Mid Atlantic Real Estate Journal’s Forecast Summit identifies market insights and trends

Photo Caption: Retail Update: Opportunities and Trends was moderated by Matthew K. Harding, president of Levin Management. Panelists included Marta Person Villa, VP of CBRE; Michael Lombardi, director of the Net Lease Property Group and VP of investments for Marcus & Millichap; and Nancy Erickson, senior director/NJ retail leader for Cushman & Wakefield.

PARSIPPANY, NJ — New Jersey’s commercial real estate market is showing encouraging signs of stabilization and growth – particularly across the retail, warehouse/industrial and multifamily sectors – according to industry experts who participated in the Mid Atlantic Real Estate Journal’s (MAREJ) New Jersey Commercial Real Estate Forecast Summit.

The morning event, which recently took place at the Sheraton Parsippany Hotel in Parsippany, brought together more than 100 of the region’s top commercial real estate professionals, along with four panels of industry leaders representing the retail, multifamily, warehouse/industrial and financial markets.

A panel entitled “Retail Update: Opportunities and Trends” was moderated by Matthew K. Harding, president of Levin Management. Panelists included Marta Person Villa, vice-president of CBRE; Michael Lombardi, director of the Net Lease Property Group and vice-president of investments for Marcus & Millichap; and Nancy Erickson, senior director/N.J. retail leader for Cushman & Wakefield.

The experts cited the Garden State’s retail real estate market as dynamic and robust. Vacancies created in recent years by retailers who did not survive the downturn are mostly filled with tenants such as specialty grocers, affordable fitness chains, fast casual chains and restaurants, as well as a range of service providers including banks and urgent care centers.

Unique concept tenants and non-traditional categories, such as children’s entertainment/play zones, also are helping to redefine retail tenancy, according to Erickson. “Fitness tenants continue to grow, along with dine-in movie theaters. A range of different pizza and hamburger concepts are seeking retail space, while small and health-focused grocers continue to open in key markets.”

Outlet malls are growing, traditional malls are re-tenanting and urban downtowns are experiencing retail revival, with locations such as Hoboken and Jersey City in demand. “Urban retail is thriving,” said Villa. “In Newark, Whole Foods is coming to the old Hahne’s department store building. Additional leases are bringing more national brands to the city. Many of these retailers would have not even considered moving to Newark just five years ago.”

Lombardi noted increased demand for retail investment products and cited a decline in retail cap rates that aligns with the demand for this investment type. “Cap rates have sunk to an all-time low across multiple single-tenant property types and sectors,” he said. “Right now we are fully compressed and I don’t know how much tighter cap rates can get. Exchange buyers are driving this, and in my opinion, it’s a trend we will continue to see at least through 2015 despite a slight uptick in interest rates.”

Increasingly, retailers are drawn to mixed-use developments that re-create the live-work-play appeal of a strong downtown. Erickson cited a new residential and commercial project in downtown Montclair.

“Valley & Bloom is a mixed-use complex consisting of 258 apartments, 20,000+ s/f of retail, 20,000+ s/f of professional office and 571 parking spaces. These types of projects give retailers a built-in customer base from Day 1. Traditional amenities, including banking, food, cellular, beauty and fitness tenants do particularly well in these settings.”

Capital Markets Update

A panel entitled, “Capital Markets Update” discussed today’s commercial real estate financing market. Moderated by Ronald M. Shapiro, executive director of the Rutgers Business School’s Center for Real Estate, the panel included Sanford Herrick, founder and managing principal of Case Real Estate Capital; Peter Rand, vice-president of KeyBank Real Estate Capital; and Robert S. Lipson, senior vice-president of Berkadia.

Panelists noted an uptick in value-add deals and new-construction projects, and opined that while interest rates remain low, investors are unwilling to take uncovered risk. “The question of the day is ‘Are you seeing fewer opportunities?’ Herrick responded that for Case the answer is yes. “The opportunities we are seeing are thornier to work out and need specialized expertise. These are problems we think we can solve and are anxious to solve. We do whatever we have to in order to get a deal done,” commented Herrick.

The panelists also commented that Europe’s financial and political crisis, specifically Greece, along with Portugal, Italy and Spain may impact capital markets. “It doesn’t seem that Europe has a coherent financial plan,” Herrick said, “I am often asked ‘Where we are in the cycle?’ My typical answer is we are in the fifth or sixth inning. Everything seems pretty healthy in the Northeast, there is a continued but slow recovery nationwide, but given the financial concerns in Europe, China and Puerto Rico there are still some unknowns.”

Multifamily Market Shows Strength

The “Apartment Market/Multifamily Overview” panel referenced a booming multifamily sector in New Jersey, with vacancy rates at historic lows, and demand at an all-time high both from investors and prospective tenants. Led by moderator James Rhatican, member of the real estate, development and land use group of Chiesa Shahinian & Giantomasi PC, panelists included Chad Buchanan, chief investment officer of Tryko Partners; Russell Tepper, senior managing director of Mill Creek Residential; Scott Jackson, managing director of Meridian Capital Group; and Jose R. Cruz, senior managing director of HFF.

“Given current market fundamentals, it’s hard to see how the New Jersey multifamily market can get much better,” said Buchanan, who also cited a shortage of affordable housing in the state. “There’s a shortage nationwide but New Jersey in particular has a drastic deficiency of affordable and subsidized housing. This is going to continue to be an important part of the multifamily picture moving forward.”

Millennials will continue to drive the multifamily market, according to the panelists. These astute “renters by choice” see apartment living as a quality of life choice, and are drawn to the flexibility, convenience, proximity to mass transportation and amenitized lifestyle that apartment living provides. Multifamily housing was cited as one of the safest and strongest commercial real estate investments by the panelists, with pent-up demand the norm for high-quality, well-located real estate products.

Those participating on a panel entitled, “Opportunities in the Industrial Real Estate Market” noted that the state’s industrial sector also has more than stabilized, with balanced pricing and solid fundamentals keeping the market strong. Panelists included moderator Richard Burrow, senior principal at Langan; Bo Farkas, senior vice-president of Sitex Group; Peter Crovo, senior vice-president at Prologis Inc.; John M. Clinton, senior vice-president of Clarion Partners; and Alec Taylor, partner at Matrix Development.

Sponsors of the MAREJ New Jersey Commercial Real Estate Forecast Summit included Cushman & Wakefield; Sitex Group; Meridian Capital Group; Prologis; Chiesa, Shahinian & Giantomasi PC; Marcus & Millichap; and Langan, along with organizational sponsors the Society of Industrial and Office Realtors; BOMA New Jersey; IREM; IFMA New Jersey Chapter and IOREBA.

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