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The Garden State Law Podcast discusses all things legal in the state of New Jersey. Presented by lawyers from Saiber LLC, the Garden State Law Podcast highlights trending topics in litigation, transactional law, real estate, and more.
Tim Lough 00:09
Good afternoon and welcome to the Garden State Law Podcast. I'm your host, Tim Lough, Director of Business Development and Marketing at Saiber LLC, a full service law firm headquartered in Florham Park, New Jersey. Today, I'm joined by Justin Calta, Justin's a transactional attorney with Saiber, who focuses his practice on real estate, land use and corporate law. Justin, thank you for joining me.
Justin Calta 00:29
Thanks, Tim. Pleasure to be here.
Tim Lough 00:31
Today, we'll be discussing a hot topic in New Jersey, and that is the development of commercial warehousing. Now, if you've lived in New Jersey, you know that space can be tight, and that people expect to have things delivered pretty much immediately, two things that don't necessarily go together, which is why warehouse space is a particularly hot commodity. Now, just that brings me to my first question to you. What is the current state of warehousing in New Jersey? And why is warehousing so significant here compared to other areas of the US?
Justin Calta 00:59
The best way to answer that question is to take a step back in time to the late 90s - early 2000s. Most people did their shopping through physical retail locations. If you wanted to buy something, you got up off your couch, went to a store, checked it out and bought it. Around that time, Amazon started building up. They weren't the only e-commerce or e-tailers preferred player in the market, but they started scaling operations. Then they rolled out Prime, where you could click a button and within 24-48 hours, whatever you wanted to buy showed up on your front step. Whereas prior to that, it was a much different experience early on in the internet. You were a little leery about sending financial information out, things would take a week or longer to get there, and shipping was more expensive. So that had been continuing on, physical retail was sort of evolving, and then in late 2019 - early 2020, the pandemic hit and nobody was going out anymore. People were buying things that they'd never thought to even purchase over the internet. Things like milk and eggs were now being delivered through online transactions. And we're still there a little bit. In order for that magic to happen, in order to turn a click into a box on your front porch in that short a timeframe, there needs to be robust warehousing and infrastructure development that supports the whole process. So it doesn't all just occur in one building. It's warehousing, it's picking and sorting centers, it's the last mile distribution centers, it's administrative space. It's pretty robust, and you don't really see it. You just see the Amazon trucks out, you might drive through an industrial park, you might see large warehousing spaces. But you know, it's a complex and pretty well built, well oiled machine that turns that click into a box. Now, with a particular emphasis on New Jersey, we're pretty attractive for somebody that wants to put up a warehouse. The reason is we're proximately located between two major metropolitan areas in the New York metro area, we have access to major interstate, intrastate and thoroughfares, we have major airline hubs, major railway stations, and also have something not every state has, seaports. We can literally get a boatload of shipping containers full of merchandise that can be offloaded into a warehouse and then distributed to the region writ large. So, with the backdrop of everything I just said, the explosion of e-tail among other things, since warehousing is not just e-commerce, but it's the easy example we give, as well as, the demand for that space in New Jersey, which is incredible. As of a couple months ago I read vacancy rates were around 1 or 2%. So, there has been a large increase in development applications seeking to put up warehouses or similar infrastructure in New Jersey.
Tim Lough 04:28
So one thing that also makes Jersey unique is that it's a very heavily regulated state. So what is the current state of regulation with New Jersey and warehouse development?
