Friday, January 13, 2006

Jones Lang LaSalle

Devils agree on financing for Newark arena

The Devils agreed late this afternoon to provide the City of Newark with a letter of credit to finance their share of a downtown hockey arena by the end of the month, the two sides announced. The agreement between City Business Administrator Richard Monteilh and Devils principal owner Jeff Vanderbeek marked the end of three days of marathon negotations to decide whether an arena, on the drawing board for nearly a decade, would ever be built in Newark.

Seton Hall Law School Dean Patrick Hobbs, who was called in to help mediate the talks, said the agreement came when the Devils agreed to the city's main demand that a $100 million letter of credit, free from any conditions, become available shortly. Monteilh said the city would walk away from building an arena with the Devils if the issue was not resolved soon.

"The letter of credit will be posted," Vanderbeek said, "... by a world class bank."

After months of letting the Devils spend tens of millions of dollars in taxpayers' money to acquire and clear land for the $310 million arena, the city insisted no further work could be done until there was a clear understanding of when and how the Devils will come up with their $100 million contribution. Industry experts have said the last-minute bickering could have been avoided if the city had followed standard procedures that would have had all the money in place before any significant demolition or construction work began.
Jones Lang LaSalle

U.S. Reverses Accord and Opens 389,000 Acres in Alaska to Explore for Oil
By
FELICITY BARRINGER

WASHINGTON, Jan. 12 - The Interior Department has decided to open 389,000 acres of Alaskan lakes, tundra and shoreline to oil exploration, reversing an eight-year-old compromise intended to protect the habitat of hundreds of thousands of migratory birds and the hunting grounds of Inupiat natives who live near the Beaufort Sea.

Henri Bisson, the state director of the federal Bureau of Land Management in
Alaska, said Thursday that the new plan would increase by as much as two billion barrels the oil that could be recovered from the northeastern section of the National Petroleum Reserve while providing protection for birds in the summer when they shed their flight feathers and hatch chicks.
Critics, including Alaska Natives and groups like the Audubon Society and the Wilderness Society, said the protection would not prevent fragmenting the birds' habitat or the disturbance when pipelines were built.


There will be airplane and helicopter traffic, the critics said, and industrial activity will be a fixture of the collection of lakes and damp tundra that is now empty 150 miles west of the Arctic National Wildlife Refuge.

The fight over the area where wild fowl from California, Japan, Mexico and Russia congregate every summer has been largely overshadowed by the controversy over the Arctic refuge, which remains closed to oil and gas exploration after a Democratic filibuster last month.

The two disputes center on protecting caribou, wild fowl and Alaska Natives' interests, but it is generally agreed that the Teshekpuk Lake area has a particularly important role in the annual migration of tens of thousands of birds like geese and tundra swans, providing them with relative safety from predators and ample food for the flightless weeks of summer.

"We are not persuaded that this provides the protection needed," said Stan Senner, the Audubon Society Alaska director. "I think our answer, our view, is that waterfowl biologists who know the area have essentially all said that a core goose molting area needs to be protected without fragmentation."

Though 242,000 acres of the 389,000 can have no surface structures except pipelines, Mr. Senner said, the lines and the human monitoring they require will intrude in areas the birds have had to themselves.

The final decision, which the Interior Department released on Wednesday, opens seven tracts, of 45,000 to 60,000 acres each, that were previously off limits to energy development.

"We believe that we have put forward the best environmentally sensitive approach we could take in terms of conducting a viable oil and gas leasing and development opportunity," Mr. Bisson said in an interview. "I can't think of anything else we could do to make it more environmentally protective than we have."

He added that for the areas north of Teshekpuk Lake, the department would not allow exceptions to its restrictions except for aircraft that have to deviate from agreed-on flight patterns for passengers' safety .

Dora Nukapigak, one of 450 residents of Nuiqsut, an Inupiat village near the affected area, said she was certain that the policy reversal would have a significant impact.

"Where there's industry, there's going to be traffic, work and construction," Ms. Nukapigak said,
The 200 or so hunters in the village, she added, pursue whales and caribou, as well as fish, and she expressed concern that taking water from Teshekpuk and other lakes to build ice roads for winter construction could affect all the animals involved.

Mr. Bisson said his estimates of the commercially retrievable oil and the 3.2 trillion cubic feet of retrievable natural gas were based on federal and company data. The estimates, he said, indicate that a compromise reached by Bruce Babbitt, interior secretary in the Clinton administration, that opened all but 13 percent of the reserve to energy production left as much as three-quarters of the recoverable oil in the reserve off limits to drilling.

Mr. Bisson said there would be no more than 300 acres with improvements like roads, drilling pads or airstrips in each lease tract. Mr. Senner said the resulting spider web would be intrusive.
"We don't think the basic geometry of the areas makes sense," Mr. Senner said, referring to the 242,000 acres where surface development other than pipelines is off limits. "This will not result in fewer facilities or reduced disturbance."


Jones Lang LaSalle

> PLACE LV 01 12 06
AN ICONIC STUMBLE?
Peter Slatin and Stephane Fitch

Late last week, Related Las Vegas cancelled groundbreaking and announced plans to return deposits to hundreds of investors in Icon Las Vegas, two residential high rise condos it planned to build just off the Strip. Related's reasoning: construction costs have rocketed since it pre-sold the units, eliminating its profit.

"Construction costs in Las Vegas have gone through the roof," says Jorge Perez, who co-owns Related Las Vegas with long-time partner Stephen Ross of New York. "I think many developers around the country are having difficulties starting some projects."



The Jerde Partnership
Related may have pulled back, but develoepr Bruce Langson is moving ahead with his 1,000-unit Las Vegas Central condo project.


This is the second time Related has scrapped plans to build big in Vegas. In the fall, the company abandoned a $5 billion plan to build high-rise condos, a medical building, a performing arts center and a new city hall building on 61 acres of railyards near the city's downtown. Perez says he grew increasingly concerned at the unchecked rise in construction costs there as well. (The city was also dragging its feet on its commitment to the deal, he says.)

Not that Perez is giving up on Vegas. He's optimistic that Related third large-scale venture, a $3 billion hotel and condo complex called Las Ramblas, will go forward. That project, which Related is pursuing with venture partners that include film star George Clooney, includes 11 towers with a luxury hotel and condo, bungalows, spa and health club, dining, shopping, bars and a casino. Perez in negotiating with a luxury hotel chain to join the venture.


The Icon project was delayed for five months by a lawsuit, but construction costs rose significantly during that time.


It could be the first domino of many to fall in the desert city. Literally thousands of condo units in more than 100 projects are in various stages of planning, permitting, development and sales as builders race to meet demand that many observers say is fueled not by potential residents but rather by speculators. When a well-regarded, superbly funded national player like Related makes a misstep that has buyers fuming, investors may think even harder about placing their money into buildings built by those with less experience and lesser credentials.


Though Related's buyers will be made whole (including interest), some who'd paid up to $80,000 to reserve condos in the luxury project, called Icon, are fuming. Many thought they were sitting on windfall profits from flipping their units, since the price of condos near the Strip has been rising rapidly over the past year.


Could Icon be the first domino of many to fall in the desert city? If Perez is right, and other developers have to abandon projects, there may be more disappointed investors soon. Thousands of condo units in some 130 projects are in various stages of planning, permitting, development and sales as builders race to meet demand there.


A lot depends on how far along a given project is in the development process. Richard Lee, director of public relations in Las Vegas for First American Title, notes that a full 90% of the 3,000 high-rise (15 stories or more) condo units already in construction have been sold, at prices between $500 and $1,000 a square foot. And that doesn't include a burbling sales market for condo-hotel units, such as the Residences at MGM-Grand. As for those still on the drawing boards or not even that far along, however, Lee expects there will be a significant shakeout.

The problem, many observers say, is that the demand is fueled not by potential residents but rather by a wave of speculators. But the pace of construction has collided with a steep runup in the cost of steel and concrete as well as a shortage of qualified construction workers. Add in the misstep by a well-regarded, superbly funded national player like Related, and investors could get spooked, especially at the prospect of placing their money on developers with less experience and lesser credentials?

Many other developers also projected costs (and profits) and took bids from condo-buyers when construction prices were at least 30% lower than today. As construction delays mount, the cost runup has wiped away margins, and the plethora of projects has brought inexperienced developers into the market while highlighting a shortage of contractors with the knowhow to build high-rise luxury residences.

