Editor’s note: This is part of a special advertising section appearing in Real Estate NJ’s January issue.
A new year is upon us, bringing new opportunities and new uncertainty for New Jersey’s commercial real estate market.
To make sense of it all, we recruited some of the industry’s most influential professionals, developers and thought leaders to share their predictions for the year ahead.
You can find those insights and more in our special 2020 Market Forecast.
Kathy Anderson, Founding Partner
While SWAP contracts are not new, 2019 saw an increase in SWAP offerings as borrowers demanded longer fixed-rate loans, forcing banks to offer a SWAP option to compete. As we continued to educate our clients on the pros and cons of a SWAP, we found that borrowers who had previously rejected the concept, came around once they realized they could lock in at a much lower rate for a longer period of time.
In 2020, we anticipate the Fed to cut rates another .25 bps based on slow growth and the absence of a major tariff breakthrough, interest rates to remain stable within a range and SWAP products to gain in popularity. Banks will continue to offer floating rate products to hedge interest rate risk (construction loans) to their best customers and funds will bridge the gap, although at tighter spreads as competition in the private lending space increases.
620 Tinton Ave., Building B | 1st Floor
Tinton Falls, NJ 07724
Edwin Cohen, Principal Partner
In 2020 and beyond we will see the continuation of corporate America vying to attract the best and brightest talent. With the unemployment rate so low, companies that provide a superior lifestyle — both within and beyond their physical workspace — will be best positioned to compete for this top labor. Ultimately, today’s most sought-after locations offer the kind of recreation, dining, shopping and entertainment options typically found within the most vibrant downtowns. Locally, regionally and nationally, tenants in pursuit of this type of well-amenitized environment already are showing a willingness to pay higher rents for the right setting. Major mixed-use redevelopments that provide live/work/play balance, and transit-served communities that embrace a pro-development stance will be best positioned to capitalize on this trending.
200 Metro Blvd., Suite 1300
Nutley, NJ 07110
Craig M. Gianetti, Partner
Based on Day Pitney’s representation of developers and corporations, we expect one of the most active markets to be multifamily housing. It will continue with strong growth into 2020, in both the Gold Coast and suburban markets. The Gold Coast is driven by the demand for urban living, along with New York developers being priced out of New York City. Meanwhile, affordable housing requirements and continuum of care communities, given the aging population, are driving the suburban market.
In addition, industrial, especially warehousing and logistics, continues to be a strong market given e-commerce; however, identifying suitable land is becoming a challenge. Corporate repurposing, either for redevelopment or consolidating corporate space, given the changing workforce and remote employees, is also very active.
Some of the biggest threats to the real estate market, aside from the economy, are aging infrastructure, such as sewer and water; and politics at all levels, including local NIMBY issues, the state incentives battle and uncertainty at the federal level.
One Jefferson Road
Parsippany, NJ 07054
Frank Giantomasi, Member – Real Estate, Development and Land Use
2020 should see a continued strong trajectory for New Jersey’s real estate sector. In my view, the state’s secret weapons will, once again, be predicated upon its geographic nexus to New York. If the governor’s incentive program passes, there should be increased demand for, among other projects, entertainment studio space and tech hubs.
With the momentum and popularity carried by streaming and digital media platforms, there is a thirst for original content that cannot be serviced by existing studios on either side of the river. Considering our advantageous rent structure and robust transportation located in Newark, Kearny and Jersey City, New Jersey makes economic sense and provides easy in-and-out access for New York City’s talent pool.
An influx of studio development will also propel the need for more workforce housing because camera operators, gaffers, actors and others who operate during quirky hours will want to live and play near their place of employment. As such, I would expect to see the residential and retail markets receive ancillary benefit.
One Boland Drive
West Orange, NJ 07052
Brian Hosey, Vice President | Regional Manager
I predict that New Jersey will enjoy a “perfect storm” of market forces that will keep transactional velocity high. First, the low interest rate environment will likely continue through 2020. The availability of attractive financing for all product types will benefit both buyers and sellers. Second, demand from New York investors looking for yield will spread to secondary and tertiary markets in New Jersey. For the past several years, buyers from New York mostly wanted to look at marquee markets in New Jersey (Hoboken, Jersey City, Morristown, etc.). Those same investors are getting more comfortable with other submarkets (Paterson, East Orange, Edison) and I expect that trend to continue. Finally, I predict that demand for suburban office investments will increase in 2020. Many of our investors that would traditionally buy multifamily or retail are attracted to the yield arbitrage we see today in office properties.