Justin Calta 04:39
So the regulation of development in New Jersey is largely delegated to municipalities on an individual basis. And there's something like 500-501 municipalities in New Jersey, so it gets pretty complicated if you want to put up something like a large warehouse that has a regional effect. But by and large, the regulation of warehousing is almost stuck in the late 90s - early 2000s. It's not unusual to see in a given municipality, New Jersey for instance, an industrial area where warehousing is permitted and they just tie a couple of regulations to it. You have to have X number of parking spaces based on the square footage of the warehouse, your drive aisles need to be yay-big, we want to see some landscaping, some lighting, which is... I don't want to say it hasn't worked... but it doesn't account for the nuance in what warehousing really needs. As the size of the warehouse goes up, the impacts on development are increased, the more the municipality wants to try and offset the impacts of this development. Now, all development has impacts whether you're putting up a single family home or a million square foot-plus warehouse. There's going to be an impact on the surrounding environment, surrounding roadways and other municipal infrastructure and quality life issues, truck traffic, light pollution, noise, things like that. And, together with the explosion in warehouse development applications in New Jersey, it's sort of caught the eye of regulators, and municipalities have been struggling with how to tackle this. So the New Jersey State Planning Commission, being one of those agencies, adopted recently the warehouse siting guidelines, and it's basically a compendium of recommendations that they make to municipalities for how to tackle this issue. And it hits some of the highlights that we just discussed, you know, that they'd like to try and take a regional approach to development, get input from surrounding areas, because the way it works in New Jersey, again, is the municipality where the warehouse is situated is one that sets the tone or the regulations, even though something like a large warehouse has an effect on the surrounding region, it's not just necessarily that municipality. So they recommend the regional approach. They want to recommend trying to locate warehousing sites away from residential areas, or in a way that's situated away from residential area and doesn't require travel to or near residential area to get to a major highway. So they want to see it try and locate where housing developments along major highways, along railways, things like that. So that's how it's been developed. And that's where we're taking towards. Municipalities are taking what the state planning commissioners recommended and they're taking a hard look.
Tim Lough 07:44
So how are some of these towns offsetting some of the impacts of development?
Justin Calta 07:48
Development regulations, ordinances, more specifically in New Jersey, an ordinance is, is law that's passed at the municipal level. They have effective law, and it's a democratic process that needs to be carried out in the open. So it moves at the speed of government. You can't just change things overnight. In certain circumstances, the law requires that you give affected people notice and ability to be heard, to the extent that it affects property they own or if they're in a contract to purchase, develop, and everything like that. So we're early on in the process because of how much time it takes. And as you know, as the development process continues, towns are looking at other towns, trying to learn lessons from what went right and what went wrong. So some towns are just saying, "no, we are overbuilt, we don't have space that can accommodate it without the impacts being too great such that we can't really offset them." Some towns that do that are just taking a firm no, some towns are permitting existing warehousing applications that were pending, to finish up, and then I think they're going to reassess and maybe go through a reworking of their zoning code to see if they can accommodate warehousing. And some towns are, to be frank, relatively open to it. Some towns are really taking the State Planning Commission's guidelines seriously. But again, it's gonna require a change at the local level, which you know, is embossed with these democratic procedures that do take time.
Tim Lough 09:32
So what are some of your thoughts on how development will unfold over the next few years?
Justin Calta 09:38
I think it's going to continue along that sort of three prong approach that I've just laid out. Some towns are going to continue to say, look, we're overbuilt... we can't take it... you can't do it here. They're gonna get sued. Some have been sued, that litigation also moves slowly. That litigation is shaking out. Some towns are settling some towns aren't. I think you're gonna see some towns take a middle approach, maybe not wholesale revise their zoning regs to account for what the State Planning Commission's recommended but take applications on a case by case basis and try to tamp down on overbuilding, which is a concern. That's something municipalities want to take a hard look at. And then other towns are really going to go through a sea change of regulations. Updating their master plan, the master plan is sort of the document that lays out the development vision for the entire town, not necessarily just development. But zoning regulations in New Jersey have to be consistent with the master plan. So they may want to update the master plan. That takes time, that's got to be done in public at hearings so people have an opportunity to be heard. Once that's updated, they can go through and enact new zoning ordinances... that also takes time. So some towns are just going to say no, we don't want it. Some are going to continue along their existing track of dealing with applications on a case by case basis. And I think you're gonna see some towns that continue along the real reworking of their zoning regulations to specifically address this issue. But I think the bottom line is, whether you're concerned about warehousing development or you're trying to put it up, I think it's going to be more complex. You're adding a layer of concern and regulation that didn't necessarily exist prior to this. It's going to take longer, it's going to be more expensive. You're going to need a robust development team. And part of that development team is going to need to be an attorney who can really navigate you through some of the legal challenges to make sure that everything is being done right and you're being treated fairly. Again, whether you're concerned, you're opposing it, you're trying to put it up, I think it's indispensable at this point in time to really have an attorney that can guide you through that complex process.
Tim Lough 12:13
Well, it's certainly something we're going to be keeping an eye on here in New Jersey for years to come. Justin, thank you for joining us today. Thank you should our listeners have any questions for Justin you can reach him at 973-232-0618 or JCalta@saiber.com. That'll do it for today's episode of the Garden State Law Podcast. We'll be back soon with more discussion on the legal issues that impact businesses in New Jersey today. Thank you very much. Have a great day and thank you for listening.