Brokers selling multimillion-dollar penthouses and Midtown Manhattan buildings aren’t the only game in town — or in the outskirts of town. The New Jersey suburbs are gaining ground.
In this month’s Q&A, The Real Deal talked to residential and commercial brokers about the prime suburban markets in New York City’s shadow.
On the residential side, that includes both Bergen County, where a slew of celebrities live in sprawling gated mansions, and Essex County, home to Wall Streeters and media types who have flocked to towns like Montclair, Maplewood, South Orange, Summit and Short Hills for their easy commutes to Penn Station.
Like New York City, the Garden State’s popular towns are starved for inventory and seeing well-priced homes move fast. But unlike the city, there is not enough new development to keep pace with demand.
As a result, “more people are looking at resale homes as knockdowns than ever before,” said Dennis McCormack, a broker with Prominent Properties Sotheby’s International Realty, who’s handled some of the priciest sales in Bergen County and currently has two $12 million-plus Alpine listings.
“If a house is an older home on a good piece of land, buyers aren’t giving the house any credence; they look at it as a piece of property,” said McCormack, who noted that resale prices are flat over last year.
Similarly, in Essex County, buyers and developers are pouncing on any piece of land of a half an acre or more, shelling out as much as $3 million before putting a shovel in the ground. Nonetheless, buyers are still wary of overpaying for existing homes.
On the commercial front, the real estate game is more spread out, encompassing cities like Newark and Jersey City, as well as suburban office park locations dotting the metro area. And while New Jersey recently suffered a loss when car giant Mercedes announced that it would flee to Georgia to save money, brokers insist the commercial market is going strong.
While commercial brokers noted that Manhattan-based companies are not likely to pack up to save rent money, Brooklyn companies and those located in other boroughs are increasingly making the leap.
For more on the biggest Jersey real estate players, the hottest areas and the predicted real estate run-up, we turn to our panel of experts.
RESIDENTIAL
Elaine Pruzon
Agent, Keller Williams—Short Hills
Elaine Pruzon
How is overall sales activity doing in your area, and how much is that up or down by compared to each of the last few years?
I do Short Hills, Summit, Livingston and Maplewood. The market in those towns is spectacular and has been for several months. What I mean by that is that any home that is priced [well] in this market should have multiple bids. … There is a large demand and a small supply, probably because [many owners] opted not to put their houses on the market because of the bad winter.
What else is going on with residential prices in your area?
Prices have escalated. It’s definitely a seller’s market. It’s difficult to navigate right now for buyers. They can’t really afford to take their time, which is tough.
In NYC, the new development market gets tremendous interest. What is happening with new development in your area?
About 50 percent of my business is buyers from New York, specifically young people moving here from the city and looking for new construction. I can’t keep [new construction] on the market. Interestingly, there’s also been a little boom with older homes that in the last five years suffered from the new-construction takeover, especially in Short Hills. Builders are starting to build very modern. It’s not Frank Lloyd Wright modern — it’s chic modern. That is a game changer because the builders were lagging behind there.
How is the luxury market holding up compared to the rest of the market?
It’s doing very well. It’s the combination of the [strong] stock market and very low interest rates. The luxury market in Short Hills is probably $2 million and up, and that market is thriving … People are also paying enormous amounts of money for land. They’ll pay $3 million for a piece of land and they’ll build their own house on it. People are starting just to buy anything that’s an acre plus. Before, people would buy smaller properties. Unfortunately, there’s not much land around here. When something comes on, everybody fights for it.
Who are the most active buyers in your area these days?
If 50 percent of my clients come from New York, 40 percent are from Wall Street. Wall Streeters and young couples coming in from New York are flooding into Short Hills, Summit, Maplewood and Livingston. They are [attracted to the area] because the commute is good and they want space.
How quickly are properties selling now?
If priced properly, a property sells within the first 30 days.
What are the biggest challenges to selling homes right now?
I could tell you probably over $4 million in my neck of the woods in Short Hills is challenging, but tomorrow, I’ll [probably] get an offer on [one of those homes].
What’s the residential inventory like?
Inventory is low. That’s another thing fueling the markets. That’s probably going to turn around in the next 30 to 60 days. A lot of people are waiting until what they think is spring to put their house on the market. But there are so many buyers that [they] should do it earlier. It’s what I call standing alone. I like to list something when there’s no competition.
What’s happening with appraisals and mortgages these days?
Appraisals are difficult, because the market is so strong [and they are surpassing the prices of closed deals]. As a result, sellers are asking
[buyers] to remove their mortgage contingency, but also, at a minimum, to remove their appraisal contingency. By July or September, we’ll have comparables. Homes with close and everyone will see the high prices … so the appraisals will have some data.