Of course, one developer's ceiling is another's foundation. Developer Bruce Langson, a longtime local builder, has no plans to shelve construction of his 1,000-unit Las Vegas Central condominium project – but happily admits "we got lucky when the FAA made us change the project last spring." The regulatory agency forced Langson to trim the two-building project's height from 52 to 40 stories, cutting construction costs in the process. Nonetheless, the says, "a byproduct of that is we've not gone to open our sales office until the increase in construction costs has fully manifested itself" and can be factored into pricing.

Such singular circumstances may mean good fortune for Langson, but he predicts that Icon's troubles will show up in other projects as well. "It's going to help reorganize the market somewhat," he says. Along with making buyers do tougher due diligence, he says it will "force the issue on every project or purported project. The majority will fall by the wayside now." One reason: once the city provides approval for a zoning change that is needed for development, the builder has a year to demonstrate "significant progress" – which does not include deposits on presales, but instead entails construction related movement, or "going forward with the whole package," Langson says. And he adds that the 12-month window is starting to close for some projects due to a convergence of higher than expected construction costs and a limited pool of qualified contractors.

Citing the sales figures for condos already in development, Richard Lee believes that the investor market will remain strong. But Langson notes that buyers will become more cautious. "In the next six months, we're going to see a lot more names fall by the wayside," predicts Langson. As for Icon's orphaned investors, he says, As for Icon's disappointed buyers, he declares, "I'm glad those buyers are back in the marketplace."

Jones Lang LaSalle

Tyco International to split into three companies
1/13/2006, 10:02 a.m. ET
By BONNIE PFISTER The Associated Press

TRENTON, N.J. (AP) — Tyco International Ltd. said Friday it plans to split into three public companies, separating its electronics and health care businesses from its remaining operations which include security and fire-protection services at a cost of about $1 billion.


The company, which may be best known for its ADT home alarm systems, also warned its first quarter and full-year 2006 earnings from continuing operations would be lower than expected.
Its shares tumbled $2.56, or 8.45 percent, to $27.75 in early morning trading on the New York Stock Exchange.


Tyco, which has its operational offices in West Windsor, N.J., said the breakup, which had been widely anticipated, followed a strategic review and will strengthen the businesses.
Tyco has been recovering from accounting scandals. Its former CEO, L. Dennis Kozlowski, and former Chief Financial officer Mark H. Swartz, were sentenced to prison last year for grand larceny, conspiracy, securities fraud and falsifying business records, and are appealing their convictions.


In November, the company said it might split up its businesses to boost the value of its stock. It also considered a breakup four years ago.

Tyco said Friday its board has decided to separate Tyco Healthcare and Tyco Electronics from the Tyco Fire & Security and Engineered Products & Services businesses through tax-free stock dividends to shareholders, who will then own all the stock. The changes are expected to be completed in the first quarter next year. The anticipated costs are mainly for tax and debt refinancing, the company said.

"Our balance sheet and cash flows are strong and many legacy financial and legal issues have been resolved," said Ed Breen, chairman and chief executive, in a statement. "After a thorough review of strategic options with our board of directors, we have determined that separating into three independent companies is the best approach to enable these businesses to achieve their full potential."

Tyco said it considered a range of options, including selling certain businesses, and separating only one of the operations. The three companies will have their own independent boards and corporate governance standards, and are expected to remain incorporated in Bermuda.
The company said it now expects first-quarter earnings, excluding one-time items, to be about 38 cents per share from continuing operations, down from its prior outlook of 40 cents to 42 cents per share.


Tyco lowered its full-year 2006 earnings forecast to a range of $1.85 to $1.92 per share from continuing operations. It previously expected earnings to increase by about 10 percent over 2005 results.

Analysts expect a profit of 42 cents per share for the quarter, and $2.01 per share for the year, according to a Thomson Financial survey.

On Thursday, Ravi Chanmugam, a lead partner at management consulting firm Accenture, said such splits were "hangover breakups" of conglomerates put together during the stock market's bubble years.

"There's still some tricklings that are taking place now, because finally those companies have a new CEO who's been put in place, accounting problems have been fixed, the market is generally receptive now to spinning them off and the stock market is healthy again, so that's why those things are happening now," Chanmugam said.

The company said revenue and margins in its fire and security business were hurt by weakness in its commercial security and worldwide fire services operations, but business improved in residential security. Revenue and operating profit growth in its international healthcare business were offset by shortfalls from product recalls and compliance issues in its imaging and respiratory businesses, and capacity problems in its pharmaceuticals business.

Tyco Healthcare, which provides health care products and services, booked nearly $10 billion in revenue during 2005, and has more than 40,000 employees. After the breakup, the business will still be led by President Rich Meelia, who also will become CEO. Chief Operating Officer Kevin Gould and CFO Chuck Dockendorff will remain in their positions.

The company said Tyco Electronics is a $12 billion business with about 88,000 employees.

Juergen Gromer, who has led the electronic components supplier since 1999, will continue as president and will become vice chairman, while Jacki Heisse will continue as CFO.

Tyco's fire and security operations, along with its engineered products and services business, will be led by Tyco International CEO Breen and CFO Chris Coughlin, the company said. The $18 billion electronic security business employs more than 118,000 people.

The company said Dave Robinson will continue as president of Tyco Fire & Security, while Naren Gursahaney will succeed Tom Lynch as president of Engineered Products & Services.
Jones Lang LaSalle

Robertson Joins Colliers ABR as Vice Chairman to Focus on Japanese Practice
January 12, 2006By Natalie Dolce, Assistant Managing Editor

Colliers ABR Inc. said this morning that it has hired Mariyon Robertson as vice chairman responsible for building the company's Japanese practice.


Prior to joining Colliers, Robertson was an executive vice president of CB Richard Ellis Inc. real estate. Before that, he served as an executive managing director of Insignia/ESG and president at JHA. Robertson and Mark Boisi, the company's chairman, were unavailable for comment.

With more than 20 years in the commercial real estate industry, Robertson has represented Abbott, Bank of Tokyo-Mitsubishi, Major League Baseball and Mizuho Financial Group. Considered a renowned expert on U.S.-Japan relations, he has also consulted for several firms on a national and international basis.
Jones Lang LaSalle

SPECIAL REPORT: Economists Predict Strong '06, Uncertain '07 January 12, 2006
By Amanda Marsh, Staff Writer & Russ Colchamiro, Executive Editor

Skies are clearing for 2006 with a possible chance of clouds in 2007 for the real estate economy, noted two economists who spoke today in New York City at the Urban Land Institute's Economic Forecast presentation.


Mark Zandi, chief economist for Moody's/Economy.com, and Tim Hopper, PhD, senior economist for Reis Inc., both painted a positive picture for the upcoming months in all market sectors, basing their optimism on a strong national economy, falling unemployment rates and low inflation.

"I am particularly optimistic about '06," Zandi said. He pointed to the business community as a whole, where companies are expanding and profitability is high. "It isn't a question (of whether) companies can expand," he added "(but) are they willing to?" Hopper said that continuing capital flows and investor interest suggest that there will be further improvements for commercial space and flat returns in the consumer markets.

As for next year, Zandi noted that higher energy prices and rising inflation and interest rates are possible threats, especially to the housing market, with lower-income households being the most vulnerable. And Hopper predicted that upcoming federal fund rate increases might bring an end to consumer spending growth, higher investment costs and slower economic expansion.
Jones Lang LaSalle

Elite Bulks Up Its R&D

Northvale-based Elite Pharmaceuticals (Amex: ELI) and Orit Laboratories are coming together to develop and commercialize an extended-release drug to treat anxiety. If the drug becomes commercially viable, it may be licensed for manufacture and sale.

Elite is a specialty-pharmaceuticals company that focuses on developing generic versions of controlled-release drug products. Its technology is used to make delayed-, sustained- or targeted-release capsules or tablets. Orit Labs, which also specializes in generic drugs, is based in West Caldwell.

Elite currently has one product in the marketplace and eight drugs under development in areas such as pain management, allergy, cardiovascular and infection. The company's stock slipped a penny to $2.00 in late morning trading. - Thomas Gaudio
Jones Lang LaSalle

Hudson United, TD Banknorth Shareholders Vote to Merge

TD Banknorth (NYSE: BNK) shareholders at a special meeting yesterday voted nearly unanimously to approve the approximately $1.9 billion cash-and-stock acquisition of Mahwah-based Hudson United Bancorp (NYSE: HU). In a separate meeting, Hudson United shareholders also voted overwhelmingly in the affirmative, with more than 98% casting votes in favor of the transaction that is expected to close later this quarter upon Federal Reserve approval.

