MARKET HIGHLIGHT, JANUARY 2009

NEW JERSEY MARKET HIGHLIGHTS

Northern New Jersey Multifamily Market

Despite the economic slowdown, Northern New Jersey’s multifamily market is maintaining a full head of steam. Hudson County is experiencing significant activity due to its vicinity to the New York City market. The area draws on a migration of young professionals whose needs are driven by its geographic location. Waterfront markets, such as Jersey City, Weehawken, Hoboken and Edgewater offer convenient access to Manhattan, while maintaining a comparable, but much more affordable, standard of living.

Most of the market’s investment activity continues to take place in the northern counties of New Jersey. Bergen County, which rivals Hudson and Essex counties for the highest concentration of multifamily properties, is one of the most in-demand areas in the state. In terms of investment sales, Bergen County consistently remains a tight market where aggressive pricing, inventory undersupply and assertive, well-financed investors are the norm. There is a definite supply and demand imbalance, resulting in multifamily housing product being acquired at an unprecedented pace and supply remaining extremely limited. In terms of new development, permitting activity has increased in the northern counties, especially along the waterfront. However, the soft housing market and credit market distress may cause some of those projects to be canceled or delayed.

In North Jersey, asking rents were projected to increase by 2.9 percent in 2008. The range in rental rates currently runs the gamut from $2,500 for an upscale two-bedroom apartment at Parkview Commons in Teaneck to $600 for a two-bedroom apartment in Paterson. Generally, the average rent in Northern New Jersey is roughly $1,500, which is higher than the average for Central New Jersey.

The overall vacancy rate for multifamily housing in North Jersey is reported to have seen only a slight increase. A lack of new demand resulting from declines in employment has hindered any major improvements in the vacancy rate. The credit crunch has prevented many apartment tenants from moving, as many are unable to afford or qualify to purchase a home. Overall, North Jersey’s multifamily market has remained strong when compared with most other regions in the state.

One trend that is being seen in the market is the advent of transit-oriented developments, which have created tangible success in a number of communities such as Hoboken, Jersey City, New Brunswick and Cranford. These types of projects are planned around train and bus stations, helping to revitalize deteriorated neighborhoods. It appears that many “transit village” projects are still moving forward despite the slowdown in the market. One case in point is the Xchange at Secaucus Junction, a 2,000-unit rental housing community built beside the regional train transfer station, where the first 300 units have already been completed.

Another transit-oriented project, Riverbend District, is one of the largest brownfield, mixed-use, redevelopment transit villages underway in New Jersey. It should create a positive economic impact on the area by stimulating job growth and attracting businesses. The project will consist of 3,500 residential units, along with roughly 3 million square feet of office space, 1 million square feet of retail space, and the 25,000-seat Red Bull Park, which will complement the numerous cultural and entertainment venues in the area. The first phase of the multi-billion-dollar project is expected to be complete by 2010.

The Hudson “Gold Coast” area, stretching from Fort Lee to Bayonne, has become a fast-growing area with thousands of residential units being built in an area where deteriorating industrial and transportation facilities once stood.  Regional and national developers have recognized the strength of the market and have taken advantage of the redevelopment opportunities. So far, Hoboken has taken the lead in terms of high-density development activity, but Jersey City, Weehawken and Edgewater are catching up.

As the state’s largest city, Newark is revitalizing its downtown.  The city’s strengths lie in its strategic location, major universities, and a number of arts and cultural assets such as the new Prudential Center. Consequently, the city has witnessed ongoing growth. Earlier this year, Gebroe-Hammer completed a significant transaction for $14 million concerning the sale of a Newark multifamily portfolio, involving eight buildings and 256 units.

From an investment real estate perspective, there have been a number of trades made in Northern New Jersey despite the current economic climate. We are seeing steadily increasing demand for multifamily properties, as investors favor the inherent stability and control of this particular asset class with a fairly static supply of inventory.

High concentrations of multifamily housing properties have been traded throughout Essex, Union, Hudson, and Passaic Counties. For example, Gebroe-Hammer Associates orchestrated six noteworthy deals exceeding $26.8 million, which involved 422 units in Newark, East Orange, Irvington, Rahway, Plainfield and Union City.

In Bergen County, Gebroe-Hammer recently negotiated the $23.55 million trade of The Carlyle, a prominent luxury hi-rise apartment building in the heart of Hackensack. The sale of properties with fewer than 50 units has also intensified in Bergen County. For example, recent deals included two transactions involving the $4.2 million sale of 319 Palisade Avenue, a 19-unit upscale mid-rise building in Cliffside Park; and the $1.23 million sale of 201 E. Ruby Avenue, a three-story building in Palisades Park.

