Finding Your Niche in NJ Multifamily: Panel of Investors and Industry Experts Discuss Garden State Acquisitions Landscape
JERSEY CITY, NJ – Everyone wants to know where capital is flowing and that’s why CAPRE formulated a panel to blow that topic wide open at our recent New Jersey Apartment Summit in early December. “Suburban, Urban vs Emerging Submarkets: Where are Investors Deploying Capital in the Various New Jersey Markets and Why?” featured six leading industry representatives discussing the where, why and how of capital flow in emerging markets, which kicked off with some insight from the developers on the panel.
First up was Adam M. Pasternack, Senior Vice President at Russo Development. “Adam, you guys make a lot of decisions as to where to go regarding environmentally sensitive sites as well as some pioneering,” remarked Brian Whitmer, Senior Director at Cushman & Wakefield to Pasternack, before making a suggestion. “Talk to us about the background that happens when you guys get together in your office to talk about a market where, they may not be a lot of activity, but you want to discuss deploying capital.”
“We have about 1800 stabilized units and about 3000 units in some form of development or construction. So initially, we’re very familiar with and have a strong background in environmental mediation and we carry that into our multifamily thought process,” replied Pasternack. “Our first four or five developments were all brownfield developments to residential. The value we add is probably before a resident walks in the door – in the acquisitions phase, the entitlements, etc.”
Pasternack then shared that when it comes to new markets, his team is looking for value and looking to build an investment class in those markets. “We’re going on our fourth or fifth project in Carney, for example,” he shared, before providing some further flavor as to priorities at Russo Development. “TOD sites are some sites that we feel very strongly about, and we’re very optimistic. I think that our development portfolio in the pipeline really speaks to that.”
“You have to find your niche in multifamily,” asserted Pasternack’s co-panelist Jack Klugmann, President of Accurate Builders & Developers. ”You hear so much about the big bad Jersey City, with so much going on. They just approved a thousand units here and a couple of thousand units over there. And it’s like, is that something that I want to be involved in? I just say, let me find a project or opportunity in a municipality where we know the mayor is interested and will give us the best tax program possible and help us to speed up the approvals.”
Klugmann then shared of insider intel regarding his firm’s latest venture. “We’re doing a project in Raritan, which has hardly any apartment buildings and there’s hardly any vacancies there,” he shared. “People say, Raritan? Where’s that? But it’s right next to the train station, so it has that benefit of hopping on the train to quickly get into the city. And across the street is a growing, booming lab testing facility. It’s about finding niches like that all over New Jersey and building on them.”
“One of the key things you mentioned is looking o areas that are pro-business and pro-development,” Whitmer responded. “When you’re getting presented with deals, and you’re deciding where to spend your time and capital, and why, how much of that plays into your decision, versus going in and potentially trying to beat your head against the wall?”
Matthew D. Ascher, Director at Northwestern Mutual, offered a response first. “On the equity side of my job, we’re mostly looking for our development partners to bringing us assets that are already banked. But that said, we’re definitely focusing our investments in TOD and Waterfront type of situations,” he remarked. “We have new development going up with Prism Capital in Woodbury, adjacent to the New Jersey Transit Station, and you want that township to become a partner. The way that New Jersey started to become a partner was through tax incentives.”
“With respect to equity and debt, I get approached with a lot of opportunities from across the country. We’re very active in New Jersey though, obviously. We look at local demographics very, very closely,” then added Solomon Kinraich, Managing Principal at MLK Real Estate Capital. “It’s very important to use to work with cities that have a pro-business orientation, as well as potential for job growth and being close to transportation. That’s extremely important.”
Next, Whitmer looked to two other panelists who represent the brokerage side of the equation for a different take on these topics. “You see the ebb and flow and politics and support,” he ventured. “Sometimes, when things are positive and friendly, you get a lot of positive and friendly phone calls. But when it’s the reverse, you sometimes have to educate people on these opportunities. Take Newark for example and the rent control that went into effect there – as well as that which happened in New York City. How has that impacted your business?”
“We’re definitely seeing that impact from the New York rent reform,” offered Karine Blanc, Director of Multifamily for the Blau & Berg Company. “Anytime you have this price ceiling, it creates shortage in the market, where there’s already shortages. That’s really driving these rents so high to begin with. This reform has created a scenario where the only thing that can fix it is supply. And most likely, it will actually reduce supply. So in that search for supply we’re already seeing capital come to New Jersey, specifically in Newark…this just goes back to transit-oriented development and where the deals are happening in Newark.”
“A lot of deals are happening in the central business district, but when we talk about Newark as an emerging market, we want to look at all of the wards,” Blanc continued. “What are some of the outer wards where there are still opportunities? We need to analyze these demographics to see who the targeted renters will be. It may not be commuters going to Manhattan every day. They may be employees of the big, local hospitals in Newark.”
Whitmer than followed up with Blanc on two points, first asking for more details on which sub-markets are particularly intriguing for her as emerging markets at the moment, and then seeking clarity on who is lining up to buy these tracts of land – investors from outside the region looking for greener pastures or local developers finally catching on?
“I’d say the West and the South Ward, are where we’re starting to get the most phone calls about,” she replied. “And those have by far the most blighted properties. And I think the city is making a great effort to really partner with developments to get some of their own land off the books and attract capital in that sense.” As for Whitmer’s second question, Blanc shared that it’s a little bit of both. “I’m seeing the rise of a lot of new developers that are from Newark and have been in Newark for a long time, whether it be small-scale investors who are now trying to get into ground-up construction or redevelopment deals, and from outside Newark, are coming from everywhere. You’re seeing people who normally work in Brooklyn but are now looking for the next best thing. And to be honest, Newark is closer to Manhattan than parts of Manhattan are, so you’re seeing that happen as well.”
Finally, Whitmer looked to his sixth and final panelist for some local perspective on the long trajectory of Jersey City — Chris Cervelli, Owner of Cervelli Real Estate & Property Management. “Chris, can you please talk to us about Jersey City and how it’s become what it is today?” he asked. “From Journal Square to the west to the south, does it keep going for you? What are you seeing?”
“It does. Specific pockets of Jersey City are really seeing a lot of action right now,” replied Cervelli. “For example Bergen, Lafayette and the university section, outside of the popular Journal Square area. We have seen a lot of interest from New York investors because of what’s going on there. A lot of them don’t seem to understand that Jersey City has its own set of rent control challenges coming down the pike. That said though, we have a lot of uptake on people looking here. And we’re able to open up to other areas like Carney and Harrison and these other pockets that don’t necessarily have these anti-rental policies in place. There’s areas of Bergen County as well, like Fairview & Hillside Park, that are very hot. There’s a lot of development going on there.” Whitmer then asked Cervelli to touch on some other neighboring markets – Woodbridge, Bayonne, and Harrison, to name a few.
“It’s the light rail, really. Bayonne, I like a lot. A ton of development is going on there on each side of the city. The ferry coming is obviously going to be huge driver of growth there. The south side of the city has seen a lot of development. I don’t do a lot in Harrison, but Carney has been very hot,” replied Cervelli, before providing some further details on what sub-markets might be losing out at the expense of these hot areas to conclude the bulk of discussion. “We’re seeing a lot of capital coming from Jersey City, going westward. A lot of your typical Jersey City investors are now telling me to bring them down there.”