William J. Ryan, TD Banknorth's chairman, president and CEO, said the acquisition would help the bank expand in the mid-Atlantic region, including the fast-growing New Jersey and metro-Philadelphia markets. His counterpart at Hudson United, Kenneth Neilson, said it would allow his bank to remain focused on community banking. The merger will result in a regional bank with some 590 branches, 751 ATMs and more than $26 billion in deposits across eight states in the northeast.

Neilson, who will be retiring at roughly the same time the deal closes, is slated to serve as a consultant for the next two years. Wendy P. Suehrstedt, a chief retail-banking officer with Portland, Maine-based TD Banknorth, has been tapped to oversee the bulk of his duties. Suehrstedt will be responsible for more than 75% of Hudson United’s current 204 branches as president and CEO of the combined entity’s mid-Atlantic division.
The Hudson United brand will be converted to the TD Banknorth moniker later this spring, according to Jeffrey Nathanson, a Banknorth spokesperson. Shares of both banks were unchanged this morning, with TD Banknorth trading at $29.41 and Hudson United at $42.17. - Ki Kim
Jones Lang LaSalle


Behringer Harvard Buys 333,000-SF Office Complex
By Eric Peterson
Last updated: January 12, 2006 03:06pm

CHERRY HILL, NJ-Behringer Harvard REIT I Inc. has acquired the 333,275-sf Woodcrest Corporate Center here. The buyer is an investment fund managed by the Dallas-based Behringer Harvard. The seller was O’Neill Properties Group of King of Prussia, PA.

While the sale price was not disclosed, sources say the asset likely traded for a number “well in excess of $60 million,” according to one. That estimate is based in part on published reports that the redevelopers’ cost of buying and converting the property was in the $50-million range.
The center, located on 33 acres at 111 Woodcrest Rd. near the NJ Turnpike and I-295 in metro Philadelphia’s South Jersey suburbs, is a redeveloped one-time industrial site. It was formerly the headquarters and manufacturing site of the defunct Langston Steel Corp., which made production equipment for the corrugated packaging industry. That company filed for bankruptcy in the mid-’90s and was liquidated in 2001. O’Neill teamed up with the Wayne, PA-based Strategic Realty Investments to buy and redevelop the property, which had stood vacant for two years, as a class A office complex.


“This newly reconstructed building is on a single level with direct access for each tenant,” says Robert M. Behringer, chairman and CEO of Behringer Harvard. “Because this configuration has no comparable counterpart in the submarket or the surrounding areas, it’s very unique.
“Combined with the fundamental strengths of this market, we expect this property’s tenant stability, tax incentives and building efficiencies to deliver attractive returns for investors,” says Behringer, who notes that the acquisition marks his firm’s entry into the metro Philadelphia market.


The property, which also includes a small retail component and a skylit town-center area, as well as 24-foot ceilings and floor-to-ceiling exterior glass walls, got its major redevelopment impetus in the summer of 2003 when Towers Perrin, the Stamford, CT-based management consulting firm, agreed to sign a lease for much of the existing building, approximately 200,000 sf, for 10 years with two five-year options. That space is occupied by 1,000 employees of Excellerate HRO, an HR business co-owned by Towers Perrin and EDS.

In mid-spring of 2005, Popular Mortgage Servicing, a newly established subsidiary of Popular Financing Holdings and a successor company to Equity One, signed on for 57,000 sf. And in late September American Water Works agreed to lease nearly 55,000 sf, consolidating employees from three other South Jersey locations. The American Water deal brought the building to 93% occupancy.
Jones Lang LaSalle

GlobeSt.com EXCLUSIVE: Kaplan Leases 28,000 SF at One Gateway Center
By Eric Peterson
Last updated: January 12, 2006 12:32pm

NEWARK-Kaplan Inc., the educational and career services provider, has leased 27,656 sf at the One Gateway Center office tower in this city’s Downtown area, GlobeSt.com has learned. According to Bob Martie, senior vice president and regional managing director for building owner Advance Realty Group, Kaplan will use the space as a training center for its medical school division.

GVA Williams of NJ, Parsippany, is the exclusive leasing agent for One Gateway Center’s office component, and also represented Kaplan. The terms of the lease were not disclosed.
Originally built in 1971, One Gateway is part of a four-tower Downtown office complex that also includes a Hilton Hotel. The Bedminster-based Advance recently completed a multimillion-dollar repositioning of the 26-story building, which besides its 492,000-sf office component includes 50,000 sf of retail space. The Kaplan signing leaves approximately 95,000 sf of office space currently available in the building, according to Martie.
Jones Lang LaSalle

Office Market Shows New Life
By Eric Peterson
Last updated: January 12, 2006 10:41am

EAST RUTHERFORD, NJ-Vacancy rates are down slightly, leasing activity is up and investors still like the product. And there’s even some new speculative development going on. That’s the state of Northern and Central New Jersey’s office market, according to Q4 figures just released by Cushman & Wakefield of NJ, based here.

In North Jersey, the overall vacancy rate held stable, currently in the 18.6% range, and leasing activity registered 6.7 million sf for 2005, an increase of 30%, according to C&W. The increase was led by financial firms picking up space on the Hudson River waterfront, but the performance was tempered a bit by some big blocks of space returning to the market. Notable among them were 332,000 sf from JP Morgan Chase at Newport Office Center VI in Jersey City, another 290,000 sf from Deutsche Bank at Mack-Cali’s Harborside I, also in Jersey City, and AT&T’s shedding of more than 475,000 sf at Kemble Plaza II in Morris Twp.

Investors continued in 2005 to like North Jersey office product, with nearly three dozen buildings of more than 100,000 sf trading. Major acquisitions included Mack-Cali’s pick-up of both the1.2 million-sf 101 Hudson St. in Jersey City and the 279-sf 4,5,6 Century Dr. in Parsippany. And 2005 five saw some spec activity after a long drought, notably the Gale Co.’s new 175,000-sf building within the Center of Morris County, Parsippany.

In Central Jersey, heightened leasing activity of 5.4 million sf (up 25%) drove the vacancy rate down by more than a point to 19.5%. The market was highlighted by some very large deals, notably pharma giant Sanofi-aventis’ commitment for 670,000 sf for its US headquarters at a former AT&T campus in Bridgewater, Verizon’s acquisition of the 1.3 million-sf former AT&T headquarters campus in Basking Ridge, and Vonage’s lease of a 358,000-sf former Prudential building in Holmdel. Mack-Cali bought the building from Pru and simultaneously signed Vonage to a full-building lease.

On the investment side, almost eight million sf changed hands in 2005, with portfolio sales dominating the market. In the most interesting deal, Allegiance Realty acquired a one million-sf portfolio in Franklin Twp. from Archon early in the year, then quickly flipped the properties to LaSalle Partners in December.

Thursday, January 12, 2006

Jones Lang LaSalle

Finding Commercial Value in Some New Zip Codes
By
VIVIAN MARINO

OTHER big real estate investors may jostle over trophy buildings in torrid markets like New York or Los Angeles, but David Lichtenstein sets his sights on places like Pleasant Prairie, Wis.; Birch Run, Mich.; and Shawnee, Okla.

They're not exactly flashy ZIP codes, he knows, but Mr. Lichtenstein believes that there is money to be made in them just the same. His company, the Lightstone Group, based in Lakewood, N.J., has evolved into one of the country's largest private owners of real estate over the last 18 years, mainly by snapping up shopping centers, office buildings and apartments in the far reaches of America's suburbs and exurbs.

"The people there need to shop, too," Mr. Lichtenstein said. Besides, he added, explaining his investment strategy: "Do you want to go to a fishing hole where there's a lot of other people fishing, or do you want to be where you're the only guy with a hook in the water? We would concentrate on any place where the big boys aren't."

Real estate analysts are predicting, though, that more of the big institutional investors, like hedge funds and pension funds, which have already reaped sizable profits buying and selling skyscrapers and malls, will be casting their lines in Mr. Lichtenstein's direction this year. Fierce competition in the top-tier cities continues to drive up prices, the analysts noted, which means that initial yields, or the capitalization rates, are being pushed down significantly.