Dennis McCormack
Broker, Prominent Properties Sotheby’s International Realty—Northern Bergen County
How is residential sales activity doing in your area?
The market remains price sensitive, and I would say compared to last year, activity is flat.
What else is going on with residential prices in your area? Has the market fully recovered from the downturn?
[Prices are also] flat from last year. The market hasn’t made a full recovery. There are certain categories that have done better than others. For instance, land sales are very strong. They have outpaced the highs of 2007, but resales have not.
What’s happening with new development in your area?
There’s been very little speculation that has gone on within the high end, but new construction is always a buyer’s first choice. The problem is we don’t have enough of it.
How is the luxury residential market holding up compared to the broader market?
The luxury market remains a price-sensitive market, but if something is priced competitively, it sells. In that luxury market, typically the newer homes sell for more money than resales. If a home is renovated, that will sell before something that’s older.
Who are the most active buyers?
Foreign buyers remain more active buyers.
What are the biggest challenges to selling homes right now?
Selling a house with deferred maintenance. If a home is not maintained properly, it is not easy to sell and it sells for a lot less.
What’s the residential inventory like and how does that compare to recent years?
In Northern New Jersey, new construction has not kept up with the demand. There aren’t as many builders that have speculated luxury homes as there have been in the past, so the inventory of new construction doesn’t exist. There is supply, but it’s not an abundance of supply.
What are the most surprising trends in today’s residential market?
There are more people looking at resale homes as knockdowns than ever before. People building their own homes is the trend. So if a house is an older home on a good piece of land, buyers aren’t giving the house any credence, they look at it as a piece of property. Before, more people would renovate, but now more people are knocking down, because the larger buyers demand quality, and it’s not there. There is only so much patchwork you can do on an older house.
Which towns are performing best in your area?
The towns with the better schools. The buyers for the larger homes are coming from New York, and a big driving force is the high price of private schools. Thus, they tend to go to towns with the better school systems, including Alpine, Tenafly, Closter and Ridgewood.
Victoria Carter
Associate, Weichert Realty—Short Hills
How is overall residential sales activity doing in your area?
I cover Millburn, Short Hills, Summit, Maplewood, South Orange, Montclair and Chatham. Sales there are up about 10 to 15 percent, maybe even 20 percent against last year.
What is going on with prices?
Prices are up — I would say between 5 to 7 percent. [In] my areas, where there are very urban and popular transition towns, I would say we are reaching 2005 prices. They have fully recovered from the downturn in the lower price range.
How is the luxury market holding up?
The luxury market is holding up relatively well. It’s recovering slower than the under-$1 million market, but it is recovering. There are more buyers, particularly in affluent neighborhoods like Short Hills and Summit, where the median price points are higher.
Who are the most active buyers, and how does that differ from the recent past?
Most of them are young families coming from New York, Brooklyn, Jersey City and Hoboken. We do have some relocation clients and some expats coming back from Asia and Europe. We have a large number of foreign buyers. There is also a big Asian and Indian population, particularly in Short Hills. They are definitely Wall Streeters in Summit and Short Hills. Maplewood and Montclair usually attract more of the advertising, communications, television, and marketing industries.
How quickly are properties selling in your area?
Quickly. The average amount of time is running between 40 and 60 days. It was about 50 to 70 last year, so it’s maybe 20 percent faster. Anything that’s not priced right is sitting on the market. Even in the best of markets, buyers continue to be savvy, and they’re not interested in overpaying.
What are the most surprising trends you’re seeing today?
I think we are at the precipice of a run up in real estate values. The economics are favorable to everyone that was, I guess, born between 1980 and 1995. That generation is just stepping into the real estate market and starting to buy homes.
COMMERCIAL
Richard Marchisio
President/principal Lee & Associates—New Jersey
What’s going on with commercial leasing activity these days and how does that compare to the last few years?
We have seen a rise in all sectors of commercial leasing in New Jersey over the past several years. Industrial leasing activity is clearly the “hands-on” favorite food group of all the sub-sectors of the market. Retail is perhaps the second most active sector, and suburban office space, because of less-than-stellar job growth, is lagging somewhat.
What are prices like for commercial leasing and sales these days?
Average asking rental rates are increasing across all sectors of commercial real estate, even within the suburban office market to a degree. Industrial sale prices are approaching record highs, in some cases trading in excess of $100 per square foot. Well-located office buildings are in demand as well. Retail centers with solid anchor tenants are seeing a rise in value, too. Notwithstanding any form of commercial product that can be repurposed into residential multi-family, [which] is very hot — perhaps the hottest sector of all.
New Jersey has long competed with NYC to attract office and industrial tenants. Has the state gained/lost an edge recently?