250 Pehle Ave., Suite 501
Saddle Brook, NJ 07663
Barbara J. Koonz, Partner, Environmental Department
For those with interests in the solar energy arena, efforts to control electricity costs for New Jersey commercial and industrial entities will likely suffer a setback in 2020 due to the expiration of the BPU’s current solar renewable energy certificate (SREC) incentive program, which provided critical economic benefits to solar projects enabling New Jersey to become a leader in solar installations. Recent changes in law, however, require the current SREC program to end by June 2021, or when 5.1% of the energy consumed in New Jersey is from solar power. It is uncertain when the 5.1% threshold will be reached, but the BPU estimates that it could occur as early as May 2020. While the installation of solar facilities may remain economically viable without the current program, given the uncertainty of future solar incentives it is advisable to structure the terms of upcoming solar project agreements to minimize the impact of SREC uncertainty.
75 Livingston Ave.
Roseland, New Jersey 07068
Greg Lalevee, Business Manager
The year 2020 marks the dawn of Local 825’s second century, having been chartered in 1920.
We look forward to a robust economy throughout the area we serve: all 21 counties of New Jersey and Rockland, Orange, Ulster, Delaware and Sullivan counties in New York.
As experts in heavy equipment operation and maintenance, we are experiencing close to full employment. At the same time, we look forward to continued growth and eventual approval of the Gateway Tunnel project, which would provide hundreds of jobs over a period of years.
Local 825 membership has grown in recent years to more than 7,200, with more applicants for apprenticeships than we can absorb.
We are preparing to meet the challenges of tomorrow by adapting our training centers into technical college that will include courses in GPS, remote operation, artificial intelligence and virtual reality, all of which are being built into the heavy equipment that we operate.
We intend to retain our mastery over all aspects of heavy equipment operation, so that we remain a vital part of the economy throughout 2020 and for the next one hundred years.
65 Springfield Ave.
Springfield, NJ 07081
Lenny Lazzarino, Senior Vice President, Leasing
Over the next year, Newark will continue to be transformed by its evolution into a true 24-7 destination brimming with dining, nightlife and cultural entertainment opportunities. The city has already succeeded in creating significant workday foot traffic by attracting large international companies — including Mars Wrigley, which will begin occupying our downtown Ironside Newark building in 2020 — looking to take advantage of its many amenities, unparalleled transit options and proximity to New York City. As more and more millennials and other residents begin to populate downtown’s new luxury apartment towers and new developments across the city, Newark’s retail and restaurant scene is poised for a renaissance all its own.
520 8th Ave., 19th Floor
New York, NY 10018
Alexander Lorenz, CEO
Along with the occupancy and development boom, property owners continue to look for opportunities to save money without cutting corners. When it comes to flooring choices for concrete surfaces, aesthetics, low maintenance and durability are paramount. That’s why more and more owners and management companies use RenuKrete Engineered Concrete Flooring (ECF). RenuKrete ECF utilizes proprietary technology and processes to transform existing concrete surfaces into beautiful, durable and low maintenance floors that capture the warmth and design sensibilities of natural tile and slate. RenuKrete ECF replaces the need for floor coverings in high-traffic areas that are susceptible to frequent, costly repairs. Indoors and outdoors, RenuKrete can restore the integrity of the existing surface and bring it to new life without the property owner bearing the high costs of concrete demolition and removal.
991 US Highway 22 West, #200
Bridgewater, NJ 08807
Jackie Madden, Director, Brokerage Services
Live. Work. Play. It has driven the market for the entire Millennium and will continue in 2020. Developers throughout New Jersey submarkets are being rewarded for their creativity while reimagining the state’s “white elephants.” With near record-low unemployment nationally, companies are focused on recruiting young talent. On the other side, municipalities are looking for creative solutions to attract new families. Those parallel forces will create unique opportunities for landlords and developers. Take the redevelopment of 1515 Route 10 in Parsippany, The District. The town changed longstanding zoning regulations to accommodate a massive mixed-use project in an area previously designated for research, office and lab, while also agreeing to an unprecedented PILOT financing program. In Morristown, the M Station project has not even broken ground and Deloitte has committed to leasing a third of the office space at the highest rents in Morristown (pending approvals). Build it and be rewarded.
