Developers still see a bargain in Jersey City

Optimism surrounds the city’s new high-rise developments, but one of its biggest projects is stalled because of a legal dispute

Jul.July 12, 2018 11:00 AM

99 Hudson, which will be the tallest building in New Jersey, is set to open in late 2019.

The Jersey City boom is booming on, but even this real estate success story isn’t immune to a bit of presidential controversy. One of its biggest developers, Kushner Companies, is in the midst of a legal battle over One Journal Square, a proposed project that would bring more than 1,500 apartments to the city as well as 200,000 square feet of retail and commercial space.

Kushner Companies is one of the principal investors in the project, whose cost is estimated at $900 million (read our interview with Charlie Kushner here). At the end of June, the company filed a nine-count lawsuit alleging that Jersey City issued a notice of default on its project because of “political animus” toward the company, formerly led by Jared Kushner, President Trump’s  son-in-law and a senior White House adviser.

One Journal Square’s site was purchased in 2014 by the Kushners and KABR Group, which entered into an agreement with the Jersey City Redevelopment Agency in 2015. The notice of default is another hurdle in a long-stalled process of getting approvals for the project.

As the One Journal Square controversy continues to play out, other projects in the area are going forward. Three major condominium projects are slated for Jersey City, a significant change for a market that for nearly a decade has focused mainly on rental construction. One of those projects, 99 Hudson, is slated to be the tallest building in the state.

What’s driving interest

The driving forces behind Jersey City’s success remain the same as in recent years — stunning views of Manhattan and the Statue of Liberty, quick and easy access to Manhattan’s West Side and its relative bargains for builders, buyers and renters alike. In addition, the city’s fortunes piggy-back on what is happening directly across the Hudson River, experts said. That includes the rebirth of the World Trade Center with the $4 billion Oculus transit hub and the massive construction activity at Hudson Yards.

“Everything that is happening in Hudson Yards and the West Side has really shifted the center of gravity of Manhattan to the west side of the island,” said Mark DeLillo, managing partner at BlueGate Partners, an investment bank that specializes in advising and financing for multifamily construction projects. “That really opened up the apartment market on the Jersey side of the river.”

So far the 99 Hudson condo project, developed by China Overseas America, is one of the city’s success stories. It launched sales of its 781 units last October and is set to open in December 2019. When it is completed, it will reach 900 feet, making it the tallest building in New Jersey, edging out the 785-foot Goldman Sachs tower just three blocks away.

The amenities at 99 Hudson are a good example of what Jersey City’s developers are offering to lure tenants and buyers in this wave of high-rises. Floors from the 16th up facing the river will have views of the Manhattan skyline. All condo owners will have access to a fitness center, screening room, pool, barbecue area and spa. And when it’s time to go to work in Manhattan, residents can walk across the street to the Exchange Place PATH station. From there the World Trade Center is less than a 10-minute train ride.

Easy access to Manhattan is also helping draw renters and buyers who might otherwise have gone to Long Island City or Downtown Brooklyn, two other areas that share the proximity to Midtown and the Financial District and are enjoying their own high-end construction boomlets.

DeLillo said those two outer-borough markets are showing early signs of softening, with occupancy rates at condominiums starting to dip and builders having to increase the concessions they offer to help fill new projects. Jersey City, he said, is just the opposite, with occupancy rates currently at 97 percent for condos.

The low vacancy rates are, of course, one of the elements that make the city very appealing to builders. “I love Jersey City,” said Michael Barry, co-owner of Ironstate Development Company, which is opening its 50-story, 531-unit 90 Columbus in September and is about to top out the 45-story, 535-unit  235 Grand that it is developing with KRE Group. Barry ticks off the city’s attributes, from its 24-hour urban vibrancy to the fact it is the largest economic center in New Jersey.

The biggest bonus for builders is how much less the land and development cost. “As a rule, it’s two-thirds of Manhattan,” said Barry. “And that flows through to potential tenants.”

That is a financial blessing for those priced out of other neighborhoods in and around Manhattan. Rents for new high-rises in Jersey City are around $50 a square foot, said BlueGate’s DeLillo, compared to around $60 in Downtown Brooklyn and $80 to $100 a square foot in Manhattan, depending on the neighborhood.

Still, the cost of living in Jersey City can take a considerable chunk of a paycheck. At 90 Columbus, studio apartments range from $2,400 to $2,500, one-bedrooms cost $3,000, and a two-bedroom will set you back $4,400 to $4,500 a month.

A demanding audience

The ongoing and seemingly unrelenting popularity of Jersey City has the big developers scrambling to meet demand.

Among the new major projects planned, underway or recently opened: KRE Group just started leasing at 485 Marin, a 397-unit building in the city’s historic Hamilton Park neighborhood; Strategic Capital recently topped out its waterfront Park and Shore condominium complex; and LeFrak’s 41-story Ellipse luxury rental tower made headlines when a four-bedroom penthouse unit became Jersey City’s most-expensive rental when it leased for $10,995 a month the day it went on the market — that works out to almost $132,000 a year.

But eye-popping numbers like that are exactly what market watchers zero in on when they say the Jersey City building boom is bound to go bust.

“Every time one of our large projects goes up, there is always a peanut gallery saying Jersey City is getting oversaturated,” said Edwin Blanco, the sales manager of 99 Hudson. “But they have been filled consistently.”

So far, at least, the doubters are sounding like the construction industry’s version of crying wolf. Interest rates are at the highest levels since 2008, but they are still historically low and not threatening to make borrowing unattractive. And though builders say lenders are a little more cautious than they were early last year, financing is still readily available for high-quality projects.

And then it all goes back to Jersey City’s major appeal: luxury residential properties available at relative bargain prices with easy access to the concentrated construction that has tilted Manhattan’s economic center over toward its West Side. “Between that shift and the rent differential, you are going to see Jersey City continue to outperform for a while,” said DeLillo.

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