in liquidity for retail assets despite some concern about lagging fundamentals. There's a nice overview about the factors contributing to the increased liquidity. Take away: asset quality is still king.
According to Speaking of Real Estate, NAR Chief Economist Lawrence Yun is slightly less enthusiastic about the credit market, but still sees good things for CRE in 2011. Take away: according to Yun, lenders, at some point, “...must get back into the business for which they were created, and that’s making loans.”
Finally, here's an article from the Wall Street Journal Real Estate section about how the recent election results should prove to be a boon for commercial real estate investment. Take away: politics matters.

I hope somebody lets the lenders of South Jersey know that things are looking up.

Let's make some deals!

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

Chris Hogan — Sat, 09 Oct 2010 15:59:25 -0500

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?

Chris Hogan — Fri, 01 Oct 2010 09:40:10 -0500

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.

Asbury Park vs. Atlantic City: Unfair to Compare?

Chris Hogan — Fri, 24 Sep 2010 16:25:06 -0500

What do Asbury Park and Atlantic City have in common, other than ocean views and folks who worship Bruce Springsteen? That was the first of several thoughts that ran through my head as I was reading Juliet Fletcher's recent article in The Press of Atlantic City putting forth Asbury Park as the example for how to solve Atlantic City's redevelopment woes.

Don't get me wrong, I am a fan of the Boss and responsible redevelopment in an expedited manner, which is the basic premise of the article. However, it felt like an unfair, or at least unrealistic comparison. According to the 2000 Census, Atlantic City is double the size of Asbury Park. Atlantic City covers 11.4 square miles while Asbury Park covers only 1.3 miles. Plus, the cities use different forms of government, with Atlantic City using a mayor-council system and Asbury Park using a council-manager system which is non-partisan with a weak executive branch. I think that the redevelopment work done in New Brunswick is a more apt model for Atlantic City.

However, I come not to bury Ms. Fletcher's article, but to praise it, which leads to my second thought. The thrust of the article is that Asbury Park has been able to accomplish some impressive redevelopment (including green space) on an expedited time-line by virtue of cooperation from the government, which included allowing a single redeveloper to handle a specific area that included the boardwalk. Sound familiar? It should. In essence, this is exactly what has been recommended for Atlantic City by Governor Christie's Advisory Commission on New Jersey Gaming, Sports and Entertainment.

The Commission has recommended, and Governor Christie has heartily endorsed, the creation of an "Atlantic City Tourism District," with duties that would include coordinating redevelopment within the District (among other things), along with creation of a "Public-Private Partnership," which would be comprised of the District and local businesses (including casinos), to encourage private investment (among other things). (The Commission recommended that the Partnership be modeled after Devco, the redevelopment company operating successfully in New Brunswick, apparently ignoring the fact that Devco is a private entity whereas the recommended Partnership would have a "public" component, i.e., government involvement. We'll save that troubling discrepancy for another time.)

Call me naive, and the "public" involvement is admittedly worrisome, but why can't the District, through the Partnership, serve in the role of the "single redeveloper" that proved so successful in Asbury Park? Is that too idealistic? I'm as skeptical as the next guy/gal as to whether government can get out of its own way, especially in Atlantic City, but in theory the District and Partnership could be a wonderful catalyst to get redevelopment off the ground. In today's economic and political climate, it is simply unrealistic to think that a single private redeveloper, given control over the area in question, could get enough done to make a difference for Atlantic City as a whole.

Which leads me to my third and final thought: the work near the boardwalk done by the single redeveloper in Asbury Park is serving as a catalyst for redevelopment in other areas of the city by other redevelopers. If we can get the Tourism District fixed up, why can't the same momentum take hold in other areas of Atlantic City?

I am a firm believer that responsible and creative redevelopment leads to good things. Asbury Park is proof of that. How can we make that happen quickly in Atlantic City?

The Mind of a CRE Broker

Chris Hogan — Thu, 12 Aug 2010 09:04:37 -0500

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 here. John 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:

Here is a post about the anguish and frustration in bidding against oneself in a deal. I share John's absolute disdain for bidding against oneself and counsel client's never to do it. However, I do not agree that no good can come of it, if the deal warrants it. Sometimes, the seller just wants to cut to the chase and a buyer's "last/best" can win the day. That said, any "last/best" in the scenario described by John has to be justified by the deal and should come with a deadline so it doesn't become the stalking horse for the seller.
Here's another good one about how the illiquid nature of commercial real estate offers pricing inefficiencies that favor the experienced investors.
I found the topic of this post -- what makes a great CRE investor -- to be of interest and agree with the comments: know your niche; stay in that niche; and recognize/manage risk.
Last but by no means least, here's a very funny post about how brokers are perceived in the CRE market. I especially love the "broker-speak" 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

Chris Hogan — Thu, 05 Aug 2010 08:05:15 -0500

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?

Chris Hogan — Tue, 20 Jul 2010 17:32:54 -0500

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

Chris Hogan — Tue, 20 Jul 2010 16:47:44 -0500

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?

Chris Hogan — Fri, 09 Jul 2010 15:36:30 -0500

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/

ROUND-UP: Retail Traffic

Chris Hogan — Fri, 02 Jul 2010 15:48:04 -0500

OK, so the latest jobs report was disappointing and people a lot smarter than me are saying that our economic recovery is losing steam. It's the 4th of July Weekend! Let's focus on some more encouraging news. Here are links to some recent encouraging stories from the fine folks over at Retail Traffic:

Here's an interesting piece by Elaine Misonzhnik about the growing sophistication of certain landlords' online marketing campaigns. I was impressed by social network -- called ShopStar -- created by Developers Diversified Realty. According to the article: "The tenants, including both retail stores and entertainment establishments, can use ShopStar to advertise special events, prizes and giveaways to shoppers. Customers, meanwhile, receive access to information about local properties and can offer feedback on what they think would improve their shopping experiences. Developers Diversified hopes the program will help build brand loyalty." DDR's social network is a great idea and value-add to tenants.
Staying on technology, here is an article from EM regarding a retail-specific, Web-based property management "solutions" site called Workspeed Retail from Workspeed which "helps owners and managers track all property-related tasks, including tenant communications, preventive maintenance, accounting, security incidents and work orders, using a single online application." There is reference in the article to some initial concern about going paper-less, which I share, but it is clear that web-based applications are the future. Still, the argument for the application is increased efficiency -- which undoubtedly adds value -- and the leveraging that can be done by smaller management firms w/o in-house software.
Check out this post from David Bodamer on the TrafficCourt blog w/ evidence that a "bottom" in CRE pricing may have formed. (Hey, we'll take our "good news" anywhere we can find it!) Now, time to start moving up.
Let's finish up w/ a piece from EM about how the flood of tenant concession requests that marked much of 2009 may be starting to subside. If the brokers featured in the article are on the mark, it sounds like the playing field is starting to level off. We'll take that as a positive!

There is plenty of other good stuff, both at Retail Traffic and TrafficCourt. Please check it out.

Here's hoping that everybody has a safe and happy 4th of July Weekend. Let's all get out there and spend some money.