Mercer Real Estate: Has Bubble Burst?

Is there a real estate bubble and has it burst yet? Although many financial analysts are predicting that things will go from bad to worse in real estate, central New Jersey experts see a different story.

The forecast for Mercer County is the subject of a Mercer County Regional Chamber of Commerce meeting on Thursday, September 20, at 11:30 a.m. at Princeton Pike Corporate Center. Cost: $44. For reservations call 609-689-9960. Panelists are George Sowa, executive vice president and senior managing director of Brandywine Realty Trust; Steve Tolkach, managing principal of Newmark Knight Frank; and Richard Libbey, president of Broad Street Bank Company.

“I don’t even like to use the term bubble. It has such a negative connotation,” says Sowa. While Brandywine’s offices are located in Radnor, Pennsylvania, he is very familiar with central New Jersey and Mercer County. Brandywine owns and operates a number of commercial buildings in the area, including the Princeton Pike Corporate Center.

Sowa, who grew up in Bordentown, began his career in real estate began with an interest in solar housing.

“I wanted to develop solar housing, and I even studied it in college, but the technology just wasn’t there yet,” he says. So he switched to hotel administration, but “pretty quickly decided hotel administration wasn’t for me.”

Although he had decided that solar housing wasn’t a viable career option, he developed an interest in real estate. After college he worked in real estate syndication in Manhattan for several years and eventually joined Brandywine, one of the largest real estate companies in the country. Brandywine is involved in all areas of real estate, including ownership, management, leasing, acquisition, and development of office and industrial properties.

The real estate market is “overheated” in some areas of the country, particularly the Sun Belt states. “You see towers on the waterfront in Florida where there are whole sections without the lights on,” says Sowa. The problem, he says, isn’t that mythical bubble. He sees it as an issue of supply and demand.

Investors who thought they could quickly “flip a property and make a quick buck” often bought several properties and then got stuck. These “secondary and tertiary markets” can be difficult for inexperienced investors to negotiate. “It can be ugly,” he says. “You don’t want to be the last one holding the cards.”

But residential and commercial real estate are two different animals. Sowa stresses the fact that his specialty is commercial real estate. But whether you are buying a home, leasing an office, or investing in a retail development, there are three factors Sowa says are always important.

Knowledge. Knowing the area in which you are investing is crucial, says Sowa. In Princeton, for example, there is currently a “spike” in the supply of office space available. The number of recently completed office complexes and buildings has meant an increase in the number of vacancies.

And while there was some “speculative building on the office side,” says Sowa, he is certain that eventually the demand will catch up. “The demand is okay, the supply is currently just a little out of balance,” he says, adding that, in his opinion, the Princeton area is still “a very good investment.”

Understanding. Because prices are currently so high, investors have no room for mistakes, says Sowa. “You have to understand what you are doing,” he says. In property management operating expenses are escalating, while in the development arena, construction costs and the cost of acquiring a property are also increasing. “You have to understand what’s driving demand and why,” he says.

Location. One truism of the real estate market is that there is constant change. “One location falls out of favor and another becomes successful,” says Sowa. But if you keep abreast of local trends, you can understand why. Everything from a drop in area employment, to the wrong choice of anchor store, to the addition of a traffic light can change the viability of an office or retail location.

One example of a building that has had to deal with a change in traffic pattern is the Crossroads Corporate Center, on Princeton Pike near Quakerbridge Mall. “That was one of the first areas where they took out a traffic light and made it more difficult to get to,” he says. “It has great visibility, but it isn’t easy to get there.”

In retail centers, finding the right mix of stores is crucial, says Sowa. “You have to have the right anchor for the location, then your pizza shops and laundries will come.”

For small strip malls, something as simple as being on the right side of the street is the difference between vacant stores and full occupancy. “You should be on the side of the street for the going home traffic,” he says. People don’t want to stop for milk and eggs on their way to work, but on their way home. If it is too difficult to get in and out, they’ll just drive right past and go to the next store instead.”

And so goes the complicated calculus of real estate swings. Are buildings empty because of over-building, weakness in key area industries, stock market fears — or simply because they are on the wrong side of the street? Whatever the case, just the short history of the Route 1 corridor illustrates the extent to which commercial real estate — like its residential counterpart — is cyclical. If there is a bit of a trough now, there will certainly be new highs down the road. The question for anxious landlords and homeowners is: When?