"There's more interest in the secondary or tertiary markets, in part, because the cap rates are a lot higher; it's definitely a spillover," said Robert White Jr., president of Real Capital Analytics, a research and consulting firm in New York. "Even the German investors, who are known for buying Class A properties in major cities, in the past year have bought in smaller cities."

Mr. Lichtenstein, whose company owns more than 170 properties in places that many people have never heard of, maintains that there can be value in the smaller cities and towns. "Pricing is often 50 percent less," he said. "A good office building in New York has a 4 percent cap rate, while that same building in other areas has an 8 percent cap." (A cap rate of 6 percent or more right now is generally considered good.)

There is also the potential to create more value in the less-crowded markets. Mr. Lichtenstein says his Lightstone Group doubled the operating income at the Brazos Mall in Lake Jackson, Tex., about 60 miles south of Houston, since buying it as part of a $48.2 million acquisition in late 2004. By making renovations, bringing in popular stores, a movie theater and a food court, Lightstone brought the occupancy rate up to nearly 96 percent from around 70 percent, he said. "There are no other malls within 50 miles," Mr. Lichtenstein said. "We listened to what the people there wanted."

Many smaller investors who have been priced out of the top 20 cities have also profited by buying property elsewhere. For the less intrepid, there are REIT's, or real estate investment trusts, which invest in portfolios of commercial property, and TIC's, or tenants-in-common programs, a nascent product that offers fractional ownership of properties.

One large REIT, ProLogis of Aurora, Colo., has most of its warehouses and distribution centers in cities like Austin, Tex.; Charlotte, N.C.; Orlando, Fla.; and Chattanooga, Tenn. (Mr. Lichtenstein recently started his own REIT, the Lightstone Value Plus Real Estate Investment Trust; it will not be listed on a stock exchange.)

Of course, some smaller markets have more success than others. Lightstone, for example, gave up on trying to turn around an outlet mall in Niagara Falls, N.Y., which lost much of its Canadian customer base after the terrorist attacks because of tightened border security. And even regions that are deemed up-and-coming by real estate analysts may not prove profitable for all property types. "You have to look at the so-called four food groups: retail, office, industrial and multifamily," said John J. Kriz, a managing director for real estate finance at Moody's Investors Service.

Indeed, that is what real estate brokerage firms like Colliers International helps its clients do. The firm predicted that commercial real estate as a whole would continue to flourish in 2006 and that the office and industrial sectors, in particular, would do well as businesses expand. But Ross Moore, the national director of research, warned, "The second-tier market and tertiary market will not see a whole lot of demand for office space; most demand will be in the Tier 1 market."

"Industrial is different," he added. "That should do well across the board, including the Midwest. With retail, you want to go where people are moving or where there is good tourism. Your best opportunities are really in the Sun Belt."

Many real estate analysts favor the same or similar secondary markets. Mr. Moore's list includes Austin; Fort Lauderdale, Fla.; Phoenix; Las Vegas; Orlando; and Seattle. Each, he says, has healthy economic and employment growth, and many, like Austin and Phoenix, have expanding populations. (His bottom three are Pittsburgh, Cleveland and Memphis, because they have "dreadful economic numbers," he said.)

Raymond G. Torto, principal and chief strategist at Torto Wheaton Research, a division of CB Richard Ellis of Los Angeles, also sees opportunities over the next two years in Orlando and Fort Lauderdale, and he adds the Florida cities of West Palm Beach, Jacksonville and Tampa to his favorites list. All have good economic and employment growth, he explained, and the potential for healthy price appreciation.

In addition, he likes Austin, Phoenix, Las Vegas, Fort Worth and Riverside, Calif. "Vegas has been a leader over the last two years, at 7 percent job growth, though it is slowing down a little bit," he said.

Mr. Torto says he believes that many smaller cities will also benefit from a shift in warehouse pipelines. As the ports and railyards of major cities become more crowded with imports, particularly from China, he said, demand for industrial space in the secondary markets will increase. That augurs well for places like Orlando; Cape Canaveral, Fla.; Norfolk, Va.; Allentown, Pa.; and Riverside, he said.

"On a price-per-square foot basis, you might find a similar rental that is 60 percent cheaper in Riverside than Los Angeles," he said.

And as warehouses are developed or expanded, demand for other properties, both commercial and residential, could also follow. "The expression goes, 'A rising tide raises all boats,' " Mr. Torto said. "Everything benefits in that area."
Jones Lang LaSalle

>PLACE NOLA 01 12 06
PRESERVATION ROW

Anna Holtzman

The Ninth Ward, September 2005.The entire Ninth Ward “is caked in something,” says Tulane University’s dean of architecture Reed Kroloff, speaking with The Slatin Report from New Orleans. “It looks like mud-it may be toxic.” The same could be said for the political debate now raging about what should be done with this and other neighborhoods severely damaged by Hurricane Katrina. The issues at play are obscured by a murky mixture of too little information and tensions that run generations deep.

("The mud smells like human feces," wrote 15-year-old Jack Potter in his journal during a late-December visit to the Crescent City with his family's New England church.)





Of the New Orleans districts most ravaged by the floods, planners contest that many of them were never environmentally safe for habitation to begin with. But using the damage as an opportunity to wipe these neighborhoods off the slate is no simple matter. Like the Ninth Ward, many of these areas were occupied by the poor and black, and a number of residents feel that a plot to eliminate their homes is part of a longstanding tradition of political mistreatment. “Historically, [residents of the Ninth Ward] have gotten the short end of the stick,” says Kroloff, quickly amending his statement: “The stick was used to beat them about the head.”


Does salvage make sense?

Compounding the problem is the fact that large numbers of renters and homeowners from low-income areas remain scattered out of state, uninformed and voiceless during the decision-making process that will affect the fate of their homes. Several interviewees complained of the media’s failure to report on this aspect of the situation. “FEMA has been deplorable," says one knowledgeable source, who spoke on condition of anonymity, "They’ve recorded all the locations of people [who are currently residing out of state], but they won’t release the information-not even to tell the families where their family members are. Our state has been negotiating with FEMA to get access to the information and contact these people, but FEMA is hiding behind Homeland Security and personal privacy.”


Meanwhile, wealthier areas that have been equally hurt by flooding, such as Lakeview, are already being rebuilt-not by the city, but by residents who have the financial resources to do so on their own. As a result, services such as water and electricity are returning here more quickly than in the Ninth Ward, where far fewer residents have been able to return.


Allowing such unregulated, random rebuilding is a mistake, declares Bill Hudnut, a senior fellow of the Urban Land Institute who was part of the ULI’s visiting advisory panel to New Orleans last November. “Without sequential rebuilding, there will be pandemonium and helter-skelter development, and the city will be dominated by blight,” he told The Slatin Report. The ULI’s recommendations to shrink New Orleans’ footprint and to begin rebuilding with areas that sustained the least damage first received heated criticism from communities like the Ninth Ward. Charmaine Marchand, State Representative of District 99, comprising the Upper and Lower Ninth Ward, warns, “There are only so many dollars to repair the city with, and [if the ULI’s recommendations are taken], they’ll all be used up on [wealthier] areas.” Hudnut counters, “I think it’s a doomsday scenario people are painting. We didn’t say that nothing should be rebuilt [in the severely damaged areas]-just that it should be phased in.”


Remaining photos courtesy of Jack Potter


Will this house ever be a home?As for the ULI’s other recommendation, architect and planner Allen Eskew, of New Orleans firm Eskew+Dumez+Ripple, says it's on the right track. “Anyone who’s a savvy planner knows that New Orleans’ footprint should be reduced. The ULI was just the first to represent this graphically.” However, while Hudnut painted an idealistic vision for a condensed and reconfigured New Orleans with “more integrated mixed-income and mixed-race neighborhoods,” Eskew pointed out that the tight-knit communities in places like the Ninth Ward-where some houses go back five to six generations in ownership-will inevitably be fragmented if they are geographically uprooted.


So far, Mayor Ray Nagin’s Bring New Orleans Back Commission-which releases its plans for rebuilding today-is touting a strategy that attempts to appease everyone: Give homeowners more time (12 months) to assess their own damages before the city moves in and takes action. Yet dissenters say this would ultimately be a disservice to homeowners in heavily damaged areas, who could put time and money into their houses only to have their entire neighborhood condemned as unsalvageable at the year’s end.


