JERSEY CITY, NJ — The New Jersey commercial real estate community wrapped up the first month of 2016 at the SaxBST Real Estate Industry Update. The January 26th networking and educational event at Maritime Parc in Jersey City was hosted by the firm’s Real Estate Industry Services Team and featured a panel of active leaders in real estate development, financing, tax and accounting.
Jeff Milanaik of CrownPoint Development Group and Bridge Development Partners moderated the expert panel which included Kevin O’Hearn, managing director of HFF, Dillon Colucci, Esq., associate and EB5 specialist at Greenberg Traurig, and George Livanos, CPA, partner at SaxBST. The tone of the morning was very upbeat, with optimism about the lending climate, tax changes, emerging markets and suburban office sector taking center stage.
Livanos pointed to several key changes that will bring more certainty to the industry this year from a tax standpoint, including solar energy incentives and the Protecting Americans against Tax Hikes (PATH) Act of 2015, a welcome “Christmas present” that extended bonus depreciation until 2020.
O’Hearn predicted that the suburban office sector will show the most yield this year, particularly stabilized Class A buildings. “I think that’s where we will see more opportunity and people starting to invest more this year,” he said.
He was also optimistic about the capital flow for development and construction projects in 2016. “There are plenty of pockets of cash right now from local banks, and developers who have good relationships with their lenders can get pretty aggressive financing. CMBS is back in a big way and showing up in a lot of our quotes right now.”
According to the panel, foreign wealth may play a significant role in the capital stack this year, including sovereign wealth funds and investors taking advantage of EB-5 Financing. Colucci provided an overview of the EB-5 program.
“The thing about EB-5 is that it’s been around since 1992 but wasn’t used until the downturn when capital was tight and no one could fund these markets,” he said. “Coupled with the fact that U.S. developers are seeking more capital from overseas in general, EB-5 is viewed as part of their overall financing strategy to get inroads into foreign countries.”
The EB-5 program grew to unprecedented levels in 2015, and Colucci predicts the program, which is set to expire on September 30, 2016, will continue in its current form for at least two more years.
Increased interest in emerging markets – from both domestic and foreign investors – was also predicted, as gateway markets continue to price at record levels. According to O’Hearn, some of these areas will also experience benchmarking capabilities for the first time. He pointed to Jersey City and Harrison as two examples of markets that have the potential to start trading this year, providing the first barometers against which property values can be measured in those areas.
On the industrial side, Milanaik offered the following advice: “There is so much money from REITs, investment funds and other capital chasing industrial assets that it’s really difficult to find repositioning opportunities. Our model is to look for infill sites that have to be pieced together, and may also have environmental issues, geo-technical issues, or require a lot of demo.” However, he advised that this strategy is only successful with both a very experienced team with environmental expertise, as well as capital that isn’t afraid to take some degree of risk.