— Karen Hodges Miller

Monday, September 24

Tighter Rules For Condemnation

It’s got developers screaming in outrage and landowners mopping their brows in relief. In a time when personal freedoms seem to be sacrificed on all fronts, the New Jersey Supreme Court recently moved to halt what many say has become the steamrolling process of eminent domain. In the June, 2007, Gallenthin vs. Paulsboro decision, the court stated that municipalities may only take property if it is blighted. Further, such blight must be fully articulated according to original definitions in the state constitution.

For many municipalities seeking gentrification and higher tax revenues this precedent comes as a real blow. To discuss both the legal and redevelopment ramifications of the decision, the New Jersey Institute of Continuing Legal Education presents “Eminent Domain Update 2007: How Tightly did the Court Rein in Redevelopment?”

This event takes place Monday, September 24, at 9 a.m. at the New Jersey Law Center in New Brunswick. Cost: $179. Visit

The panel includes those who literally wrote the book on the subject. Moderator Edward McKirdy and panelist John Buonocore, both partners in Morristown’s McKirdy & Riskin law firm, have co-authored “New Jersey Condemnation Practice.” Other panelists include Ronald Chen, public advocate of New Jersey; Anne Babineau, an attorney with Wilentz, Goldman & Spitzer in Woodbridge; Robert Goldsmith of Woodbridge-based Greenbaum Rowe Smith & Davis; and Kenneth Meiser of Hill Wallack in Princeton.

McKirdy, who was born in Newark, earned a bachelor’s degree in English from Harvard (Class of 1958) and a J.D. from Yale. He first practiced for a private firm, and then took a position as deputy attorney general for New Jersey’s Department of Transportation.

“I was a young lawyer who really stepped into it,” he recalls. “This was the mid-1960s when Routes 80 and 287 and so much of our infrastructure was being built.” McKirdy had to balance his innate sense of fairness against the need to acquire thousands of acres of very prime, long-held land.

After this trial by fire, McKirdy teamed up with fellow deputy attorney general Harry Riskin in l967 to form McKirdy & Riskin, ( This seven-attorney firm continues to concentrate on condemnation, eminent domain, and real estate tax appeals. McKirdy has gained renown in the field, being named Professional Lawyer of the Year by the New Jersey State Bar in 2005.

“The State Supreme Court’s Gallenthin vs. Paulsboro decision basically reins in the current condemnation land rush and its loose definitions, and hauls it back to the Constitutional intent,” says McKirdy.

These are the facts of the case: In 2002 George Gallenthin’s 63-acre parcel came under the scrutiny of his Paulsboro neighbors BP Petroleum and Dow Chemical. These two firms commissioned a study that, in essence, outlined the transportation benefits available to them and the town if the property could be seized to increase access capabilities. The town of Paulsboro agreed, stating that the land was blighted, because it was “in need of redevelopment,” and “not fully productive.” Gallenthin sued. The court determined that he had made a good case.

Rubber stamp seizure. “I see trees of green, clouds of white; nothin’s goin’ on, so this must be blight,” chant several bloggers who have summed up the Gallenthin case.

More precisely, if less lyrically, McKirdy states that the eminent domain process has often become a rubber stamp procedure with few checks and no balances beyond the courtroom.

As New Jersey becomes increasingly built out, municipalities have been casting covetous eyes at newly desirable areas such as waterfronts. Typically the process to condemn and acquire the land for other purposes, often upscale housing, begins in the town council, often with an eye toward increasing tax revenue.

If they could only replace those old, low-income units with gentrified, higher-class homes, imagine the property tax relief.

At this point the municipality turns the redevelopment over to the planning board, which outlines what the city fathers want. The planning board then hires an expert to verify bad the current situation is, and how bright the future would be with redevelopment.

Frequently, a less-than-disinterested developer may volunteer his own expertise, or supply his own outside expert.

“I have been in this business 40 years,” says McKirdy, “and not one case of the planning board’s disagreeing with the town’s project comes to mind. Any area desired for redevelopment is invariably designated as blighted.” Thus, the land is seized and redevelopment begins.

Gallenthin’s reassessment. In its June, 2007, decision the New Jersey Supreme Court stated that it was no longer enough for planning boards to “give a bland recitation” of the area’s condition. The government could only seize land that was blighted and the authentication of the blight must be fully articulated.