Meanwhile, a significant number of buildings cannot be left alone for 12 months-homes that sit stranded in the middle of the street, obstructing traffic, and those deemed to be in imminent danger of collapse. When bulldozers appeared in the Ninth Ward earlier this month-ostensibly to remove such safety hazards-grassroots groups such as the People’s Hurricane Relief Fund obtained a temporary restraining order preventing the city from entering the neighborhood and tearing anything down. The problem, asserts Marchand, is that the city is not using consistent methods to assess home damage, and that some of the homes they’ve tagged for removal may, in fact, be salvageable. “I live in the heaviest hit area,” she says, adding that, while she currently sleeps at a temporary residence in Baton Rouge, she has already gutted her Ninth Ward home after she and her neighbors were allowed back in on December 1. When inspectors arrived to assess her neighborhood and place red stickers on houses deemed irreparable, she says, “They didn’t even enter the homes. We have incorrect assessments being done. We can’t arbitrarily assume that a house should be demolished.” Certainly there are homes in the Ninth Ward that are safety risks, she conceded. But even in cases where homes have drifted off their foundations, “we need to give people a chance to see if they can be lifted and put back on their pilings-I have seen this happen.”


Heeding the word.

The legislator also points out that she and her neighbors have had little over a month to return to and assess their own properties, a shorter period than for other parts of the city have had. “There needs to be progress,” she concluded, “but you can’t usurp people’s rights.”


Tulane’s Kroloff, on the other hand, does not believe that the red-tagged homes can be salvaged. He points out that FEMA, not the city, is tagging the homes-and that from what he's seen, those homes "are beyond repair. Many are just large piles of sloping lumber.” He adds, “The Lower Ninth Ward is destroyed. A number of buildings could be salvaged, but it’s a small minority.”
Saving homes brings its own challenges. Even if some of the homes can be salvaged, asked Eskew, “Do you let those families repair them? Do you bring services back to a neighborhood that has spotty housing? This is the most critical question for the city."


House fight.

Then Eskew makes an unequivocal declaration: “There are areas that should not be rebuilt.” These are districts, he says, that were developed first as an “innocent mistake” in the 1890s and 1900s, when pumping technology was invented, and less innocently in the 1960s and 70s, “when there was no environmental movement around to stop developers.”


The hardest hit areas are the Ninth Ward, the mostly-white area of Lakeview, and the black middle-class neighborhood of New Orleans East, which was built on swampland in the 1950s and 60s. “Any planning exercise would show,” Eskew says, “that [New Orleans East] is so at risk that to repopulate it would be to follow mistake after mistake.”


Eskew feels differently about the Ninth Ward. “I don’t think that it’s one of the neighborhoods most at risk. Seven or eight flood wall and levee breaks caused the problem there.” He notes that, if executed, the levee bill President Bush signed in late December would mitigate the environmental problems in the Ninth Ward.


Barging in.

In the meantime, with no cohesive redevelopment strategy yet in practice, various groups on the ground are acting on their own. Grassroots housing advocacy organization ACORN, for example, is running a program to gut homes in low-income neighborhoods, including the Ninth Ward. ACORN’s New Orleans head organizer Steve Bradbury says that they hope to have gutted 1,000 to 2,000 homes by the end of March.


But the biggest problem in New Orleans right now, Bradbury told The Slatin Report, is that “the local and federal government should be taking greater responsibility for people receiving the clearest and most factual information possible-and they’re not.”
Marchand agrees: “The city needs to first find out who’s coming back before tearing anything down.”

Jones Lang LaSalle

Poll finds few think state is on right track
1/12/2006, 6:01 a.m. ET
By JEFFREY GOLD The Associated Press

TRENTON, N.J. (AP) — Despite garnering nearly 53.5 percent of the ballots in November, Gov.-elect Jon S. Corzine will take office Tuesday with just one-third of voters believing things in New Jersey are moving in the right direction, according to a poll released Thursday. Almost half say the state is on the wrong track.


That is an improvement from late October, when only one-fourth of those surveyed by Fairleigh Dickinson University's PublicMind poll thought the state was on the right track and about two-thirds said it was heading in the wrong direction.

"Voters' opinions of the state's direction were bound to improve a little once we got past the extremely negative campaign season," poll director Peter J. Woolley said. "The campaign itself was making voters cranky."

However, the figures are worse than a year ago, when 40 percent of registered voters said the state was headed in the right direction, and 45 percent said it was on the wrong track.
Corzine's ratings have slipped over the past year, with 43 percent of those surveyed now holding a favorable opinion of the Democrat, and 31 percent an unfavorable opinion. Last January, the split was 53-21, the poll found.


Meanwhile, Gov. Richard J. Codey's popularity continued to rise, with nearly seven in 10 voters saying they have a favorable opinion of the state Senate president who took over as governor when James E. McGreevey resigned 14 months ago.

A year ago, nearly half the voters had a favorable opinion of the once little-known Essex County Democrat, but nearly as many had no opinion.

Codey, however, still trails Thomas H. Kean as the most popular governor. Kean, a Republican who served two terms from 1982-90, is considered the best governor by over a quarter of those polled.

Essentially tied for second place are Republican Christie Whitman (with 18 percent) and Codey (with 16 percent).

"Tom Kean's national visibility on the 9/11 Commission and his distance from the rough and tumble of New Jersey politics have cemented his reputation," Woolley said.
McGreevey, a Democrat, remains the top choice for worst former governor, with 29 percent of voters picking him.


The telephone poll of 707 registered voters was conducted Jan. 3-10 and has a sampling error margin of plus or minus 4 percentage points.
Jones Lang LaSalle

J&J hikes Guidant bid to $23.2 billion, but Boston Scientific still in bidding
1/12/2006, 9:49 a.m. ET
By CHARLES WILSON The Associated Press

INDIANAPOLIS (AP) — After more than a year of courtship, New Jersey's Johnson & Johnson has again sweetened its bid for Guidant but rival Boston Scientific Corp. isn't ceding ground in its quest to acquire the medical device maker.


Guidant Corp.'s board unanimously endorsed a new, $23.2 billion bid from J&J late Wednesday and recommended its shareholders approve it Jan. 31 when they gather to vote. Boston Scientific immediately said it would continue working to advance its own $25 billion offer.
The latest Johnson & Johnson acquisition proposal — its third — calls for the company to pay $37.25 in cash and 0.493 shares of its common stock for each outstanding Guidant share.
Boston Scientific's cash-and-stock offer includes $36 in cash, giving Guidant shareholders slightly more cash with J&J's newest bid.


That leaves J&J and Guidant to muster support for a deal at a share price below where Guidant currently trades — and with a dogged rival possibly willing to pay even more.

"It is clear that our $72 per share offer is superior to the $68.06 per share now being offered by Johnson & Johnson," Boston Scientific said in a short statement Wednesday. "Our discussions with Guidant are ongoing. We intend to vigorously pursue this transaction to its completion."
Guidant shares fell 25 cents to $70.19 in early trading Thursday on the New York Stock Exchange. Johnson & Johnson shares lost 61 cents to $61.89, while Boston Scientific shares slipped 16 cents to $25.25.


Guidant Chairman and CEO James Cornelius said the J&J deal would provide certainty for Guidant's shareholders and employees.

In December 2004, J&J offered $25.4 billion for Guidant, but slashed it to $21.5 billion 11 months later because of Guidant's product recalls and regulatory investigations.

Since June, Guidant has recalled or issued safety warnings about 88,000 heart defibrillators and almost 200,000 pacemakers. The company also faces numerous lawsuits. Last month, Guidant adjusted its fourth-quarter revenue estimates below Wall Street expectations after the recalls hurt the Indianapolis company's market share more than expected.

Natick, Mass.-based Boston Scientific announced its unsolicited offer to buy Guidant in early December and officially presented the deal to Guidant's board Sunday. In its proposal, Boston Scientific said it would sell part of Guidant's business to Abbott Laboratories Inc. for more than $4 billion.

J&J has argued that its larger size — it posted $47 billion in 2004 revenue compared with Boston Scientific's $5.6 billion — gives it greater resources to fix Guidant's problems and sustain long-term growth.

"Together with Guidant, we have spent more than a year planning an integration that will create an extraordinary cardiovascular device business that can deliver better medical treatment sooner to millions of patients," J&J's chairman and CEO, William C. Weldon, said in a statement.
"We strongly believe that our union with Guidant is the only one that can deliver on that promise, and create lasting value for shareholders of both companies."


