The suburbs may seem sleepy in comparison to Gotham itself, but the appeal of real estate right outside the New York City is known as far as a hemisphere away.
Buyers from the Middle East are scooping up properties across the tri-state area, according to Jeffrey Dunne, a vice chairman in CBRE’s Capital Markets Group. He and his team just closed a deal funded by offshore capital and have two under contract.
“There’s money coming from Kuwait, there’s money coming from Qatar,” he said. “The Middle East is the primary source of offshore capital.”
Commercial real estate sales across the tristate area are healthy overall with the office properties that offer amenities like co-working space and concierge services demanding strong prices. Multifamily projects in urban environments remain in demand, while inventory in the workforce housing sector has been growing. Meanwhile, industrial prices have doubled over the last seven or eight years, and set new records in 2019, according to John Obeid, senior director of suburban tri-state research at Colliers International. Below, The Real Deal looks at some of 2019’s most notable deals in the multifamily, industrial and office sectors.
Office opportunities
While the office market is not as strong as multifamily or industrial, Obeid was surprised by the amount of activity the tri-state area saw during 2019.
“We always say that once pricing gets tight in New York City, we see a lot of the institutional investors looking into New Jersey,” he said. “We were hoping for that a couple of years ago, but I think in 2019 is when we’ve really seen it.”
That’s evident with the increased interest from overseas investors, brokers said.
For example, Gulf Islamic Investments, a United Arab Emirates-based financial services firm, plunked down $115 million in June for the 270,000-square-foot office space at 175 Park Avenue in Madison, New Jersey. The building, headquarters of the real estate company Realogy, got a full overhaul in 2012, courtesy of the architecture firm Kohn Pedersen Fox Associates.
James Hanson, the president and CEO of Hampshire Companies, the seller of the property, noted that the buyer’s goals were not necessarily high appreciation.
“They are looking for cash flow on their equity and like single-tenant deals,” he said. “They’re looking for something that can produce strong cash returns.”
Class A space with the atmosphere and amenities that attract top-notch labor can be hard to find. Many companies are embarking on extensive renovations and adding amenities to their office holdings. That could mean anything from revamped common areas to on-site personal trainers.
Take Continental Plaza in Hackensack.
Capstone Realty Group and JD Companies bought the property — which includes three office buildings and a restaurant site, totaling 647,947 square feet — for $63 million in September 2016. They overhauled the entire site, which now features a conference center with individual breakout rooms, a tenant lounge, full-service cafeteria and a fitness center.
The changes caused occupancy to spike, from 69 percent to 91 percent.
Capstone and JD sold the building in December for $123 million to Lionstone Capital, according to CBRE, which managed the deal.
“It’s always fun to see people do well,” said Jeremy Neuer, of CBRE’s East Brunswick office, said of the deal. He also pointed to the sale of the revamped American Metro Center in Hamilton, New Jersey, which in the fall closed for $84.7 million to The Birch Group, an investment company in Nanuet, New York.
The former manufacturing building has a cool vibe with its exposed brick, high ceilings and plenty of natural light. It’s also right next to the Hamilton Train Station.
“Landlords are realizing they need to give these tenants better service,” Neuer said. “It’s more of a hospitality mindset.”
Investors also looked to Stamford, Connecticut, for office investments. The city has a high vacancy rate for its class A office spaces: at 30 percent as of the final quarter of 2019, according to Newmark Knight Frank. Still, Royal Bank of Scotland’s Stamford office building was only on the market for about a year before an affiliate of Philadelphia-based Rubenstein Partners purchased it for $163 million in June. JLL represented the seller, NatWest Markets, in the deal for the 450,000-square-foot property.
Robert Andrews, regional director with Rubenstein Partners, called the building a “long-term investment opportunity.”
Multifamily jewels
Apartment building sales are strong across the region, Dunne said. The work-play-live lifestyle continues to attract tenants with waterfront and urban areas seeing the most demand. Sales in Long Island are also strong, largely because there is so little supply.
