North Jersey landlords pump up the power post-SandySunday, October 20, 2013 Last updated: Sunday October 20, 2013, 2:10 PM
BY LINDA MOSS
STAFF WRITER
The Record
Since Superstorm Sandy battered New Jersey nearly a year ago, it hasn't been business as usual at Alfred Sanzari Enterprises.
The Hackensack-based real estate firm — which owns and manages more than 6 million square feet of commercial, industrial and residential properties — has taken several emergency-preparedness measures. Most of these were in response to concerns and requests from tenants, said David Cali, Sanzari's vice president of property management.
The company is upgrading four of its emergency generators, including one at its Court Plaza office complex in downtown Hackensack, he said. It has also bought portable flood-protection barriers, called AquaFence, for that property. In addition, Sanzari has contracted to use temporary generators and supplemental heating, ventilating and air conditioning units during natural disasters.
Addressing communication issues, Sanzari struck a deal with Send Word Now, a Manhattan company, to set up a portfolio-wide emergency notification system. This allows Sanzari to quickly disseminate information about its properties to commercial tenants and employees through phone, email and text messaging.
Generators, emergency plans"You need to have some level of emergency preparedness in place, and the ability to react quickly in the event of a crisis," Cali said. "If you don't have the basic necessities in place to make that happen, you're going to be behind the eight ball."
In the wake of Sandy, North Jersey commercial landlords are facing a lot more questions, and demands, from current and prospective tenants. In the past, tenants may have been lax when it came to due diligence, several landlords said. Now, business continuity during a calamity is a tenant priority.
Tenants are armed with a checklist of questions regarding how a building fared during the Oct. 29 tempest, and are inquiring about a property's emergency plans, flood-zone status, generators, redundant systems, cloud services and even whether the building's electrical systems are out of harm's way.
In response, and to stay competitive, Sanzari and other landlords have taken steps to protect areas that house essential building services such as boilers, electrical rooms and telecom conduits.
For example, landlords are buying generators or teaming with tenants to install them in buildings. Post-Sandy, some tenants are demanding generators powerful enough to keep their businesses operating in the event of a prolonged power outage.
"Many of the landlords have instituted protective measures for when storms do occur," said Bob Martie, executive vice president for Colliers International in New Jersey. "How else do you remain competitive unless you take these measures and have them in place?"
To prepare for the next disaster, tenants and landlords are reviewing their leases to address issues regarding insurance policy limits, deductibles, liability for repairs, termination or reducing or abating rent payment.
"Good leases can help prevent bad problems," said Jerry Nelson, a real-estate law specialist with the Stark & Stark law firm in Lawrenceville.
A number of North Jersey real estate executives said the same thing about post-Sandy leasing: During walkthroughs, tenants today have a long list of questions.
"People are asking not only is it in the flood zone, but did this building flood?" said Martie. "And they want representation if it did or it didn't. Did the town flood? Were the traffic patterns interrupted as the result of any flooding? They had let this all slide in the past."
That's been the experience of Cushman & Wakefield Inc. in East Rutherford, whose purview includes leasing office buildings on the Hudson County waterfront.
"In today's world when you're thinking abut renewing or relocating or signing a new lease, you've got to be concerned about weather patterns," Cushman Executive Director David Stifelman said. "Do I need to be on the water? Should I be farther away from the water? Should I be farther up in the building? What's the infrastructure of the building? Was it affected by the last storm?"
Such concerns are coming from industrial tenants, who want to know if a building is within a 100-year and 500-year flood plain under new maps from the Federal Emergency Management Agency, said Rob Kossar, executive managing director and market director for Jones Lang LaSalle's New Jersey and Long Island operations. Those FEMA maps are online.
"In the old days, people would be like: Oh, so what, once in a hundred years, I'm not going to worry about it," Kossar said. "Now they're like: I'm worrying about it."
The biggest tenant concern real estate executives said they have to address is providing power during a calamity. Some tenants may just want to know that a building has a so-called backup life-safety generator to run elevators and lights in stairwells, for example. But following Sandy, there are tenants who want to go beyond that, with generators that will permit them to continue operations.
"They want a building with a generator that can power their space," Martie said. "So if you, as a landlord, have that, you're shoulders above your competition who haven't made that investment."
Tenants interested in this kind of power redundancy usually "want some sort of commitment from building management to be able to assist in these kind of situations, so it's a big deal," said Michael Seeve, president of Mountain Development Corp. in Woodland Park.
The Princeton law firm Hill Wallack, concerned about its ability to conduct business during a prolonged power outage, recently signed a lease for a building that Mountain Development is constructing in Princeton with Gottesman Real Estate Partners, Seeve said. The law firm now is in the Carnegie Center in Princeton.
"They wanted basically full redundancy," Seeve said. "Their view was it's not enough just to have phone service and computers. If the air conditioning's not working, they really can't work."
If a tenant wants more than a life-safety generator, then a discussion with the landlord must ensue. The parties must determine if such a generator is permissible, who will install it and who will bear the cost, real estate officials said.
"Every tenant of a decent size wants to have provisions for a generator," said Matt McDonough, a Transwestern managing director in Parsippany. Such generators cost anywhere from "tens of thousands of dollars to easily into six figures," he said.
"It's expensive and it gets complicated," McDonough said. "You typically have to go through a site-plan approval. If you're going to put a big $600K generator out in the back, the town's going to want to know about it."
At 10 Exchange Place in Jersey City, a former tenant left behind a large generator, Stifelman said. Cushman is doing a cost analysis to determine if the company should offer use of the generator to individual tenants or employ it throughout the office building and have an edge on its competition.
When Sandy hit, many buildings in lower Manhattan were disabled for months because their mechanical systems and electrical switches were housed in basements and lower levels that flooded. There are tenant concerns about avoiding similar problems on the Jersey waterfront that landlords are addressing.
"In Weehawken, we've also taken some precautionary measures, in terms of having critical mechanical and electrical equipment relocated to levels that would be unaffected by similar circumstances," said Gus Milano, managing director of Hartz Mountain Industries Inc. in Secaucus. "We moved them up."
Such gear was traditionally placed in basements and other lower levels of buildings that tenants didn't want to lease, Kossar said. To move this equipment can mean dislocating current tenants and can be costly, he added.
"It's not inexpensive, but you do what's practical," Milano said.
There were lawsuits filed over landlord-tenant disputes stemming from Sandy, said Nelson of the Stark & Stark law firm.
"Commercial landlords can reduce risks by improving documents and procedures now before the next storm or disaster," he said. "For example, some court cases have found that tenants were required to pay rent based upon language in leases, such as language stating that landlords were not responsible for failure to supply electricity."
Real estate brokers insisted that Sandy's flooding in the Meadowlands hasn't put a damper on investor appetite for the limited choice industrial properties in that area of North Jersey, with its proximity to New York City.
"We're selling some buildings that had four feet of water in them," said Andrew Somple, senior vice president at NAI James E. Hanson in Hackensack.
Email: moss@northjersey.com