J&J, based in New Brunswick, N.J., is a close No. 2 behind Boston Scientific in the market for drug-coated stents — metal-mesh devices that are coated with drugs to prevent scar tissue from creating new blockages after artery-clearing surgery.

With new entrants expected into that field, Boston Scientific and J&J both see Guidant's business as a crucial element in the expanding $10 billion market for pacemakers and implantable defibrillators.

The stent business has helped Boston Scientific more than double its earnings in 2004 and take a narrow lead in that market over J&J. But those profits, along with Boston Scientific's stock price, have since dwindled as a J&J stent has eroded some of Boston Scientific's leading position for its stent.

Earlier this week, at least one major Guidant shareholder called Boston Scientific's offer superior.

"We strongly urge Guidant's board to recognize the superiority of Boston Scientific's offer versus J&J's and, just as importantly, to ensure a level playing field should J&J increase its offer," Ivan Krsticevic, senior portfolio manager at Elliott Associates LP, wrote in a letter to Guidant's board this week. "Anything less than $71 per share from J&J should not be accepted, in our view."
The New York hedge fund owns 3 million Guidant shares.
Jones Lang LaSalle

Interest Rate Commentary

Wednesday: 01/11/06 5:00 PM EST : No economic guidance, a poor note auction, and more gains in the stock market bore on Treasuries today. In late trading, the 10-Year Treasury Note was down by 7/32, raising its yield to 4.45%; the Dow was up by 31.86 points to 11,043.44; and the Nasdaq was up by 11.04 points to 2,331.36.

Treasuries had been soggy in morning trade ahead of the 5-Year Note auction and the market remained weighted down as the new issue drew weak demand. Bids exceeded the offer amount by 2.10 to 1, the lowest bid-to-cover ratio for that maturity since last April. Noncompetitive bids, a gauge of individual investor demand, totaled $90 million, matching the figure in last month's auction but below the $104 million average of the twelve auction's preceding today's. And foreign demand was soft. Indirect competitive bids, which include those from foreign central banks, garnered 28.5% of all accepted competitive bids and 28.3% of the entire issue. This was down from 44.0% and 43.7% in last month's auction. The average award portion to indirect competitive bidders in the twelve offerings preceding today's was 37.7%.

The market did not even find support from New York Fed President Timothy Geithner, who in an address to economists today remarked that core inflation is "quite moderate." The Fed has recently signaled that its rate-tightening campaign is winding down, a development that has helped fuel gains in both the bond and stock market. The next monetary policy meeting is scheduled for the end of the month.

The rate outlook has particularly favored stocks and the optimistic sentiment helped push the major indices to new, multi-year highs today. In corporate news, negative guidance from DuPont was offset by word that Apple Computer will be using Intel chips, a move that pushed the computer maker's stock to a record high today.

And although oil prices rose again due to ongoing concerns regarding Iran's renewed nuclear research, traders got some good supply news today. In its oil inventory report, the Energy Department said that supplies of distillates, which include diesel and heating fuel, rose last week by 4.9 million barrels (one barrel equals 42 gallons) and were 6.6% higher on a year-over-year basis. Gasoline inventories rose by 4.5 million barrels, though they were 4.1% lower than a year earlier. This was, however, an improvement from the 6.0% Y/Y deficit posted the week before.

Not all of the news was good. Inventories of crude oil fell by 2.9 million barrels. Despite the downdraw, levels were 11.4% higher than a year earlier. On the New York Mercantile Exchange, a barrel of light, sweet crude oil for next month delivery rose by $0.57 to settle at $63.94.
By the end of stock trading, the Dow had risen on the day by 0.29%, the S&P 500 by 0.35%, and the Nasdaq by 0.48%. The Dow's close was the highest since June 7, 2001, the S&P 500's since May 22, 2001, and the Nasdaq's since February 16, 2001.


Tomorrow brings a heavy slate of economic releases. The weekly jobless claims report will again spotlight the labor situation. Last Thursday's report showed that the level of initial claims fell in the previous week by a larger than expected 35,000 to 219,000, the lowest level in over five years. But the data may have been distorted by seasonal factors and observers are waiting to see how the data develops over the next few weeks. A sizeable upward move in last week's claims figure is anticipated in tomorrow's report but the closure of state labor offices in Monday of last week once again necessitates the application of an adjustment factor which could produce an unexpected result.

Inflation will be the issue raised by the report on import and export prices for December. In November, import prices plummeted by 1.7%, the biggest monthly drop in over two-and-a-half years. The move was chiefly due to a huge, 8.0% drop in the price of petroleum imports, but even excluding that category, prices were down by 0.2%. Oil prices (average spot Brent) moved up last month for the first time since August so analysts are looking for an overall import price increase of up to 0.6%. Apart from the headline number, traders will be watching the ex-oil category for signs of inflation stemming from the trade situation.

And international trade is the focus of another of tomorrow's releases. The balance of trade report for October surprised observers by revealing a record deficit (value of imports in excess of exports) for the month of $68.9 billion, up from September's previous record of $66.0 billion. Analysts had predicted a decline because of lower oil prices that month. But the report indicated that the value of imports rose by 2.7% to a new record high $176.4 billion. Exports rose by 1.7% to $107.5 billion, 0.7% below August's record high of $108.3 billion.

Once again, because of a further decline in oil prices in November, forecasters are looking for a narrower gap. Current estimations call for a deficit reading of about $66.0 billion. The improvement would be a negative for bonds since the higher the deficit, the more it subtracts from gross domestic product. However, a larger than expected narrowing might lend support to the dollar which, in turn, would make dollar-denominated investments such as Treasuries more attractive.

Tomorrow afternoon, the Treasury will be auctioning a new issue of 10-Year Treasury Inflation Protected Securities (TIPS). TIPS differ from conventional Treasuries in that their face value is regularly adjusted according to changes in the Consumer Price Index. Because of this the interest payout amounts fluctuate according to the changes in inflation. At maturity, the greater of the inflation-adjusted principal or the original face value is paid out.

The Treasury has been auctioning new 10-Year TIPS twice a year with reopenings (sales of additional amounts of the initial issues) in intervening quarters. In the last initial issue (July), general demand was tepid with a bid-to-cover ratio of 1.68 versus 1.88 in the preceding initial offering (February) and noncompetitive bids totaled $71 million versus $166 million in February. But foreign demand was solid with indirect competitive bids taking 43.2% of the issue versus 35.9% in February.

The Treasury will also be releasing December's budget figures tomorrow afternoon. In December of 2004, government outlays exceeded receipts by $2.9 billion. Analysts estimate that last month's figures will result in a deficit of about the same size. This would translate into a total deficit for the 2006 fiscal year to date (begun last October) of $133.2 billion, a larger shortfall than the $118.1 billion posted for the same period on the 2005 fiscal year. Large budget deficits are a negative for the bond market because it means the government will have to issue more Treasuries in order to fund its operations. Additional Treasuries dilute the value of those already in the market.

10:30 AM EST : Treasuries showed a little bounce in early trading following stiff losses yesterday but prices are currently hovering at unchanged levels as stocks have shaken off opening losses and are now holding slight gains. There are no major economic releases scheduled for today but positioning for today's Treasury auction of 5-Year Notes is keeping a damper on the bond market.

Though the market has already adjusted somewhat to today's note auction, a number of traders will continue to make room for the new issue by selling the old, bidders will refrain from buying the old issue in order to keep the yield level up (bids are for yield), and other market participants will wait to see how successful the auction is before deciding whether to buy or not. Many traders are wary of how well the new supply will received, in particular, how much foreign demand there will be. Foreign demand has been a key support for the market and there is concern that it may eventually wane. The fact that this week's note offerings will be the first of the new year adds some psychological weight.

Last month's auction produced mixed results. Bids exceeded the offer amount by 2.38 to 1, a weaker bid-to-cover ratio than November's 2.61. Noncompetitive bids, a gauge of individual investor demand, totaled $90 million, down from $183 million in November. But foreign demand was strong. Indirect competitive bids, which include those from foreign central banks, took 43.7% of the entire issue, a much larger portion than the 20.7% they were awarded in November.