In February 2019, CBRE brokered the $472.5 million sale of seven apartment complexes in Nassau and Suffolk counties (read more about the deal on page 38). CBRE represented both the seller, Dallas-based private equity firm Lone Star Funds, and the buyers, Chevy Chase, Maryland-based real estate investor FCP and Melville, New York-based Fairfield Properties, the largest owner of multifamily properties on Long Island.
“That was a special deal because of its size,” Dunne said of the trade, which included just under 1,500 units. “There was incredible interest in the properties, as this class of ‘workforce housing’ is in high demand because of a shortage of quality Class B apartments and the slow pace of new construction on Long Island.”
The workforce housing sector, which caters to renters commuting to city jobs, has seen $375 billion of investment nationwide in the last five years, according to a report by CBRE. That accounts for 51.3 percent of multifamily assets nationally.
Over in New Jersey, CBRE represented the seller, Roseland, N.J.-based Murnick Property Group, on another workforce housing deal: a seven-asset sale for $146 million, which closed in July. The buildings, including a total of 1,035 units in East Orange, Newark, Asbury Park and Trenton, have had a 4.1 percent average annual rent growth since 2014. The buyer was an international investor, which CBRE declined to name.
“Renter demand for well-maintained Class B apartments is also at historic levels and expected to continue for years ahead,” Dunne said. “It’s impossible to build new apartments that will be comparable in rental rate to older Class B assets, which insulates these communities from new competition, thus enabling rents to grow as more renters enter the market.”
CBRE also represented the sellers on the $146 million sale of One City Place in White Plains. An affiliate of JPMorgan Chase had put the 35-story apartment complex on the market in April, and it sold in August to Texas-based AJH Management.
Another major deal in 2019 was the $263.8 million sale of Jersey City’s Soho Lofts by AEW Global Real Estate Investment Management Services. Completed in 2018, the Soho Lofts have 369 apartments and eight townhouses, plus 173,000 square feet of ground-floor retail and a 375-space parking garage.
Jersey City-based Mack-Cali Realty Corp. bought the building in April. The real estate investment trust has sold off a number of office properties in New Jersey, New York and Connecticut to refocus on New Jersey multifamily properties. HFF, which was purchased by JLL in March 2019, represented the seller and procured the buyer.
In-demand industrial
Industrial has been a hot commodity in the last few years, as online retailers seek more and more space to stash their wares.
The market is especially robust in New Jersey, one of the country’s biggest industrial centers. Companies are inching up the turnpike to be as close to the city as possible to facilitate overnight shipping to customers in the region.
Collier’s reports a 20 percent year-over-year increase in leasing activity in the fourth quarter of 2019, according to Dennis Waggner, the executive managing director at Collier’s in New Jersey.
“The industrial rents continue to rise and a fair amount of new construction going up on spec, which tells you there’s confidence in the marketplace,” he said.
Warehouse space is snapped up as soon as it becomes available.
“You have a lot of blue-chip tenants taking these spaces on a triple-net basis,” meaning they are paying all the real estate taxes, building insurance and maintenance, Obeid said.
One such example is a 92-acre site of an abandoned steel mill in Perth Amboy. It was purchased by Indiana-based Duke Realty for $78.5 million in the second quarter of 2019. In August, the company announced that 1.3 million was leased to Home Depot for an undisclosed amount.
“Home Depot’s investment with us is part of their previously announced $1.2 billion supply-chain overhaul to enhance delivery to consumer and commercial customers in one day or less,” Duke Realty said in its second quarter earnings report.
Industrial also had a big year in Westchester County, where Robert Martin Cos. bought a 56-building portfolio for $457.5 million. The 3.1 million-square-foot deal — 90 percent industrial — was the most expensive commercial real estate deal ever in Westchester County, although about 300,000 square feet of it are in Fairfield County.
A 95 percent of the portfolio had originally been developed by Elmsford, N.Y.-based Robert Martin starting in the 1970s. When Mack-Cali announced its plan to shift its business to New Jersey, Robert Martin was keen to buy it back, according to CEO and partner Tim Jones.
“You don’t really have the opportunity to acquire that much real estate in one shot in Westchester and Fairfield counties,” said Jose Cruz, senior managing director on the JLL Capital Markets team. “There’s just not enough for that product available, and that product is in high demand.”