Such careless definitions as “in need of redevelopment,” or “not fully productive” no longer serve as an excuse for seizure. Instead the court redefined property justified for condemnation as “containing deterioration or stagnation that negatively affects surrounding properties.” The aim of this wording is to return the possibility of taking land by eminent domain to situations where there is unhealthy sanitation, unclean water, fire hazards, spreading pollution, or other extreme blight.

The argument that a certain group can make more money from a given parcel of land than its current owner, thus making the land blighted, will no longer fly. “After all, if that’s the criterion, virtually no one could hold onto their land,” says McKirdy.

Unjust compensation. Since the law demands landowners be paid full market value for their condemned property, many people view condemnation as invariably fair, and even a windfall for the owner.

“The idea of just compensation is a complete fairy tale,” insists McKirdy. The appraisers are hired by the state or the agency buying the land, and typically act as their agents, seeking the lowest possible price. Even if the landowner hires his own assessor and attorney and actually gains full market value, he is still out the fees paid these professionals. (Several other states pay landowners for such experts’ fees, but not New Jersey.)

Additionally, landowners only receive recompense for tangible assets. The bricks and mortar of a local clothing store are reimbursed, but no one pays the store’s owner for three generations of goodwill, his displaced client base, and all the non-tangible business assets.

If one’s land is seized for an improvement, perhaps transportation access, the value of adjacent lots may rise several fold. Thus neighboring lots all increase in value, but the seized property is only reimbursed at the original, predevelopment value.

The United States was founded as a rebellion against capricious governments whimsically seizing land, so it is not surprising that recent attempts to replace streets of bungalows — some handed down from generation to generation — with upscale condos has met with resistance.

The Supreme Court of New Jersey, responding, has steered municipalities back toward the original intent of the eminent domain process. — Bart Jackson

Tuesday, September 25

Women Working Overtime

Are women squandering their education to stay home and tend to their children? Christine Percheski, a graduate student in sociology and demography at Princeton University, has looked at the data and is documenting trends in women’s professional employment. Percheski cites a New York Times article from a few years ago that contends that women in their 30s in professional and managerial occupations were increasingly leaving to have children. The article was anecdotal, so Percheski decided to look at the numbers.

Percheski’s research explores how the employment of women in the professional and managerial occupations has changed over the past 45 years. Her data is from the census and from the American Community Survey, also collected by census bureau, between 1960 and 2005, a total of 390,736 cases. Because of the quality of her data, she says, “you can be pretty sure the trends you are seeing are real.”

Percheski speaks on “Cohort Differences in Professional Women’s Employment” on Tuesday, September 25, at noon at 300 Wallace Hall on the Princeton University campus.

Percheski shares some of her findings:

Women work more. Looking at women born between 1906 and 1975, Percheski found that those born in more recent years are working more than in the past. On the other hand Percheski did not see much change over time in the cohort born between 1956 and 1975

More women working full time. Women’s labor force participation today is near 90 percent, although not all of the work is full time. Full-time, year-round employment is still quite high, a lot higher than it used to be, at slightly over 50 percent. What’s more, the percentage of women working more than 50 hours a week has greatly increased, and, in the two recent cohorts, born between 1956 and 1975, it is hovering around 15 to 17 percent.

To get a sense of whether these changes were unique to women or simply an example of changes that affect all employees, male or female, Percheski also compared women’s employment to men’s. She found that men were also working more hours, but the big increases in full-time, year-round work was unique to women.

Busy women postpone motherhood. Although Percheski did not find that women were having fewer children as a result of working more, in the most recent cohorts they are having children later.

Women still lag in top jobs. Perscheski found lower percentage of college-educated females than males in professional and managerial work. Since 1956 15 percent of college-educated males have been professionals and managers, whereas only 2.5 or 3 percent of college-educated females fall in the same category.

Women don’t shy away from traditionally male fields. Some people think that women have shied away from the historically male, prestigious professions like law, medicine, and accounting in preference to teaching, social work, and library science. But Percheski found that women’s employment has increased in both sets of professions at the same rate.

Although the percentage of women with advanced degrees who are not working has decreased (to about four-and-a-half percent of women ages 25 to 45 who are not enrolled in school and have an advanced degree), more women in total have advanced degrees. As a result, most people know a female doctor, lawyer, or corporate financier who has chosen to stay home, and, Perscheski conjuctures the reason is that the total number of women with advanced degrees is so much higher.

More mothers of young children are working. Although most women with young children are working, the biggest difference between those with and without young children occurs in full-time employment (where women with young children are somewhat less likely to work) and in working more than 50 hours a week (where women with young children are much less likely to work). Before 1956 there was a more dramatic difference in workforce participation between women with and without young children.