Today's note offering will have a face value of $13 billion. The bidding deadline is 1:00 PM Eastern Time. The success of the auction will color trade in the afternoon. But the upcoming economic data and tomorrow's auction of $9 billion in new, 10-Year Treasury Inflation Protected Securities (TIPS) will cap possible upside movement.
Jones Lang LaSalle

New Jersey Resources Named Member of Forbes Platinum 400; Fourth Consecutive Year Company Joins Distinguished Group

WALL, N.J.--(BUSINESS WIRE)--Jan. 11, 2006--New Jersey Resources (NYSE: NJR) was recently named a member of the Forbes Platinum 400, the annual list of America's Best Big Companies, published by Forbes magazine. This is the fourth consecutive year the company has been placed on the list, due to its strong financial performance.


"We are grateful to be recognized again by Forbes for our company's growth and consistent financial performance," said Laurence M. Downes, chairman and CEO of New Jersey Resources. "This recognition reaffirms NJR's place as an industry leader and record of consistent performance."

Each year, Forbes magazine searches 26 industries for companies who stand out above their peers in several areas. To be considered for the list, a company must have revenue of more than $1 billion and rank in the upper half of its industry group for sales and earnings growth, stock market returns and debt to total capital. The list also takes into consideration corporate governance, financial condition and earnings growth forecasts. Once again, NJR was the only New Jersey-based utility among the 400 companies to make the list.

In six of the last seven years, the companies listed in the Forbes Platinum 400 have outperformed the stock market in the 12 months following the list's announcement. A list of all 400 companies can be found online at www.forbes.com.

New Jersey Resources (NYSE:NJR), a Fortune 1000 company and a member of the Forbes Platinum 400, provides reliable retail and wholesale energy services to customers in New Jersey and in states from the Gulf Coast to New England, and Canada. Its principal subsidiary, New Jersey Natural Gas, is one of the fastest-growing local distribution companies in the United States, serving more than 462,000 customers in central and northern New Jersey. Other major NJR subsidiaries include NJR Energy Services and NJR Home Services. NJR Energy Services is a leader in the unregulated energy services market, providing customer service and management of natural gas storage and capacity assets. NJR Home Services offers retail customers heating, air conditioning and appliance services. NJR's progress is a tribute to the more than 5,000 dedicated employees who have shared their expertise and focus on quality through more than 50 years of serving customers and the community to make NJR a leader in the competitive energy marketplace. For more information, visit NJR's Web site at njliving.com.
Jones Lang LaSalle

Avoiding the Landmines: Buying and Selling Commercial Real Estate

By Ilene Dorf Manahan, Contributing Writer

No matter how attractive and straightforward a commercial real estate transaction appears at the outset, buying and selling property can be loaded with landmines. For even the most experienced of developers, changing and emerging land-use, zoning and environmental regulations, on top of existing mandates, can muddy what appears to be the clearest and cleanest of deals.

Leading real estate and environmental attorneys throughout the state are helping clients navigate the minefields by not only being on top of existing regulations, but also monitoring proposed regulations to ensure developers are well aware of potential problems before a handshake gets translated to a signed contract.

While many of the development and contract issues today are the same as decades ago, attorneys agree that the process is more expensive and stressful than before because of the amount of government regulations and the number of land-use approvals needed for a project to get under way. Those approvals are not simply on the local level, but can involve a complicated and ever-changing maze of regulations and departments on the state level.

"Land use in New Jersey is extremely complex and difficult," states Kevin Coakley, a real estate and land-use partner at Roseland-based Connell Foley. "Many approvals are needed, even for minor projects. It used to be that a developer could get local approvals and be on his way. Today, the approval process is very expensive, time-consuming and risky. And it has pushed up the cost of development tremendously. Today, almost no one closes without having needed approvals."

"If a developer wants to use the property 'as is' and not make any alterations, all is well," says Ted Zangari, a member of Newark-based Sills Cummis Epstein & Gross. "But if a use change is requested or there are additions to the property, the developer must go back for land-use approvals. The process has become much more difficult. And beyond the NIMBY (Not In My BackYard) syndrome, you now have BANANA (Build Absolutely Nothing Anywhere Near Anything)."

Lawrenceville-based Stark & Stark Shareholder Daniel Haggerty suggests buyers chart out all necessary governmental approvals - local, county and state - and establish a realistic timeframe for obtaining them. "This can be a lengthy, cumbersome and expensive process. And it adds stress and pressure to the transaction," Haggerty admonishes.

A wise contract contingency would be that the deal is cancelled if the land can't be used as proposed, suggests Frank Wisniewski, a shareholder in Cherry-Hill-based Flaster/Greenberg. A buyer must have sufficient time to get necessary approvals and should not close until he gets them, he adds. While it can easily take as long as three years to get those approvals, Wisniewski maintains it is worth the seller's wait, as the buyer typically pays the seller for an option to buy contingent upon receiving his approvals; additionally, "the buyer is making the property more valuable by getting the approvals."

If New Jersey Department of Environmental Protection (DEP) approvals are required, developers are faced with volumes of regulations, including those dealing with wetlands, which are becoming more and more restrictive and can quickly eat into a site's buildable acreage, and therefore a project's financial feasibility. These mandates are "now moving to the next level, not by wetlands regulation, but by policy," reports Douglas Janacek, director of the real property and environmental group at Newark-based Gibbons, Del Deo, Dolan, Griffinger & Vecchione. "This is both unfair and tough on attorneys, since they provide advice to their clients based on the regulations."

A member of the New Jersey Department of Transportation Highway Access Advisory Committee, Janacek was involved in the formulation and drafting of the New Jersey Highway Access Management Code, one of the most comprehensive highway access regulations in the country. He maintains the DEP's wetlands mandates need to be clear and defined by black-and-white regulation, as opposed to by the gray area of policy. "Fortunately, we (at Gibbons, Del Deo) are involved in multiple projects, so we hear what's going on in the back rooms."
Susan E. Bacso, a shareholder and chairman of the real estate group at Marlton-based Parker McCay, adds that environmental issues not only can add significant time and costs to a transaction, but also typically emerge as the biggest detriment to closing a deal.


"Any buyer without good legal and environmental consultants is just asking for trouble," states Jonathan Stark, a partner at Princeton-based Reed Smith. Steven Picco, also a partner at Reed Smith, who served as assistant commissioner in both the New Jersey DEP and the state Department of Energy, adds that sometimes neither the buyer nor the seller knows all the conditions of a site. Picco notes that insurance products now are available that will cover some upside risk on old commercial or industrial sites that might be contaminated and require long-term remediation. "This provides both sides with some comfort" on how a site's cleanup can be paid for.

Builders also are restricted by such state development plans as the Highlands, Pinelands, Meadowlands and CAFRA (Coastal Area Facility Review) acts, which supersede local ordinances. One of the more recent regulations to emerge from the DEP, which Acting Governor Codey recently put on hold, would restrict sewer hookups and mandate individual septic systems in all but the state-designated development areas. Aside from the general legal issues, attorneys express concern about where the one million new residents expected to move to New Jersey over the next seven years will live.

"With these regulations, the state essentially is stopping development," asserts Wisniewski. "On the one hand, the state wants to create jobs - but it apparently doesn't want to provide affordable housing. Where are people supposed to live?"

Janacek adds, "These new regulations slipped in under the radar, so awareness of them is almost non-existent. They're on the fast track unless something happens. Yet their magnitude and potential impact are staggering, as it appears there are not a lot of exemptions. This essentially will shut down development in New Jersey."

These are just samples of the head-spinning issues that demonstrate how critical it is for developers to have knowledgeable legal counsel as they approach a transaction. While the issues that need to be addressed by the buyer and seller differ, both need protection, maintains Wisniewski. Both can benefit from the comprehensive exercise of "due diligence" to explore fully the condition of any buildings and the property, to ensure no zoning or code violations exist in the structure and to determine whether the site is "clean or dirty" or has other environmental issues that will affect the costs of - or the ability to use - the property as planned. "Any prudent purchaser does considerable investigation of the property, since those issues affect its marketability," Haggerty emphasizes.

"A buyer shouldn't rely solely on input from the seller, but should do his own investigation before consummating a deal, instead of having to bring claims and litigation after the fact," Wisniewski says. Conversely, he urges the seller to disclose whatever he knows about the property to avoid the buyer coming back after the transaction is completed saying there were problems on the site he didn't know about. The seller also should grant the buyer sufficient time to fully assess the site. "If the buyer doesn't do his due diligence and there is (an environmental) problem, the government will charge whoever owns the property with cleaning it up. There are no absolute guarantees, but as a buyer, you have to do your best effort." While at one time due diligence could be accomplished in 30 days, today it can take as long as 60 to 90 days, if not more.

"If you don't do your due diligence, you're buying a pig in a poke - what you bought versus what you think you bought," warns Picco. "Our goal is to ensure that, for both sides, a final deal is really final."

Due diligence extends beyond the state of buildings and property to ownership and tenancy. Wisniewski suggests that if a buyer is purchasing real estate or a company with a transfer of stock or membership interest in an LLC, "a lot of investigating is required to see whether a company has any outstanding obligations." An attorney should ensure that the buyer has clear title and that there are no liens against the property.

If a commercial property is leased, due diligence should include a comprehensive review of all tenant leases and broker agreements, as well as of contracts with such support services as janitors and landscapers. On improved residential property, a "green card" should be obtained confirming state inspections have been conducted, life-safety issues addressed and that the building is habitable.

Purchasers of industrial or office parks need to make sure their due diligence extends to park associations, if any. What fees are the tenants expected to pay - and are they current? Who is responsible for the maintenance of detention basins, for ice and snow removal and for landscaping? Does the association have the right to review and approve - or oppose - any proposed changes in the building? "The association can be another layer of approval, in addition to governmental, before a new owner can build on the property," warns Glenn S. Pantel, a partner in Florham Park-based Drinker Biddle & Reath. "Inheriting less than a neat and clean organization can run into significant dollars."

If the purchase is conditioned upon getting financing, the terms of that contingency should be clearly stated in the contract, since "the prospective buyer is not obligated to buy what he can't afford," Wisniewski says. The buyer must be given a reasonable amount of time to obtain needed financing, which can be as long as three to six months. On the other hand, with rising interest rates and some softening of the real estate market, many developers are pushing to obtain financing and close on their deals as soon as possible, before rates climb further.

Depending on the size of a project, even an eighth-of-a-point increase in the interest rate can mean a significant increase in the cost of a development, notes Russell B. Bershad, who chairs the real property and environmental department at Gibbons, Del Deo.

Attorneys can help identify appropriate lenders for buyers. Parker McCay's Bacso says clients frequently ask their attorneys to recommend commercial bankers. "Different lenders have different customer bases or portfolio sizes," Bacso points out. "With our experience and contacts, we can help direct them."

Bershad says attorneys also can help direct clients to innovative financing options that support redevelopment and remediation, including low- or no-interest loans, tax exemptions, tax-exempt bonds, favorable bond funding, equity-investment loan guarantees, funding loans and guarantees, cost-recovery agreements and the creation of Revenue Allocation Districts within municipal redevelopment areas, where bonds or notes may be secured by a number of special revenue sources.

The Realty Transfer Fee and Farmland Assessment are two high-ticket items attorneys flag for clients. The Realty Transfer Fee is money paid to the state based on the property's sale price. Until about two years ago, the fee was $5 for every $1,000 of the sale price. Today, the fee is $12 per $1,000. While the seller historically paid the fee, attorneys report they are now seeing it as a negotiable item, with the seller and buyer often splitting the fee.

The Farmland Assessment was enacted to encourage continued agricultural land use in New Jersey. If the land is farmed, the property taxes are relatively low - say $500 per acre versus $200,000 an acre for developed property. If the use of the property changes from farming to a developed use, the owner must pay "rollback taxes," the differential between the Farmland Assessment and the real property tax for that year - PLUS the two preceding years. This assessment obviously can be significant, so the buyer and seller often negotiate how the fee will be paid. Drinker Biddle's Pantel adds that if farming is expected to continue on the property, the attorney should remind the new owner to submit an application for a new farmland assessment by the annual August 1 deadline, or the assessment will be lost.

"Often buyers and sellers think they have a meeting of the minds on a deal," says Parker McCay's Bacso. "Then they see the first draft of a contract and it's totally contrary to what they each thought. The buyer and seller each need to sit with an attorney to make sure every 'i' is dotted and 't' crossed to state their position."

She adds that the buyer and seller are approaching the deal from different perspectives. "The buyer is often coming to a deal based on input from a financial advisor. Then the due diligence reveals problems of which the advisor wasn't aware. That can sour the buyer on the property, and he's not as excited about the deal as he was at the outset. The seller, on the other hand, wants to get the most he can for the property and often is not willing to renegotiate the deal. So an attorney has to look at what each client expects, and each client must have flexibility in the contract if issues do come up - whether that means calling for remediation of the property or terminating the contract.

"The goal is to reach a happy medium between the buyer and seller," she concludes. "We want everyone to be content."

"The most important thing I attempt to do with any commercial real estate deal is to draw up a contract that is as complete and clear as possible to the essential terms and to the rights and obligations of each party," says Stark & Stark's Haggerty. Even if a contract provides that it is an "as is" deal, he counsels sellers to disclose any known defects, so there are no problems in the future. "I believe it is prudent to be forthright," he says. "The expectations of each party are important if they are going to get to a closing. A real estate transaction should be a win-win situation for both parties, unless it's a distress situation. There is no reason the transaction should not be amicable and mutually successful. If each side has clear expectations and the transaction is well-documented, there is a better chance of smoothly closing the deal."
Zangari maintains his job is to be well-versed in law, as well as in public policy, "so we can navigate the treacherous federal, state and local waters for clients, help them understand the myriad development issues and help them avoid contentious contract situations. Being an ombudsman for our clients is an added value that attorneys can provide."


Bottom line, perhaps the greatest piece of advice to both buyers and sellers - especially in New Jersey, with its complicated, demanding and frequently changing land-use and environmental mandates - is to make an investment in good legal counsel before making an investment in bad real estate.
Jones Lang LaSalle

Market Shows Signs of Stability
Wednesday, January 11, 2006
By Barbara Nelson

Barbara Nelson is editor of
Real Estate New York .
NEW YORK CITY-Vacancy rates are down in the overall Manhattan leasing market and statistics show a strong demand for the city’s most expensive space, according to Cushman & Wakefield’s Q4 report released today. Throughout the city, the vacancy rate fell to 8.4%, a six-year low, equating to a stable market, said Joseph Harbert, C&W’s chief operating officer for the New York metro area. “We are in equilibrium, but we are not quite where we were in the late 90s, when we all thought the market was good, however.”

Midtown had the lowest vacancy rates in the city at year’s end, with very few blocks of space remaining over 200,000 sf. The overall Midtown vacancy rate declined to 7.8%, its lowest level since the third quarter of 2001. Midtown South vacancy rate declined to 7.4%, it¹s lowest since Q2 of 2001. In the beginning of 2005, 23 large blocks over 200,000 sf were on the market. At year’s end that number declined to five, said Harbert.

Rental rates steadily increased in 2005, with the average asking rent in Midtown rising to $47.41 per sf at year end, more than 3% higher than last year. The average direct asking rent for class A space in the city was $54.41 with Madison/Fifth Avenue class A space averaging $74.29 per sf.

The financial services industry drove the leasing market with 29% of the activity, legal services with 11% and communications and media at 9%. “The most expensive office space, located for the most part on Fifth Avenue, Madison Avenue and Park Avenue, has been leased primarily by financial services, hedge fund and real estate investment firms,” explains Harbert. “Those are the types of tenants who are growing and competing for this type of space.” However, a wholesale tenant was the largest renter in 2005. The Gift Industry leased 417,000 sf at 7 West 34th St.

While overall leasing activity decreased by nearly 14% during the last 12 months, 2005 was a still a comparatively strong year for leasing. Overall leasing activity for 2005 totaled 25.5 million sf, down from 29.5 million sf in 2004. This can be attributed to “fewer firms that gave up excess space, companies that had been marketing excess space for lease took it back off the market and a substantial amount of space was converted to residential use in Midtown South and Downtown,” said Harbert.

Downtown vacancy rates also declined to 10.6%, but leasing activity was at a 13-year low. C&W’s executive broker and Downtown leasing expert Andrew Peretz said much of the leasing activity was space less than 10,000 sf, which doesn't garner attention, and larger space tenants weren’t confident enough in the Downtown market. That he says will change in 2006. Harbert agrees adding that, although Downtown rents are on average $15 lower than rents in Midtown, the latest economic incentives packages approved last year, coupled with decreased space in Midtown will help to spur leasing activity in Lower Manhattan.

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