MAKRET HIGHLIGHT, JANUARY/FEBRUARY 2010
NORTHERN NEW JERSEY MARKET HIGHLIGHTS
Northern New Jersey Multifamily Market
Recent news: The investment darlings in this market are “just right” mid-sized apartment buildings ranging from 18 to 75 units. Within this category, demand is heavy, supply is short and deal velocity is increasing. Recent Gebroe-Hammer highlights include four closings, totaling 130 units for $10+ million, in one week in Bloomfield, Bayonne, Elizabeth and Union City; three separate transactions in Bergen, Ocean and Union counties involving 179 units for $19.155 million; and nine buildings with 144 units for a total of $9.75 million in West New York and Union City.
Submarket update: Buyers favor properties and markets where apartment-rental assets consistently perform at occupancy levels ranging between 95 and 100 percent. In Bergen, Hudson, Essex and Union counties, occupancy is directly linked to young professionals’ need to be in close proximity to New York. These locations, with convenient access to Manhattan, offer comparable and often newer living space at a more affordable price. New Jersey’s own Fortune 500 business base, as well as its academic institutions and venues for art and culture, provide a highly complementary mix. The presence of on-site amenities and proximity to schools, shopping and mass transit further bolster a property’s marketability. Any time a property with these features comes online, it is aggressively pursued by buyers.
Predictions for the next year: Investors who took a big financial hit on Wall Street or within the commercial office, industrial and retail investment market are now venturing into the multifamily investment arena while veteran owners and buyers continue to pursue high-quality urban and suburban properties in virtually every class category. Since a majority of distressed situations did not reach the marketplace in 2009, increased levels are expected to come to market in 2010 in the form of real estate assets and/or the sale of encumbered debt. Overall, multifamily investments continue to prove their resiliency in what remains an uncertain economic environment.
— Ken Uranowitz, managing director with Livingston, New Jersey-based Gebroe-Hammer Associates.
Project Profile: The Mercury Lofts at The Beacon
Metrovest Equities is developing The Beacon, the largest historic residential restoration project in New Jersey’s history, and the largest historic residential restoration currently underway in the U.S. The former Jersey City Medical Center in Jersey City is being converted to a mixed-use project that will comprise 1,200 residences and 80,000 square feet of retail and commercial space in 10 buildings.
The first phase included 315 residential condos in two buildings. The second phase of the project includes The Mercury Lofts at The Beacon: the conversion of a 17-story building into 25 loft condos. The company is also building The Paramount, which includes 207 luxury rental units. Another building is being redeveloped as Beacon Commerce, a 66,000-square-foot retail building devoted to children’s learning and recreation uses, and the project will contain Jersey City’s first Indie movie theater.
The Mercury Lofts are half- and full-floor residences that range from 2,994 to 6,665 square feet. Prices start at $885,000; comparable lofts in Brooklyn would be in the $3 million range, according to George Filopoulos, president of New York City-based Metrovest Equities.
Amenities at The Beacon include Club Aqua, which has an indoor pool, a Grotto lounge with hot tubs and saunas, a yoga studio, a fitness center and children’s playroom. The restored Art Deco theater/event space has a catering kitchen and a rooftop sundeck. There’s also a poker room, reading hall and billiards hall. A members-only, speakeasy-themed bar and lounge, called Prohibition at the Beacon, will open in March 2010.
Filopoulos acknowledges the project will certainly take longer to complete in its entirety due to the challenges of the down economy. “However,” he says, “all infrastructure was completed during the first phase and the buildings are now being individually renovated.”
— Jaime Lackey
Northern New Jersey Retail Market
Recent news: This past year we have seen several national/regional retailers take over some of the big box space left over due to the closings of Circuit City, Linens ’n Things, Levitz and others. Dick’s Sporting Goods is taking over the former Linens ’n Things in Paramus. Ashley Furniture took a portion of a former Levitz in Paramus. Christmas Tree Shops took over former Linens ’n Things’ locations in Springfield and Bridgewater. Homegoods took over a former Linens ’n Things in West Windsor. PC Richards took over three former Circuit City stores (Woodbridge, East Brunswick and Brick), and Sixth Avenue Electronics took over a former Circuit City in North Bergen.
