Is Northern New Jersey Becoming “Too New York”?

NEWARK, NJ — The “Over-Active” Value-Add Arena was a key topic at CapRE’s Eighth Annual New Jersey Apartment Summit, so much so that an entire panel dove deep into the topics. And the central key to that panel was With the Softening in Class A, is Too Much Capital Entering the Property Rehab Space? Below, we showcase a brief close-up conversation with two panelists about how and why the value-add arena is in a state of flux.

Moderator Ron Simoncini, President, Axiom Communications: So Brian, I’ve always been curious about this. What is it that you guys recognize, that someone has achieved in value creation on a property, that you knock on that door and say, It’s time you sell this and get some money off of the table?”

Brian Hosey, Regional Manager, Marcus & Millichap

Brian Hosey, Regional Manager, Marcus & Millichap: You know, we look at capital migration. Meaning where is the money flowing from and where is the money flowing to. And if you look at the stats, 70% of our buyers come from New Jersey, which should be expected, right? But 25%-35% of our buyers now are coming from New York. Why is that? Well, they are looking for a deal. They can’t find any new deals in New York. Especially Manhattan, of course, but also Brooklyn and Queens. So where are they going? They’re going to Northern New Jersey and Central New Jersey because there are opportunities.

I’m a little tongue in cheek, but it really is a great time to sell, because there is a tremendous amount of capital out there in these markets and that’s also reflected in the terms that we are seeing on deals. So, we’re either seeing no or low due diligence terms, whereas three or four years ago, a buyer would have requested a 45-day due diligence period. We’re not seeing those offers come in with due diligence done prior to contract signing. Or maybe it’s a ten-day due diligence period. Or another reasonable due diligence period for environmental entitlement.

So all of the terms now, they’re becoming more New York City-ish. Which makes sense, because the buyers are used to that. That type of fast-paced deal-making.

Simoncini: Another buyer that was here earlier today, Alan Hammer. He would say to you, Northern New Jersey? I can’t even figure out how to buy in Southern New Jersey, and now they’re pushing out into Pennsylvania! So there’s a lot of context in that. Trey, what about you? Is there a possibility that Northern New Jersey is already too much New York for you? Or do you still have some work to do up here?

Trey Unger, Vice President, Candlebrook Properties: I wouldn’t say that it’s too much New York. I’d say a lot of the deals we look at and a lot of the assets we own are some very small, B&C deals, of which is hard to put together a meaningful portfolio in Northern New Jersey right now. There are a lot of smaller deals. I think that is one of the reasons we went to Pennsylvania. We found a 638-unit deal with a lot of juice in it. We couldn’t find that in Northern New Jersey. Northern New Jersey has less vacancy issues and it has great fundamentals but it’s difficult to put together the same size deal that you’d put together in some other places.

For more coverage of this panel, check out earlier CapRE Insider Reports: