To a commercial real estate industry battered by the economy, Peter Cocoziello, president and CEO of Advance Realty Group, based at Riverview Plaza in Trenton, offers terse advice that may be easier said than done: “Those who will be patient will be rewarded.”
Sitting tight is tough in an industry experiencing so much change. With credit markets weak, more businesses shrinking than expanding, and government stalling the process of acquiring permits, nightmares are replacing dreams among commercial real estate executives.
Cocoziello will moderate a discussion about the business environment titled “What Keeps You Awake at Night?” at a meeting of NAIOP’s New Jersey chapter on Wednesday, September 30, at 5:30 p.m. at the Heldrich Hotel, 10 Livingston Avenue in New Brunswick. Cost: $150. Register online at njnaiop.org, or call 732-729-9900.
Other speakers include Mitchell Hersh, president and CEO of Mack-Cali Realty Corporation, 1 Independence Way; and Ed Russo, president and CEO of Russo Development in Totowa.
Limitations. Capital markets are limping along with limited debt and equity capital that, if available, is also more expensive. “Credit markets have determined substantially for all business — even for Main Street-type businesses that would borrow against receivables — that financing is either nonexistent or difficult to obtain,” explains Cocoziello.
Big institutional investors like pension funds and insurance companies, which have invested in real estate to reduce overall risk by mixing assets, are doing very little. The result is a somewhat frozen market, says Cocoziello. Therefore, if a commercial real estate owner needs to renegotiate terms and conditions for a loan on a property, the only lender is your existing lender. Those institutions, he adds, have been willing to cooperate in most cases.
Caution. The lowered demand for goods and services is translating into less demand for space. Businesses are looking to reduce costs; not to expand their businesses and lease more space. And sometimes it’s worse than that — occupants of buildings are looking to take less space to reduce the overall cost of their occupancy. About how this affects himself and his colleagues, Cocoziello says, “it means you’re very stressed.” And all he can advise is patience.
Delays. Government regulations and delays in granting permits are stalling the economy further. “Whomever is elected as governor in New Jersey will need to carefully look at the permitting process and needs to streamline government regulations in order to ease and facilitate businesses to overall stimulate the economy,” says Cocoziello. Towns are taking a long time to process the approvals needed for new building, and the costs of permits are very high, he explains.
These roadblocks in turn can stall the entire local economy. “When a building goes up, you are employing a large number of people and improving ratables in the community. There is a significant multiplier effect when people can build,” says Cocoziello, who has in some cases spent three years getting all the approvals he needs. “Somebody needs to recognize that it is a deterrent to our economy and our state. The whole system needs to be overhauled.”
The same delays occur for permits to do environmental cleanups. Cocoziello explains that when he sets up his cost structure, he has already anticipated costs of a cleanup but not necessarily the project stoppage that occurs while awaiting a bureaucratic decision. He would like the regulatory process to support prompter decisions.
Other than patience, Cocoziello’s best advice to his industry colleagues is to review all aspects of their businesses with an eye to potential savings. “You have to be creative in your business model so that you can become sustainable and position yourself for the future,” he says. “This involves how you look at your operations, organize your people, and how you pay your bills — everything’s up for grabs.”
One example, which can be particularly true in older companies, is having embedded or “legacy” costs that need to be reevaluated for their current contribution to the organization. Examples may be $10,000 yearly donations to a charitable group or ownership of 10 season football tickets.
“You need to cleanse your balance sheets,” says Cocoziello. “You may have assets that don’t really fit your business model and take a lot of time. Consider selling those assets in order to make sure your business is focused.”
Cocoziello, a 1973 graduate of Penn State, started Advance Realty Group in 1979; the company does real estate development, construction, and property management between New York and Washington. His first purchase was a vacant lot in West Orange where he developed a 14,000-square-foot office building. From there he moved on to single-family homes and town homes and finally to build-to-suit commercial office space.
Today the company owns and operates more than 5 million square feet of space, with another 6 million in commercial real estate and more than 5,000 apartment units in development and waiting for approvals. His company employs approximately 80 people.
In the end the problems in the commercial real estate industry land right at the doors of state and municipal governments, suggests Cocoziello. “With the overall real estate recession and the devaluation of real estate, municipalities will have fewer ratables to assess, therefore tax revenues will be less.”
He poses the implications of a frozen commercial real estate industry, in particular for municipal governments: “Can they be sustainable in revamping the overall budget so they don’t have deficits or be forced to go to citizens and ask for tax increases?”