The Gold Coast of New Jersey has gotten so hot for developers in recent years that in many areas near the waterfront there is hardly any land left to go around.
The land grab has pushed prices to record levels in some areas as buyers from around the world swoop in and snag the remaining plots. Developers forced to buy land at higher prices are now planning to build condominiums rather than rentals, a relatively new trend for even the most popular areas of Jersey City in Hudson County.
“Everything we had is under contract or sold,” Brian Whitmer, a senior director at Cushman & Wakefield in East Rutherford, told The Real Deal. “Now the expectations by sellers are that their land will be sold for condos because that pricing is much higher.”
Last June, Strategic Capital — the investment arm of China Construction America — paid a reported record $55 million, or $121,000 per unit, for the land to build a 37-story luxury condo building at 75 Park Lane in Jersey City. Strategic Capital is also planning to build a seven-story condo property with 48 lofts nearby at 2 Shore Drive North, the company said.
In November 2015, a much smaller site in the “Soho West” area of Jersey City sold to Hoboken Brownstone Co. for $6.5 million, or $118,000 per unit. Land priced for rental apartments in that neighborhood is significantly lower, around $70,000 per unit, Whitmer said.
Those deals follow in the footsteps of the $500-million mixed-use condominium building at 99 Hudson Street in Jersey City, which began construction a few months ago. The 79-story building, developed by China Overseas America, marked the first condo project in Jersey City in eight years. It will also be the tallest building in New Jersey once completed.
Land prices per square foot in Hudson County — one of the areas in closest proximity to Manhattan — nearly tripled to an average of $81.76 in 2015 from $32.66 in 2006, during the last boom market, according to data from CoStar.
The interest in Jersey City now extends deeper than the waterfront as well. Luxury high-rise developments going up around Journal Square are pushing up prices in that area. A small plot at 823 Newark Avenue sold in 2003 for $475,000 and then traded hands again in December for $1.2 million.
“People keep pushing further and further away from the waterfront, which points to the sustainability in this boom,” said Joseph Sollazzo, real estate economist at CoStar Portfolio Strategy.
Still, analysts are questioning how long the boom can continue. Average prices for land per square foot have dropped so far in 2016, even in Hudson County, though the year is far from over. And an analysis by TRD showed that total land sales volume in the first quarter of 2016 is down — in some cases significantly — versus the first quarter of 2014 and 2015 in Bergen, Hudson and Essex counties. Morris County bucked the trend, with much higher first-quarter sales volume year over year, while Passaic remained about the same. It may be that the pricing has become prohibitive for buyers.
“We’re in the seventh year of this recovery, so the question is will prices pull back a little or will they continue to rise?” said Brian Hosey of Marcus & Millichap.
For now, the influx of people who have been priced out of Manhattan and Brooklyn — and more recently Jersey City and Hoboken — is driving up prices in other parts of New Jersey.
Hackensack in Bergen County is one of several towns to recently attract attention from developers. In 2012, the town established a plan for redevelopment, and builders have been rushing in. There are at least six major mixed-use developments in the works there now with several hundred units in each property.
A 14-story residential and retail building with 382 apartments under construction on Main Street set a price record for Hackensack. The developer, Shergoh Alkilani of Alkova Companies in Edison, assembled eight parcels of land for the project, paying a total of around $6.5 million, or roughly $100 per square foot. By comparison, most of the previous land deals in the last few years have gone for around $40 per square foot, experts on the area told TRD.
“The town has a vision to rebuild the city,” said Daniel Aviles, a multifamily investment specialist at Marcus & Millichap. “Hackensack is on its way to becoming one of those towns like Hoboken and Jersey City.”
Indeed Alkilani, who is seeking approval to build another apartment building in Hackensack with around 400 units, said the town’s new zoning laws made it very attractive for investment.
Farther out in the New Jersey suburbs, land prices are exceeding the previous cycle as well. In Morris County, the average price per square foot catapulted 748 percent to $24.24 last year from just $2.86 in 2006, though prices have vacillated each year.
Morristown has a redevelopment plan of its own and has been attracting interest from condo developers. In July developers paid $2.8 million for land in downtown Morristown to build 67 condo units.
But even with some growth, the outer suburbs of Essex, Morris and Passaic counties have yet to see the bidding wars that are playing out on the waterfront. In Essex, the average price per square foot for land fell to $8.36 in 2015 from $17.70 in 2006.
Real estate executives said land sales deeper into the suburbs are not experiencing the same uptick as in Jersey City and its surrounding towns because of the decline in the suburban office market. A number of corporations, such as Mercedes-Benz USA and Hertz, have recently left New Jersey because of high taxes.
The 116-acre former site of the Swiss drug maker Roche in Nutley, New Jersey, still hasn’t found a buyer. Roche is one of a number of pharmaceutical companies that have left New Jersey in recent years.
“Demand is soft in the suburban office markets,” said Kevin Welsh, a senior vice president at CBRE in Saddle Brook. “So land values in those areas will be softer.”