NJ Investors: Retail and Industrial Hot, Office Not
Office is a brutal biz to be in these days, according to the investment panel at Bisnows second annual Northern NJ State of the Market event last week at the Newark Club. (We even hear that gangsters don't want to touch the sector.)
Why?20% to 25% vacancy, older buildings, tenants wanting more TI, and a demographic shift, says Onyx Equities co-founder Jonathan Schultz. Most assets he acquires in receivership are office. You need to be the lowest-cost alternative, he says. So were looking for the most broken buildings in the best locations so we can be that good deal. (Is that looking for the rough in the diamonds?) Woodmont Properties CEO Eric Witmondt says his firm made the strategic decision to sell off most of its office portfolio, as being in the sector is fighting upstream.
CrownPoint Group CEO Jeff Milanaik whom you remember from Heller Industrial Parkslaunched his new firm in January, focusing on industrial but also making a push into urban-center multifamily. Hedoesn'tsee the tenant growth needed in office. Tech wants to be in NY, he says. We have to reinvent ourselves or well be stuck in this dynamic. Eric has three multifamily projects under construction and says most renters dont want garden-style apartments anymore. Well see more building reuse and higher-end finishes, which young people think is cool, will make them want to move here, and then theyll fill our office space. (And then they'll fill Instagram with pics of the area and more young people will flock hereit's basic young people science.)
But theres still demand for office assets, according to HFF senior managing director Jose Cruz, who recently traded a deal for $300/SF. Theres also a market for distress and an opportunity to capitalize on that. Two deals he has under contracta 250k SF office building in South Plainfield and a 150k SF building in Weekhawkenare planned multifamily conversions.
The panelists love retail. It will be an avenue of further growth, especially e-commerce, says First Industrial Realty Trust regional manager Rick Vanderbeck, with moderator Sharon Gordon, a partner at CohnReznick. Creating sales tax for goods sold online will help states like NJ with budget shortfalls, he says. Jonathan says the A&P bankruptcy has left big box opportunities, and Onyx will allocate more money toward the sector. A&P-anchored centers have been trading in the low- to mid-6 cap, says Jose; a center sold to Equity One in Ozone Park, Queens even traded for a 5 cap.
Life is back in industrial, as well. Eric says Woodmont has amassed 1.5M SF in NJ and Pennsylvania, with another 2M SF in contract. The Panama Canal expansion will greatly increase space demand and bode well for the Meadowlands.(And hopefully, by some improbable miracle, fix the Jets.) The 8A market has also tightened significantly, adds Jeff, who sees more build-to-suit activity. Thats because theres little land available and few grade-A buildings, says Rick. One problem: more vertical expansion as tenants want higher ceilings, difficult for landlords who charge by the square foot.
After the panel, we snapped Cathie Daly, CEO of the award-winning Design East, which offers full-serviceinterior design. She tells us the firm has specialized in multifamily for over 20 years, in both new construction and renovations. It offersprofessional design analysis specified to a project's needs,as well as detailed construction documentation. Learn more about our sponsorhere.
We're late to the complaint game, but we just noticed Skittles replaced lime with green apple, and we're not happy. What's your favorite flavor of the rainbow? Tell amanda@bisnow.com.
