George Vallone at CAPRE’s NJ Apartment Summit: The Cycle’s Not Over Just Yet
NEWARK, NJ – The New Jersey multi-family arena is in a bit of a holding pattern – there is a lot of opportunity out there, but a lot of insiders are hesitant to get too excited with a slow-down potentially looming on the horizon. But that doesn’t mean that everyone is on the same page. That’s why CapRE featured a panel titled “Overreach and Grabbing? Finding Capital for New Development at the End of the Cycle, Headwinds, Tailwinds & Other Challenges” at CapRE’s Eighth Annual New Jersey Apartment Summit.
“So the topic of this panel is finding capital for new development at the end of the cycle. And it thought it was an interesting topic,” began Moderator Mark DeLillo, Managing Partner, BlueGate Partners. “I want to ask the panelists here, do you feel like we’re at the end of the cycle? We’ve certainly been in this cycle for a long time. Do you feel like it’s the end? Or will it continue in a different fashion that it has for the last seven, eight, ten years? Let’s start on the far left.”
With that, DeLillo pointed to George Vallone, Founder & President at Hoboken Brownstone Company. “I actually thought we were close to the end of the cycle but now I don’t think we’re that close to the end,” he asserted. “And a couple of things have happened. One was the tax cuts, which I think extended things by making capital more available. And then the fed announced yesterday that they’re going to slow down the increases in the federal funds rate. We’re probably getting another quarter point raise, which will take the funds rate from two and a quarter to two and a half.”
According to Vallone, generally the borrowing rate for folks like himself is about three points above that. “So the primary generally tracks around three points above the federal funds rate,” he explained. “So we’re probably looking at the mid fives which is still a great rate. We’ve been spoiled over the last few years with incredibly low rates. But I can still remember the first time I borrowed in 1980, was at 18%. And I was thrilled to death that anybody would lend me money. I didn’t really care what the rate was.”
“So to put it in context, even a 5.5 rate interest rate on construction is a really good rate,” stressed Vallone. “And then I add to that the demand side of the cycle. It keeps going. There was some mention on the last panel about the amount of construction going on between Hudson Yards and the World Trade Center complex. And there’s somewhere around 150,000 more jobs coming. now these are generally new income jobs.”
They’re not the kind of income levels where people can afford Manhattan, he explained, but those employees are going to be looking to go either across the river into Jersey City and Hoboken or across the East River into Brooklyn and Queens. “And right now, the price differential is pretty significant,” he asserted. “We’re probably 10-20% cheaper than our competitors on the other side of the East River. So I think we are still in for a good cycle. I was reading some stuff for the panel today and just in the third quarter of this year, 9.6 million square feet of office space has been leased in Manhattan.”
“So if you just do some rudimentary math and figure 200 square feet per employee, or a little lower for tech companies which puts down about 150 square feet per employee, but if you just take that traditional 200 square feet, that 9.6 million square feet of leasing in the third quarter of this year alone is worth 48,000 jobs right there,” he concluded. “So I think we still have some significant life left in this cycle.”