North Jersey Presents Real Estate Development Opportunities
Bis-Y Times in Northern NJ
After a successful opening on Broadway (see our article on the multifamily conference here), the Bisnow bunch took its road show across the river to the Metropolitan Room at The Newark Club to discuss the Northern New Jersey real estate market. Overlooking the towns where The Sopranos frolicked, the elite of the Garden State real estate profession had assembled.
The opening remarks by New Jersey Economic Development Authority COO Tim Lizura focused on post-Sandy relief. Lizura said Governor Christie filed an action plan with the U S Department of Housing and Urban Development outlining how the state will deploy $1.8B in relief funds. The first phase of $500M will help both residential owners and economic development. 80% of the funding will be aimed at the severely affected shore communities. $25M will be used for a Jersey Shore visitors campaign; $300M in small business grants; $100M for a revolving loan fund; and $75M for community development and downtown restoration.
The first panel was moderated by John Stewart (not of Comedy Central; as Mark Bisnow pointed out) but part of Cole Schotz’s Construction Services Department. Stewart represents owners and developers on construction projects in New Jersey, New York and other states.
Explained Tucker Development CEO Rich Tucker, “We are focusing on the urban and highly densely populated markets; not so much the outlying areas. From the retailers’ perspective, that is where the interest is. For us, it’s finding the right real estate where the demand is warranted. It was interesting getting to know the people and the administration while building the first hotel in Newark (a Courtyard by Marriott) in 40 years.”
“Multi-family is hot throughout the country,” said AvalonBay SVP Ron Ladell. “But when others try to jump into the multi-family asset bandwagon, things become frothed. Land prices in the past 18 month have gone up tremendously. As have commodity, labor costs and taxes. Avalon Bay began building in New Jersey in November of 2009. We broke ground in West Long Branch on a closed Frank’s Nursery site and delivered 180 units two years ago. That was a time when you could buy right. We now have five projects in New Jersey; have three more this year and probably two in the future. At Avalon Bay, we do not trend rent or construction costs.
When we go into a deal, we look at yield and we look at our returns.”
“The demand for multi family is increasing,” he said. “As job growth continues, it will help all of us on this panel. But in some submarkets in New Jersey, multi family is under pressure. There are nine high rises being built in Jersey City. I don’t know if there is a demand for nine high rises but that means I’m not [going] in Jersey City.”
Explained Turner Construction VP Attilio Rivetti: “The marketplace in the last five years has fluctuated quite a bit. I would say in commercial real estate that we’ve seen some stability; although its been somewhat flat. We’ve seen construction costs increase by about 2% in the past year. Labor cost have been somewhat stable over the past five years or so but commodity costs have gone up. And many of our projects are wait and see. We are evaluating projects for developers to determine if the project makes sense.” Denholtz Associates CEO Steven Denholtz said, “There is 150 million square feet of office space in New Jersey and 30 million of it is vacant. You have projects that are designed and approved but many will never come out of the ground. So I believe there is opportunity there.”
The shift in the value of industrial vs office building over the years also brought a comment from Denholtz. “When I began in the 1980’s, office building were worth 4 times per square foot what industrial buildings were worth. Today, industrial buildings are worth more per square foot than office buildings. We will look for redevelopment opportunities in existing facilities and we have experience in environmentally-challenged facilities.”
Under the Christie administration, New Jersey has adopted a more pro-business stance. Newark was able lure Panasonic to the city and many towns are eligible for transit-oriented development funds near New Jersey transit train stations. In addition to Newark, nearby towns such as Harrison have built next to transit. In Harrison, it was a PATH station; with easy access to Newark, Jersey City and New York. Plus, the city is the new home for the soccer Red Bulls. According to Port Authority of New York and New Jersey figures, more than two million passengers used the PATH Harrison Station in 2011. Within 10 years, that figure is expected to rise to 3.4 million. The station is being upgraded to allow for trains with more cars. And average rents in Harrison apartments are $1000 less per month than in Jersey City and Hoboken.
Summed up Ladell of Avalon: “When you visit the DEP, they don’t tell you they lost your file, which used to happen. And when they say they will get back to you, they do. And the Legislature now understands the benefits to the state of economic redevelopment. But we live in a state of home rule. There are 565 towns in New Jersey and everyone of them is a fiefdom unto itself. And that situation has not changed.”
Steve Viuker is a Brooklyn, New York business journalist.
He has covered real estate, small business and banking for numerous national online and print media.