New Jersey has clearly gained an edge. The new [state-run] Grow NJ benefits programs are very attractive. New York may be finding it hard to compete. New Jersey has been ramping up its programs. We recently represented Wenner Bread Products, who will move the majority of their operations from Long Island to New Jersey in early summer. The company will create hundreds of new jobs, and was awarded a maximum benefit of $30 million over 10 years.
On the flip side, earlier this year Mercedes announced plans to relocate to Georgia. Is New Jersey losing ground to states outside the metro area?
There will always be companies like Mercedes that can find a cheaper place to do business. In the Northeast, you can’t control that. We live in an expensive area to do business in. I wouldn’t say New Jersey is losing any ground. The world has changed. With technology, physical location is not as critical as it used to be. But if you need to be in the metro area … you have to pay what the market supports.
What other big issues are affecting New Jersey commercial real estate right now?
We are land constrained. To develop new buildings in New Jersey, there are not many choices, unless you move out into the rural areas. So the choices are to develop brownfield sites, reposition existing buildings or tear down and start from scratch. There is too much red tape to go through just to put a shovel into the ground.
We know that both Newark and Jersey City have seen new office building development. What’s going on with office construction in those areas and others in metro New Jersey?
Suburban office product is suffering a bit. Many companies that want to stay here are looking for amenities, such as commuter rail, restaurants, shopping and other conveniences within walking distance. If you own a suburban office building or park, you need to try to create some of the amenities that one would have in a [central] setting, but it’s not so easy to do.
Are lenders/investors more or less willing to make debt and equity investments than they were a few years ago?
For financially sound borrowers, money is available. Interestingly, for industrial business purchasing buildings for their own use, [federal] loan programs are of great interest, and many of the name-brand banks are jumping into the game. For professional buyers of industrial real estate, equity is everywhere. There is more money out there to be had than there is product to invest in.
Who are the biggest commercial developers in the New Jersey metro area and are there any new players on the scene?
On the office front, Mack-Cali is a major player, and interestingly, it’s entered into the multi-family arena via its purchase of Roseland Properties. There have been mixed views on that play, but I think it was a smart move. When it comes to industrial, everyone is either here already, or wants to be. The largest players include Prologis and KTR, and then there are more local players like Russo Development in the Meadowlands area, and other firms like Sitex Group that have made significant entry into New Jersey.
Office rents have been steadily rising in NYC. Has New Jersey benefited from that?
It has always been amazing to me how difficult a decision it is for a NYC-based office tenant to make a move to New Jersey. Office space prices in NYC are among the highest in the nation. But if you’re a Manhattan-based company paying X per square foot, and then the price goes up even higher, you just accept it as the cost of doing business. It takes extraordinary motivating factors for a company to move to New Jersey just to save money. Today, a cool work environment is as much a benefit to a new hire as health plans, wages, a 401(k) match and other monetary perks. When a new grad gets hired by Google today, what do they talk about? They talk about the free, gourmet food … the sushi! Even the horrific events of 9/11 did not open the floodgates to New Jersey. A few companies came over, like American Express, but several years later, they went back. The office space moves that you see taking place along the waterfront in New Jersey are in part back-office operations, not company headquarters.
What sorts of companies are looking at commercial space in New Jersey right now?
Many Brooklyn-based industrial, because they are being priced out. Industrial companies in the boroughs, as opposed to office tenants in Manhattan, will make the move.
How does the influx of residents on New Jersey’s Gold Coast affect the region’s commercial market?
The influx is positive, for the economy, and for all sectors of commercial real estate, however, it must be kept in perspective. Many of the people moving across the river to New Jersey to live are still going back across the river each day to work. It’s an affordability thing.
Dudley Ryan
Senior vice president, CBRE—Newark
What’s going on with commercial leasing activity in New Jersey, and how does that compare to the last few years?
Dudley Ryan
The New Jersey commercial market continues to see vast improvement, but there continues to be strong competition for tenants both within the state and with [outside] markets. In early 2014, the state was still recovering from the downturn and the market was locked. The velocity in the market has been increasing quarter-to-quarter.
What factors are influencing the amount of commercial construction in New Jersey these days?
A combination of state incentives and local and national economic growth have been primary drivers of construction activity. We haven’t yet seen a “boom” in office building, but we’re getting closer to that point and can expect an influx in construction in the near term.
TRD recently reported that there are almost 9,000 residential units being built along New Jersey’s Gold Coast. How does the influx of residents affect the region’s commercial market?
The influx of residential development absolutely impacts the commercial sector. This development helps facilitate job creation in New Jersey, which has clear trickle-down benefits for commercial businesses.
Check out our New Jersey Market Report in the upcoming June issue.