Percheski grew up in Marlboro, Massachusetts, where her mother is a high-school English teacher and her father works in finance. She received a bachelor of arts degree in sociology from Dartmouth University in 2001. She has always been interested in social issues and problems and thought in high school that she would go to law school. After working at Harvard University’s data archive and research center, she realized she wanted a career in research.

Although Percheski thinks that the percentage of women working in professional and managerial occupations may increase, she notes that the last 20 years have not seen much change. “Without a substantial reorganization of work and family life,” she says, “we won’t see the big increases from one generation to the next that we saw in earlier cohorts.”

Businesses, she says, don’t have to worry that an increasing percentage of women are leaving the work force. “Women are working more than they ever were,” she says, “and businesses shouldn’t be scared off by newspaper stories that suggest otherwise.”

Percheski believes there is room for women to work more, but, she adds, “whether they would under the right employment conditions is hard to tell from my data.”

As a country, she concludes, “the percentage of our workers routinely working over 50 hours a week and in families where two people are working has grown.” She doesn’t think that this trend is good for women — or for men. Says Percheski: “It doesn’t leave enough time, in my opinion, for other things in life and the necessities of running a household.”

— Michele Alperin

Wednesday, September 26

Making the Most Of NJ’s Life Sciences

David Perlin, director of the Public Health Research Institute at the University of Medicine and Dentistry of New Jersey, looks at the future of the life sciences industry from an avowedly academic perspective. Yet his institute, which focuses on infectious disease research, also has a pragmatic mission. According to Perlin, it emphasizes translational studies that take laboratory research and make it relevant to clinical applications involving diagnostics, vaccines, and therapeutics.

Perlin’s group focuses particularly on detecting bacterial or fungal pathogens and associated drug resistance that cause disease and death in immunosuppressed patients with diseases like AIDS or cancer. The institute also studies the mechanisms of resistance to antifungal drugs. To detect pathogens, researchers use molecular beacons, a technology invented at the institute; they are DNA probes with light-emitting molecules that light up when they bind to the desired target.

Perlin is on a panel on the future of the life sciences industry and its impact on products, services, and the regional economy on Wednesday, September 26, at 4 p.m. at the Public Health Research Institute at 225 Warren Street in Newark. The event is sponsored by the New Jersey Technology Council. Also speaking will be Julian White, chief executive of White Rose University Consortium in York, United Kingdom. On that date the NJTC will also release for discussion the results of the its industry survey of life science companies throughout the world. Cost: $60. Call 856-787-9700.

The UMDNJ institute has helped companies design diagnostic products for bloodstream and fungal infections through its accumulated experience with technology transfer. As Perlin has partnered with industry, though, he has felt that the transfer of laboratory discoveries from bench scientists in the public sector into corporations in the private sector “is not very efficient.” He notes several challenges that need to be addressed:

Lack of mutual understanding. “Most academics don’t understand how business works, and business doesn’t understand how academia works,” says Perlin. “Business needs to understand the types of discussion that go on in academia and needs to help scientists convert discovery into real products.”

Resources available but not used. Perlin says that businesses are losing opportunities by not appreciating the resources available in New Jersey, both for discovery and for clinical trials. “There’s a gap between what is available and what is taken,” he says, and, as an example, cites the strengths of his institute, which is located in Newark.

It is one of the best infectious disease programs in the state, if not in the Northeast, and has biosafety level 3 facilities second to none on the East Coast, he says. The problem is that these resources are being underexploited. “We have resources and infrastructure that are not being properly utilized outside of academic circles,” he says.

More dialogue necessary. If there are obstacles, for example, to running clinical trials inside the state for appropriate products, Perlin says that they need to be addressed. Looking in particular at the institute’s work, he suggests that pharmaceutical companies might do well to initiate conversations with researchers on drug resistance at an early stage to improve the prospects of success for a new drug.

More regional investment. “If you look at where pharma and big biotechs put their money,” says Perlin, “it is not specifically in resources in the state.”

Perlin graduated from Brandeis University in 1976 with a degree in biology. He has a doctorate from Cornell University in plant biochemistry and did postdoctoral fellowships at Yale University and the University of Rochester. He came to the Public Health Research Institute in 1985 as the equivalent of an assistant professor, became scientific director in 1992 and president in 2005, and he is now the director. — Michele Alperin

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