New Jersey's Biggest Office, Residential, Retail Drivers For 2017

Interest in residential properties is growing as people begin to look outside of New Jersey's downtown cores for places to rent and buy, according to panelists at Bisnow's recent New Jersey State of the Market event at Liberty House Restaurant in Jersey City.

In Jersey City, that includes areas like The Heights, Journal Square and West Bergen, particularly at locations near the Hudson-Bergen Light Rail system, JCRealty owner Natalie Miniard told Genova Burns partner Jennifer Mazawey, who moderated the residential panel.

DMG Investments is working on a condo development in Cliffside Park. The particular attraction there, vice president of marketing Ben Watson said, is the ferry service.

“Before joining DMG, I never used the ferry system, but now I use it every day,” he said. “It’s a pleasant commute, and more of the buildings directly at the Port Imperial stop have been selling very well.”

He predicted as towns like Edgewater expand their ferry services — which can take passengers to Wall Street in 20 minutes, Midtown in eight and, soon, Hudson Yards — they will benefit from buyers getting pushed upward because of increasing prices in places like Jersey City and Hoboken.

“The ferry system shouldn’t be overlooked,” he said. “Its expansion will only increase the value of the general area.”

Even with a greater focus outside the core, Jersey City is still hot — and condos are now back, Miniard said. One of the buildings her firm represents, The Oakman, is more than 80% occupied. More than half of its buyers are coming from Jersey City rental buildings after deciding they love the city and want to make that investment, she added.

The panel also featured KRE Group president Jonathan Kushner, Russo Development CEO Ed Russo and Woodmont Properties EVP Stephen Santola, who spoke of creating destinations where residents would not have to depend on a car as well as the push for more affordable housing.

Retail

New Jersey retail today is all about food, fitness and entertainment, panelists on the retail revolution panel said.

Michelis Rose Group managing principal Peter Michelis' firm is currently repurposing big-box department stores in the Tri-State area. One project involves taking a mall big-box location, recladding it, slicing it into multiple retail concepts and introducing entertainment. In two other projects, the firm is demolishing the space in favor of a power center and mixed-use retail and residential.

“The department stores are hurting, and that has created an opportunity,” he said. For the first project, "Sears is reducing its footprint by 50% in that space, giving an opportunity in a Class-A mall to other retailers.”

Class-A malls are doing well, he continued, with rents and store sales rising year-over-year. The 800-pound gorilla is still e-commerce; department store stock has gone down over the past five years, while e-commerce stock has risen 360%. However, brick-and-mortar retailers that adapt, embrace technology and keep up with the trends will be fine. Likewise, there has been a boost to experiential, restaurant and movie theaters.

The good thing is that consumer confidence is up, Onyx Equities managing principal Jonathan Schultz told moderator John O'Connell, a managing principal at Stanwich Energy Advisors.

“It bodes well for retail when people feel good in their jobs and in their lives,” Schultz said. “It means they’re going to buy more product.”

As a result, the reinvention factor is high for retail.

“The positive for some malls and shopping centers is the price per foot,” he said. “Cheap rents give you the latitude to go in and be creative. Now we’re seeing other concepts come in, like Dave and Buster’s, which is entering New Jersey for the first time. They’re a product malls now want; they bring customers to the center who will hopefully also do some shopping.”

From a macro standpoint, it pays to be careful, Advance Realty principal Alexander Cocoziello said. There is a difference between buying retail on Main and Main, like its recent purchase of The Metropolitan in Hoboken, than something out in the suburbs with poor traffic, transportation infrastructure and visibility.

For the latter, he said, Advance is focused on paying up for liquor licenses. By 2025, 75% of the workforce will be Millennials, and they will want 18-hour centers where they could have breakfast, lunch, shop after work and then have a beer.

Office

There was significant growth on the office investment side in 2016, HFF senior managing director Jose Cruz told moderator Richard Abramson, real estate co-chairman at Cole Schotz, who kicked off the office development and leasing panel. He expects this to continue into 2017.

“We saw not only more product hit the market — both Class-A and B — but we also saw more buyers,” he said. “Not just traditional owners, investors and developers, but national groups. A couple of deals we worked on were for buyers out of Texas and Chicago, and those were their first suburban New York-area investments.”

Foreign capital is also new, he said, and it is not just searching for Class-A, credit leases, but multi-tenant, Class-B deals with upside. Some groups just want a place to park their capital, while others focus more on basis.

“If you’re buying at $50, $70 or even $100/SF, there is the ability to do leasing at a rate that’s accepted by the market,” he said.

The market is demanding an overall, urban-type environment, Prism Capital Partner principal Ed Cohen said. This encouraged him and partner Eugene Diaz to purchase the 118-acre former Hoffmann-La Roche Inc. North American campus spanning Nutley and Clifton. There, it will combine office, R&D, education, healthcare, residential and retail.

“We now have an opportunity to create a village,” he said — and that vision enticed Hackensack Meridian Health and Seton Hall University to sign leases for 500K SF at the property.

The same desire created success at Bell Works, Somerset Development’s $200M redevelopment of the former Bell Labs campus in Holmdel. Now a mix of office, retail and medical space, the developer may add a hotel on the roof,  vice president of development Tom Michnewicz said. Feedback from tenants shows they appreciate having all amenities in one place.

Overall, the real estate community can always do a better job of selling New Jersey, SJP Properties senior vice president Peter Bronsnick said. It is tough to compete with New York City and pull tenants across the river, even with Grow NJ incentives.

“Some tenants may not even value that offset in occupancy costs,” he said.

SJP is trying to educate the marketplace on the dynamics of places like Jersey City, where there is a "cool factor" beyond just the Waterfront, he said — like Grove Street. However, when it does a tour with a company also looking in Manhattan, it is difficult to get them to appreciate what Jersey City has to offer in 10 minutes.

“We have to do a better job of explaining the amenities, connectivity and the types of things that makes us similar to the cooler parts of New York City,” he said. “Quite frankly, the access is a lot better than areas like Brooklyn.”