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NEW BRUNSWICK, NJ-Even in turbulent economic times, there are opportunities for success in commercial real estate and business in general. Three industry leaders discussed the issues, focusing on “what keeps you awake at night,” and offered their insights and suggestions for getting a good night’s sleep during yesterday’s NAIOP-NJ Chapter Meeting, held at the Heldrich Hotel here.

Moderator Peter Cocoziello, president and CEO of Advance Realty Group, kicked things off by referencing Rutgers University’s newly released recession report, which sites a loss of more than seven million private sector jobs nationwide over the course of the past 20 months. For its part, the Garden State is down 148,000 jobs in just two years.

What’s more, the report predicts it will take around 7.6 years for employment levels to return to post-recession numbers. “This means we will not recoup these jobs until 2017,” said Cocoziello. “As a result, we will likely see a reduction in our standard of living.”

Mack-Cali Realty Corp. president and CEO Mitchell Hersh shared many of Cocoziello’s sentiments, but offered more optimism. “Although job creation is uncertain, we’ve seen some stabilization over the past year,” he noted. “Ultimately, we are a creative and innovative state, and there are opportunities for global companies to grow and expand here.” That said, we will also see “enormous consolidation in every sector,” he admitted. Hersh also pointed out that this particular economic cycle is very different from past downturns. “Even during the RTC crisis, we saw some structure and better organization. There is a concern that perhaps we are attempting to do too much too soon in Washington.”

When asked what keeps him up at night, Russo Development president and CEO Ed Russo responded, “My one-year-old triplets, not the recession.” All joking aside, “the market has changed so much on the financing side,” he reflected. “Most of the lenders we were doing business with are no longer active in the market today. And while we are certainly trying to do deals, we are not doing anything on the acquisition side right now.” Above all else, Russo noted that the availability of capital, or lack thereof, is the single largest issue facing real estate.

Asked about the role of REITs in today’s market, Hersh noted, “in general, REITs have had the mantra of modest leverage. And to some degree, public investors are making a bet that well-positioned REITs will be strong survivors of this debacle,” which makes sense, he added, “if you look at the fact there is $1 trillion of securitized debt and a precipitous decline in values, combined with fear and uncertainty in the market.” As a result, capital has flowed in significantly to the REIT sector. Still, the only investment opportunities Mack-Cali has seen thus far are in secondary product, which, according to Hersh, “we are not interested in. We will know when to the pull the trigger, but we have not seen any indication that it is time.” He added that it could be another two or three years before the company invests.

Following Hersh’s remarks, Cocoziello asked Russo where we will be one year from now. “I don’t think the market will be significantly different,” he replied. “We are getting close to the day of reckoning, but we’re not there yet.” Russo added that the devaluation of assets has the potential to create major problems for owners, especially with some properties seeing a 20% to 30% decrease in value over the past year. “In late 2010, things even have the potential to be a little worse,” he concluded. “Fundamentals are not yet improving,” Hersh chimed in. “But we should start to see some economic expansion over the next year or two.” Still, he said, “the $800 billion, or so, of securitized debt that is coming due is a real risk to the system.”

Hersh agreed with Russo that asset devaluation is a major hurdle. “Stuyvesant Town in New York City is the poster child for devaluation,” he said, noting that it was purchased for $5.4 billion, not including capital requirements. “The buyers bet on continued economic prosperity and deregulation of rent control.” Looking ahead, Hersh predicted that banks will take write-downs and try to recreate value over a period of time.

Like most meetings in the Garden State, the night would not have been complete without a debate about New Jersey’s ability to attract new business. “Can the state really be business friendly?” Cocoziello asked.

Russo responded in the affirmative, “Absolutely. My personal experience is that it’s difficult to get approvals, but New Jersey has the tools to compete with other states.” However, he noted, “the state needs to be more aggressive and proactive. It will be interesting to see what happens after the election because there is certainly some room for improvement.”

According to Hersh, the state has made a good deal of progress through initiatives such as Smart Growth. “And while the tax burdens are excessive, they are not outlandish,” he said. “However, we have some very aggressive neighbors so we need to do more.” When it comes to image, Cocoziello thinks New Jersey has its work cut out. “The image of the state is appalling,” he said. “And more needs to be done to counter this impression.”

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