Despite consumers cutting back on discretionary income spending, they have not given up on attending health clubs and fitness centers. These facilities have been able to secure prime locations to meet this demand. To name a few: LA Fitness (Parsippany and Secaucus), Retro Fitness (Paramus, Woodbridge, Lawrence Township, East Brunswick, West Long Branch, North Plainfield, Fair Lawn, Hackensack and Piscataway), Planet Fitness (Brick, Ledgewood, and Pompton Lakes), LA Boxing (Paramus, Shrewsbury and Florham Park), Powerhouse Fitness (Watchung) and 24 Hour Fitness (Hasbrouck Heights).
7-Eleven, an exclusive client of The Goldstein Group, is a primary example of a retailer forging ahead with an aggressive expansion plan for the New Jersey market. We have closed 20 deals with 7-Eleven over the past 2 years and they are targeting another 50 to 60 store openings inthe next 2 to 3 years.
Other retailers taking advantage of the prime New Jersey market include Sonic Restaurants, Chipotle, Walgreens, CVS, Smashburger, Aldi Supermarkets, Hobby Lobby, HH Gregg, Incredible Universe, Stew Leonards, The Fresh Market, Poncheros Mexcian Restaurant, Five Guys Restaurants and Arby’s. The economy has also brought about a unique emergence of retailers that went bankrupt but are reemerging in different forms such as Marty’ Shoes, Huffman Koos, Harrows and Leisure Fitness.
Predictions for the next year: We do anticipate seeing more retailers close their stores or file bankruptcy over the coming months. This means that entrepreneurial retailers looking to open a business now have opportunities to secure prime locations that weren’t available to them before. They now can take advantage of very favorable rent deals as well. As we slowly come out of this recession, we are also seeing national and regional tenants beginning to show interest in expansion.
— Chuck Lanyard, president of Paramus, New Jersey-based The Goldstein Group
Northern New Jersey Industrial Market
Recent News: The Urban Transit Hub Tax Credit Program may be the biggest news in 2009 for industrial users of space in New Jersey. State legislators passed the New Jersey Economic Stimulus Act of 2009, a bill designed to stimulate private sector development and job growth while revitalizing urban hubs. The expanded tax credit program will provide a 100 percent corporate business tax credit to companies planning capital projects that invest at least $50 million and create or relocate 250 jobs within a half-mile of a transit station, and within 1 mile in Camden. Similarly, the bill creates an Economic Redevelopment and Growth Grant program to encourage redevelopment in transit villages, and port and airport areas.
Submarket Update: The Fairfield submarket statistically has outperformed the other 11 submarkets in northern New Jersey, with an 8.2 percent vacancy rate. The average asking rent is $7.14 per square foot, triple net.
Predictions for 2010: The worst is most likely behind us. New rent levels have been set and will probably remain flat for 2010 as a whole. If there is any job growth and consumer confidence picks up, we could see a very slight uptick in rents. Hopefully, the Christie administration will be able to make New Jersey an attractive place to do business!
— David Knee, managing director with the Hasbrouck Heights, New Jersey, office of Jones Lang LaSalle
Northern New Jersey Office Market
Recent news: Samsung’s year-end, 193,000-square-foot headquarters lease at 85 Challenger Road in Ridgefield Park is significant on multiple levels. On the downside, early in 2009 the building was returned to lender AIG as a foreclosure. Yet 85 Challenger also is a success story. Last summer, AIG sold the property to KABR Real Estate Investment Partners. KABR was able to purchase the building for cents on the dollar for what a comparable Class A building would bring in a stabilized market. That enabled KABR to structure a highly competitive deal for Samsung. In this bad news/good news scenario, 85 Challenger’s former status as a distressed asset is both a negative bellwether of today’s market and the genesis of an excellent opportunity for KABR and Samsung.
Submarket update: Most Northern New Jersey submarkets have played a game of musical chairs this year. Tenants are exploring options to update their operations for similar or better pricing. This flight to quality is seeing many companies relocate locally. In Bergen County, for example, the Samsung move is taking place within Overpeck Centre. While Samsung’s new lease represents a nearly 50,000-square-foot expansion, other Bergen County tenants have contracted. The result is that the absorption rate at third quarter 2009 mirrored that of third quarter 2008, and the direct vacancy rate is virtually identical as well. This pattern likely will repeat while rental rates remain depressed.
Predictions for the next year: The recovery will begin in 2010, but progress will be slow. Many believe that the continued lack of job creation places us 2 or more years from true stabilization. The good news is that tenants with leases rolling in 2010 will need to renew or relocate. They will explore options in what remains a tenants’ market, which will create movement. Whether this activity will build traction remains to be seen.
— Marc Trevisan, executive vice president with the East Rutherford, New Jersey office of Cushman & Wakefield, Inc.
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