For years, critics of New Jersey's liquor license laws have called them among the most restrictive of their kind in the United States, not to mention among the most expensive. Those rules changed this week for the first time since the aftermath of Prohibition, but not enough for some groups including the state's largest commercial real estate trade organization.

New Jersey Gov. Phil Murphy signed legislation that boosts the number of available liquor licenses statewide, as well as permitting new ones in municipalities that have large malls, injecting almost 1,500 licenses into the market in a process that shows what's involved. The law also eases stringent rules that craft breweries and distilleries claim have stifled their industry's growth and with it the ability to buy or lease more real estate in the Garden State.

“For the first time in nearly a century, New Jersey has shown the fortitude to tackle an age-old problem that has stifled economic growth and hampered the dreams of countless small business owners,” Murphy said in a statement. “We knew this wasn’t going to be an easy lift — nothing that has been entrenched for nearly a century ever is."

But the measure that the governor signed, a compromise, fails to adequately help spur development, real estate development supporters say. The move by New Jersey provides a glimpse into how the regulation of liquor can affect commercial property throughout the country, the business interests involved — and what can be involved in successfully making changes.

Without many more licenses, selling at a much lower cost, restaurants and bars that want to serve alcohol — venues that are the linchpin of mixed-use projects — face an uphill battle to open or survive, according to New Jersey real estate officials. Restaurants put the "play" in work-live-play developments, and the issue remains an obstacle to reinvigorating some central business districts, some advocates for small businesses say.

The Jersey City, New Jersey-based advocate for city commercial districts called Downtown New Jersey said it "does not consider the book closed on liquor license reform with the passage of this bill. We will continue to engage our constituents and the New Jersey Liquor License Reform Alliance to push for more progressive reform that supports small business and helps sustain and revitalize our downtowns."

The liquor license revamp was passed by New Jersey's lame-duck Legislature last week. The legislation will put as many as 1,356 liquor licenses — those that are inactive and so-called "pocket licenses" — back into the market, a 15% increase over the 8,905 active consumption licenses now being used, according to the state.

Inactive licenses are those associated with a specific location that are not in use, while pocket licenses are those that have been purchased but are not attached to a specific location.

The law also establishes a new class of liquor licenses for shopping malls, plus qualifying strip malls, that the governor's office said will potentially create upwards of 100 new licenses throughout the state.

But the legislation fell short of the massive reform that Murphy called for a year ago regarding what he described as the state's "antiquated and confusing" liquor laws. Getting those laws overhauled has been a mission for the Garden State's commercial real estate industry, and trade groups such as NAIOP NJ, for years.

The debate over New Jersey's liquor laws has gone on for decades and has been a hot-button issue, with licenses in some towns costing more than $1 million. Murphy's criticized original plan last year drew swift support back then from NAIOP NJ and opposition from the New Jersey Restaurant and Hospitality Association, which voiced concerns that issuing more licenses would severely devalue the licenses that eateries and bars already owned.

Under the established law, the state allowed towns to dole out one consumption liquor license for every 3,000 residents. The governor unsuccessfully sought to phase out that population cap over five years.

The bill that ultimately was passed represents a compromise, and it did incorporate something that the restaurant group had lobbied hard for, for the state to act to get the estimated 1,400 inactive liquor licenses back into circulation. The revised bill tried to appease current liquor license holders and those who wanted more dramatic reform.

"It's no groundbreaking statement to say it's very complicated," Steve Lidster, director of development for Denholtz Properties in Red Bank, New Jersey, told CoStar News. "For decades here in New Jersey, you've got the folks who made significant investments purchasing these licenses and they don't want them to be devalued by sort of flooding the market with licenses."

He added that "on the flip side, it does hinder development by not having more of these licenses available. Restaurants are huge drivers of traffic at multi-mixed-use projects, and having those around really helps getting foot traffic around the property."

New Jersey restrictions on liquor licenses are so heinous, and they are so pricey, that some restaurants won't do business in the state, according to Lidster.

"We do lose," he said. "I know of specific examples of losing restaurants to other states because of the prohibitively high cost of purchasing a liquor license. Before you do anything, you're out a million dollars in some [cases]."

But he said he also understands the concerns of restaurants, who are among Denholtz tenants, that paid a lot for their licenses and don't want to see the market inundated with new ones.

The revised legislation also included a new twist. It allows municipalities to issue up to two new licenses for food-and-beverage establishments in malls with a minimum of 750,000 square feet and up to four new licenses for establishments in malls with a minimum of 1.5 million square feet. This provision is intended to bolster "the survival of malls, which have been struggling due to the pandemic and the proliferation of online shopping" and boost economic activity for towns statewide, according to Murphy's office.