The multifamily housing market will remain strong and steady well into 2009 as the housing crisis continues to run its course. Banks still need to make loans and lenders still favor apartment buildings for the same reasons that investors have focused on them. Investments will remain healthy, fueled by high occupancy rates, lower risk as compared to office and retail properties and a steady annual growth rate that has proven this type of investment can withstand even the most unpredictable economic conditions. The Northern New Jersey markets will continue to have consistent levels of sales activity due to proximity to mass transit and 24/7 activity.

— Ken Uranowitz, is the managing director of Livingston, N.J.-based Gebroe-Hammer Associates.

Southern New Jersey Retail Market

Northeast Real Estate Business sat down with Robert L. Samtmann, Jr., a Principal at Equity Retail Brokers, to discuss some of the ins and outs of the Southern New Jersey retail sector.

How has the retail sector fared in Southern New Jersey so far this year?

RS: Like most markets in 2008, activity in Southern New Jersey’s retail sector was influenced more by the national economic landscape, rather than the particular conditions of the region. Despite the nation’s financial challenges, we see that generally strong markets will usually stay strong, and that projects filling a need continue to move forward. A good example is Deptford Township in Gloucester County, where redevelopment and repositioning are reinvigorating the retail market.

What factors affected or drove activity?

RS: In some Southern New Jersey markets, rigorous retail activity was spurred by residential growth. However, in other markets, we saw residential growth dampened by the economy and developers’ limited access to capital. Deptford is a mature market where new projects are creating space for new retailers, as well as retailers who wish to reposition.

Were there any major retail developments in the market?

RS: The largest project to open in the region in 2008 was AIG Baker’s Deptford Landing, a 492,000 square foot power center located at State Route 42 and Clements Bridge Road (Highway 41). Anchored by a Wal-Mart Supercenter and Sam’s Club, it’s a 62-acre site that includes anchors Circuit City, PetSmart, Michael’s Arts and Crafts and OfficeMax.

Goodman Properties continues to lease Union Lake Crossing, a retail project at Routes 47 and 55 in Millville anchored by ShopRite, Target, Kohl’s, PetSmart, and Circuit City. Good regional access and residential growth in this market proved sufficient to support the development, which is filling with brand-name regional and national retailers.

Site work has begun on Develcom’s proposed Bellmawr Waterfront redevelopment project, which will be anchored by a 200,00 square foot Bass Pro Shops and have access to Routes 42, 295, and the NJ Turnpike. This is a prime example of a project that is positioned to overcome economic hurdles because it is supported by sound fundamental qualities, including strong population density and extremely good highway access. A movie theater complex and supporting retail, pad sites, and hotels are proposed for the development.

All three of these projects have evolved because they are inherently strong and fill an existing need. Admittedly, AIG Baker’s Deptford project and Goodman’s Millville project have been in the works for some time, but they all fill retail needs and share what we identify as the qualities of fundamentally good real estate.

What kind of impact did they have on the retail sector?

RS: Deptford is having an interesting impact on the market.  Centers that were considered the most desirable when they were built approximately 15 years ago are working hard to fill vacancies left by those tenants that have repositioned themselves in the market.  Some of the vacancies are being filled with well-known tenants who still need a position in the market, while others are being filled with tenants known for taking second and third generation space.

Goodman’s project has helped to create more of a retail center of gravity, thus improving the retailers’ chances for success. Develcom will work to create its own center of gravity, while also proving to be an alternative for some Deptford tenants looking to reposition themselves.

How would you characterize leasing activity?

RS: Leasing activity is good for historically strong markets or markets where there is quantifiable growth.  For projects and areas that are slow to develop, leasing can be challenging.  Given the current economic conditions, the pendulum has swung to the tenant’s side and they have many sites from which to choose.  Therefore, they can take their time and choose among the best sties while leaving second tier sites wondering.
How do you think the retail sector will fare in 2009?

RS: We expect to see activity by some of the country’s top retailers in strong markets or in designated expansion markets. Retailers will simply be cautious and selective when it comes to new sites and markets. Given the availability of sites and the finite number of companies looking to expand, retailers are better equipped to secure more economically attractive deals, so those that can take advantage of the market will be in a good position to grow.
What do you think needs to happen in order for the market to improve?

RS: Like many people, I believe the housing market needs to stabilize.  Right now, regardless of past financial health, access to funds is limited.  People, developers, and retailers need to have access to attractive financing in order to facilitate growth. 
Are there any major retail projects that have been announced for construction/completion in 2009?

RS: Retailers are facing the same immediate economic challenges in South Jersey as they are across the country. Nevertheless, there are plenty of signs of retail activity throughout the region, and certainly tenants that will continue to expand in this market in 2009.

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