New Jersey's New Emerge Tax Incentive A 'Game-Changer' For Office Market, Developers Say
A New Jersey tax incentive that was signed into law as part of a pandemic relief bill is prompting businesses to think about moving offices to the other side of the Hudson, according to brokers and developers in the New Jersey waterfront market.
The Emerge Program, signed by Gov. Phil Murphy earlier this year, is a $14B fund that provides tax credits between $500 and $4K per employee for the creation of an office space, lab space, logistic space or other facility that adds private funds to the state and creates jobs.
“I think it's a game-changer for New Jersey,” The KABR Group Chief Operating Officer Michael Goldstein said on a panel during a Bisnow Digital Summit on New Jersey’s Gold Coast this week. “What New Jersey has done with the Emerge program has made us a viable option where you can come here, and you can spend 25% of what you spend in Manhattan … and be in Class-A, great space.”
Established as part of the New Jersey Economic Recovery Act of 2021, the state began accepting applications for the program at the end of May, but none have been approved yet, according to Jake McNichol, a spokesperson for the New Jersey Economic Development Authority, the agency that runs the program.
The program has minimum investment requirements. The investment threshold for industrial projects, which includes logistics buildings, research and development buildings and warehouses, is $60 per SF for new space and $20 per SF of renovated space. Meanwhile, the investment into new space must be $125 per SF while renovated space must be $40 per SF.
“The Emerge program is a well-crafted, targeted tax incentive program that will drive job creation and equitable economic growth throughout New Jersey,” Murphy said in a release announcing that application.
In order to apply, businesses must show they will create at least 35 full-time jobs in the state. With an intention of pulling the hardest-hit communities back up during the state’s pandemic recovery, it will give preference to certain areas and communities within the state, according to the EDA.
Eighty percent of employees that are counted to receive the tax credit must pay New Jersey income taxes and 80% of their work time must be spent in New Jersey — a key sticking point amid the hybrid and remote work debates.
Already, companies that wouldn’t have otherwise looked at office spaces in Jersey City or Hoboken have been touring because of the program, Goldstein said.
“It's just another tool for us to be more competitive with Manhattan and New York overall," Mack-Cali Senior Vice President of Leasing Ed Guiltinan said. “So I think that further benefits the waterfront specifically and makes us much more competitive.”
Emerge was enacted two years after a similar tax break measure used to bring companies into New Jersey under former Gov. Chris Christie expired.
“New Jersey has been at a disadvantage since our incentive programs lapsed,” Skoloff & Wolfe partner David Wolfe said. “It's exciting to be able to talk to potential tenants … that there is now an incentive program in New Jersey that will help pay for your cost to move and subsidize your rent in New Jersey, which we had lost."
This is particularly important for attracting tenants that want to sign big leases, Wolfe said.
“I think that those are a vital component,” he said. “And that's probably why you saw those types of leases kicking in after that program started.”
While Wolfe predicts the program will be a net-positive for office leasing, much is still unknown about how the program will actually impact the market because of how recently it was passed.
“It’s brand-new,” Wolfe said. “Anyone who says they're a real expert … they may be exaggerating.”
Currently, something else is driving lease deals along the waterfront — the life sciences sector, panelists said. Over the past four years, international life sciences companies have flocked to Jersey City and Hoboken, according to a 2020 CBRE report. An absence of new construction has meant net lease pricing for lab space in New Jersey increased between 10% and 15% from mid-2020 to Q1 2021, according to a new CBRE report released Thursday.
Eager to get in on the action, developers are looking to turn some traditional office space into labs and life sciences buildings. Wolfe said he is working with a developer who is currently repositioning a Jersey City office asset into life sciences and another developer who is looking to buy and reposition, he said.
“I think there is a lot of enthusiasm to look at some of the waterfront assets and explore whether or not they're suitable for lab or life science projects because of the significant price differential and the savings that tenants could achieve when you look at New York versus Jersey City,” Wolfe said. “It's a huge investment to go from a standard office building and turn it into one of these buildings to then be able to lease it out. But there's definitely an appetite for investors to do it.”
The sector continued to be a source of deals during the pandemic, Guiltinan said, ushering in more interest in the repositionings.
“While office space kind of hesitated, life sciences was extremely active,” he said “So a great number of owners and developers took a look at, ‘Should we position or repurpose some of our buildings to be appropriate for life science use?”
Life sciences tenants interested in this space need it almost immediately so, in order to meet the demand, developers have to build speculatively, he said, which can be a scary prospect for some.
“You have to spend the money upfront," he said. "Do it speculatively and you're at risk."