The changes are all a step in the right direction, but more is needed, according to NAIOP NJ CEO Dan Kennedy, who in a statement said his group was "encouraged" by the passage of the compromise legislation.

"Regarding the shopping center provision, this modest reform will help a handful of distressed properties, which is a good thing," he said. "However, there are very few municipalities in New Jersey with shopping malls, as defined by the legislation, that meet the square footage requirements."

He added that "the legislature decided to have these few municipalities decide for themselves whether or not to grant the additional licenses. So while these improvements are welcome and can be built upon, they are far from the comprehensive liquor license reform that is needed — especially if we want to use reform to drive redevelopment.”

Paramus in North Jersey is a shopping mall mecca, home to the Westfield Garden State Plaza, Paramus Park and Bergen Town Center. Borough Mayor Christopher DiPiazza told CoStar News in an email that the legislation was good for Paramus and its shopping venues.

"Our malls continue to look for ways to adapt and remain vibrant in a changing environment when it comes to your traditional retail shopping brick-and-mortar experience," DiPiazza said. "More licenses for the malls will give them the ability to bring in new restaurants and entertainment venues that will increase visitors and foot traffic. Paramus residents understand that the success of our retail corridors directly correlates with the low property taxes homeowners pay when compared to neighboring towns throughout the county and the state."

The Township of Bridgewater is also the site of a large mall, and Mayor Matthew Moench told CoStar News the mall provision in the liquor license legislation is on his radar.

"While I haven't had the chance to delve into the specifics of the recently passed bill, here in Bridgewater, we are always looking for ways to increase the economic vitality of our local business district," Moench said in an email. "The Bridgewater Commons mall is the cornerstone of our community's business landscape, and the prospect of additional liquor licenses for the mall could be a positive development. We'll be closely monitoring the impact and exploring how it can contribute to the growth of Bridgewater's business community.”

Downtown New Jersey wasn't bullish on the new special mall licenses.

"While we understand the notion behind the special mall license to help struggling commercial assets ... this provision clearly demonstrates that higher value is placed on supporting the primarily corporate owners of these assets and the corporate/chain leaseholders of the restaurant spaces over our downtown small businesses," the organization said.

"While municipalities will have to jump through hoops to access a restricted number of licenses for their downtowns, this bill establishes a simple process to create two to six brand-new licenses that will primarily serve corporate interests. We would have appreciated a similar special license for downtowns that would support small businesses," Downtown New Jersey said.

The new law also lifts a variety of restrictions on craft breweries, allowing them to now offer snacks and other non-alcoholic beverages, collaborate with outside vendors including food trucks, host unlimited on-site events and private parties including birthdays, weddings, anniversaries, and civic and political functions, host up to 25 off-site special events and participate in up to 25 events organized by the holder of a social-affairs permit.

Denholtz has breweries as tenants who will be helped, according to Lidster.

"Anything that makes our tenants more successful is a good thing," he said. "And I know the restaurants take the position that [breweries] pull customers away from them, but I don't know that I'm fully in agreement with that argument. I think people decide they're going to a restaurant or they're going to a brewery."

Said NAIOP's Kennedy, "Easing restrictions on New Jersey’s craft breweries makes all the sense in the world."

Eric Orlando, executive director of the Brewers Guild of New Jersey, told CoStar News said it took an 18-month-long effort to successfully get regulations on breweries and distilleries loosened and that it will spark an expansion of breweries in the state.

New Jersey now has about 140 breweries, compared to the over 500 each in the neighboring states of New York and Pennsylvania, according to Orlando, who attributed the Garden State's lower number to the previous regulations.

The new law also increases the number of barrels, to 300,000 from 10,000, that a brewery can produce a year.

“Clarifying the rights and privileges afforded to craft breweries in our state will give our industry a stronger foundation to operate on moving forward," Orland said in a statement after Murphy signed the legislation.

The New Jersey restaurant trade group said it was pleased with the updates to the state's liquor license system.

“Our association represents nearly all stakeholders in this important issue, from mom-and-pop restaurants and breweries to establishments located in malls and downtowns," the group said in a statement. "We have been diligent and consistent in favor of getting the 1,400 inactive licenses back into the market, and allowing flexibility for towns to trade the licenses, all at fair market value.”

By contrast, Downtown New Jersey said the bill awaiting the governor's signature "does nothing to address the affordability issue that makes New Jersey's current system so inequitable and puts us at a competitive disadvantage to our neighboring states" and doesn't help "diverse entrepreneurs ... small and minority-owned businesses."