Long Island Construction Law does not own this content. This content was created by Daniel Wiener and was published to the Long Island Business News on April 27th, 2021.
As the current president of the Commercial Industrial Brokers Society and a broker myself, I work with and speak to landlords, end-users, and commercial real estate brokers, on a daily basis. We face a universal problem: A list a mile long of buyers or tenants, and little-to-no industrial inventory to satisfy their requirements.
Ceilings too low, columns too close together. The loading isn’t perfect, there’s never enough parking. The typical tenant/buyer usually adds, “plus the building is three miles further away from the LIE than I’d like.”
These challenges are not new, as most of our industrial product is antiquated — more than 30-50 years old. In fact, in the past 20 years there has been almost no speculative industrial construction. The further west you travel, the more evident this becomes.
Our inventory challenge has only been exacerbated by the pandemic. The push for last mile distribution and the continued migration of end-users from Manhattan and the boroughs, has brought this issue to the forefront. As David Winzelberg reported in a recent cover story “Space Chase,” our current situation was made worse by the failure to replace the inventory lost through conversion of industrial-to-office in places like Woodbury’s Crossways Park and the Long Island Innovation Park at Hauppauge. While we are now experiencing healthy growth of other uses such as multi-family and mix-use developments, self-storage, and large outpatient medical facilities, they have replaced and removed even more of our industrial options from the marketplace.
Another challenge is that “supply and demand” has made it increasingly difficult for landlords and developers with tenant requirements to underwrite deals and remain “purchase price” competitive. If they can successfully outbid the buyer-occupants they are competing against for vacant or partially vacant properties, the rental rates they need to achieve must drastically increase to align with the necessary improvements and the total purchase price. When you add in exceptionally high taxes and operating expenses, the math problem becomes more complicated.
Ultimately, this situation has put Long Island at a competitive disadvantage. The industrial requirements of companies like Amazon, Fed-Ex, Target, and Peloton are here right now and they aren’t going away any time soon.
So how do we find or develop the new product we need to support this demand?
It is not a simple fix and there is no overnight solution. The answer may seem simple, build more product like the 900,000 sq. ft. in development by Hartz Mountain on the former Newsday Headquarters in Melville. We could benefit from more ground-up industrial, but with relatively no large parcels of land these opportunities are still few and far between. We should repurpose and improve existing industrial buildings, but this takes time and approvals. So perhaps another consideration should be the adaptive re-use of projects that transform other asset classes into industrial, such as retail-to-industrial and office-to-industrial conversions.
The region has dropped the ball over the past 20 years and did not see this coming. If this pandemic has taught us anything it is that now we have an incredible opportunity to learn from the past. We must improve governmental procedures to accommodate Long Island’s real estate needs in an intelligent manner. Local governments should work with experienced, time-tested developers to expedite the approval process on a case-by-case basis. Satisfying these industrial requirements, intelligently, will spur job creation, generate tax revenue, and promote the health of Long Island’s economy. Consider the addition of more real estate-minded professionals on the planning boards of our towns and villages. Proactively educate the members of our community to quell some of the common negative misconceptions about industrial developments. And consider programs like the self-certification of building permits to ease the burden of our town employees and streamline the permit process.
Let us learn from the challenges we faced during this pandemic and the mistakes made over the last 20 something years. Let us be proactive and create a real estate environment that is prepared to handle the demands of Long Island’s future.
Daniel Wiener is the president of the Commercial Industrial Brokers Society.
John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer who has experience with Long Island construction law for advice on a particular circumstance.