News
THE SIXTH BOROUGH
April 28, 2011
| Like Cole Schotz real estate co-head Michael Leighton saidyesterday, panelists at Bisnow’s Future of NJ’s Urban Centersevent at SJP Properties’ Waterfront Corporate Center in Hoboken were the most distinguished group to gather in the Garden State since Alexander Hamilton met with Aaron Burr (and it ended moreamicably, too). |
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| It was fortuitous that we had the event right after Panasonicannounced it was moving 800 jobs from Secaucus to Newark, FTI Consulting managing director Glenn Brill (who moderated our market fundamentals panel) told the crowd of 300. Is the sun beginning to rise on New Jersey, he asked, and how will the urban markets compete with the suburban markets? |
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| We have to look at numbers, says JLL managing director Tom Stanton. Office vacancy rates are relatively low in the cities: 9.2% inJersey City, 7.6% in Hoboken, 17.2% in Newark, and 10% in New Brunswick. The suburban market (including sublet, Class-A, and Class-B space) is 30% and will only recover if the state sees employment growth. Pharmaceutical consolidations and other companies reducing footprints are trouble for the ‘burbs, he says. There’s now a cultural philosophy to look at urban TODs, where you can attract talent at the right price. |
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| When HFF went to market with a building on NYC’s Avenue of the Americas, it attracted 30 bids and 60 tours, with pricing beyond what the firm initially thought, says HFF senior managing directorJose Cruz. You don’t see that type of demand in NJ. But the better comparison is urban vs. suburban—institutional investors are looking for rent and population growth, as well as access to transit, because that’s what their pension fund clients want, he says. However, there’s a lack of supply and only a handful of urban deals each year. There’s more suburban activity, he says, but it’s not the same pricing spread. |
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| According to Genova Burns Giantomasi partner Frank Giantomasi, the premier question for Panasonic is: “What is the night life like in Newark?” Tenants are looking for a 24/7 environment where they don’t have to drive 25 miles. The model is no longer a revenue-return game, he points out—it’s an equity-appreciation game. His clients are also following the spenders (retail follows rooftops). You need smart urban development, says Tom—New Brunswick’s plan is a good example of that. |
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| Moderator Glenn and the panelists. Once you bring tenants over,capital will follow, Jose says—but tenants have to make the decision first. Tom says there are 15 tenants right now on the ground with 2M SF of requirements, so we’re seeing a critical mass of money coming over to the urban markets. By and large, it’s New York-based companies looking at ancillary uses, he says. |
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| New Jersey’s office market is marked by some interest in development and a flight to quality, says SJP Properties founderSteve Pozycki, who kicked off the developer’s panel. But tax incentives are important—the state has gone from AT&T andLucent occupying 25M SF to less than 5M SF. The only bright side to this is that there’s been a lack of new development, he says. |
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| Mack-Cali president and CEO Mitchell Hersh says the state needs to be cognizant of infrastructure limitations. There’s a broad spectrum of potential users interested in urban revitalization, but only with state incentives or other programs. The market's competing not only with NYC, but other cities, and he doesn’t see the ability to build high-rise developments right now. Mitchell, who was on the governor’s transition team, says Trenton realizes the negative perception of NJ (cost of living, taxes), but wants biz leaders to give the state another chance. Education is critical—in order for a more full, vital, well-rounded market to exist, it’s essential we attract well-educated workers and supply the tools and tax policies to keep them. |
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| On the other hand, multifamily is doing well, according to AvalonBay VP of development Ron Ladell, whose firm has three rental projects under construction in NJ and two more in the pipeline.Homeownership is down, and there’s been a demographic shift toEcho Boomers, who are renting and (somewhat) gainfully employed. The market’s also benefited from historically low supply and few construction permits granted. But we also need to invest in infrastructure, he urges. “Raise the gas tax,” he says, “it’s only going to get worse as you drive.” |
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| Michael, with the panelists, quoted the adage that politicians andbuildings gain respect if they last long enough—but what about NJ’s aging stock? Steve says NJ doesn’t have the exclusive on ugly, older buildings (wait until the former Xanadu ages, we say)—it’s clearly a metro area problem. LEED certification is crucial, he warns. Once green's written into the building codes, New Jersey will get many of its buildings into the 21st century. Even in residential, which doesn’t use LEED as much (AvalonBay prefers Energy Star, says Ron), it will pay off over five to 15 years, Steve says. His firm is building 900 residential units on a LEED basis in Fort Lee. Check back on Monday for more from the event! |