14 Fairmount Ave.
Chatham, NJ 07928
Dean Marchetto, FAIA, Founding Principal
The multifamily residential market in tier one urban locations such as Hoboken, downtown Jersey City and Journal Square continues to be our most productive sector. During 2019, however, we have seen an explosive surge in second-tier urban locations. Jersey City’s west side, Bergen Lafayette and Bayonne have been generating interest from developers and have provided a substantial book of new business for MHS. Most of our new projects in second-tier locations are within walking distance to the Hudson-Bergen Light Rail stations. Newark has also been an emerging market for us with new projects ranging from 5 to 25 stories in downtown.
Suburban communities served by NJ Transit rail have become a large part of our portfolio in the past five years. Morristown, Madison and Chatham are our leaders in Morris County. Montclair, Summit, Westfield, South Orange and Long Branch are also top-tier TOD locations where we have seen significant new activity. The entitlement process in top-tier suburban communities usually requires a greater degree of community involvement and public input. We have found that new buildings designed with context-sensitive architecture and presented in a 3D visioning format are key factors in securing project approvals in these downtowns. If the U.S. economy continues to be strong, we don’t expect to see a change in these trends in 2020.
1225 Willow Ave.
Hoboken, NJ 07030
W. Nevins McCann, Chair, Real Estate and Land Use Group
This will be an interesting year to say the least. If I hear the word recession one more time, it will send me into a depression. If it does happen, though, we will make it through again as we have before. In terms of real estate, transit-oriented development will remain hot. Millennials want to live near mass transit and are not buying homes in suburban areas (who wouldn’t prefer a train ride over a Parkway/Turnpike commute)? Those office and multifamily projects that find the magic recipe for live/work/play will continue to succeed. Additionally, if ground-up development softens, then we’ll see acquisitions and sales pick up. Connell Foley’s real estate practice is as busy as ever, and we don’t see the brakes being tripped anytime soon. Speaking of tripping the brakes, when is that third tunnel coming? But forget real estate — get excited for the showdown of Bloomberg vs. Trump!
Harborside 5, 185 Hudson St. #2510
Jersey City, NJ 07311
Jeff Milanaik, Partner, Northeast Region
The next year will bring even more expansion for New Jersey’s booming industrial market, largely in response to the rise of e-commerce and other shifts in consumer behavior. That fuels incredible demand for warehousing and last-mile delivery space in dense, conveniently located areas near major cities, and driving development in areas along the I-287 corridor and the western portion of I-78, which would not have been considered by users just a few years ago. In addition to growth along these secondary corridors, the shortage of supply along the Turnpike and other traditional submarkets will continue to spur the cleanup of brownfields and other contaminated sites previously considered too costly to redevelop. While e-commerce is changing the landscape for brick-and-mortar retail, consumers continue to buy just as many, if not more goods than ever before. As a result, New Jersey’s historically strong industrial market is in prime position to reach even greater heights in 2020.
One Gatehall Drive, Suite 201
Parsippany, NJ 07054
Bryan Murray, Director of Marketing
The economy will determine all and, with an election looming and different trade deal scenarios out there, the outcomes could impact our industry. Right now we believe we’ll see more growth in the construction and real estate industry in 2020, but at a slower pace.
We still believe repurposed retail into true mixed use will be strong as developers and traditional retailers are finding more experiential, health/wellness, entertainment and dining options to provide.
I would look for the multifamily market to cool slightly as a lot of product is coming online.
Personally, I like three sectors as drivers in 2020: Senior/Assisted Living, Industrial (traditional, vertical, lighter industrial such as self-storage) and flex-office space.
601 Hamburg Turnpike
Wayne, NJ 07470
Alexander J. Narcise, CPA, Partner-in-Charge, Real Estate and Construction Services Group
Increasingly, accounting firms need to be multifaceted and agile, by offering a variety of services, especially in the area of technology. For many years real estate companies had only a few options to choose from, including Sage, Yardi and MRI. It’s no secret that these systems took an incredible amount of time and resources to implement. In recent years cloud-based technologies have come online to help real estate companies automate, streamline processes and reporting. These systems come with user-friendly dashboards and even artificial intelligence that enables our clients and us to be more forward-thinking. These more modern systems — including Yardi Breeze, Appfolio, Intaact, Bill.com, Clickpay and Avid Exchange — provide essential safeguards, controls and transparencies. The Wiss Outsourced Accounting In-The-Cloud platform organizes and integrates these systems so clients can become less mired in administration detail and manual reporting and more focused on building their business.
354 Eisenhower Pkwy., Suite 1850
Livingston, NJ 07039
Craig Plescia, Director of New Jersey Operations
Here at JRM, we are still noticing sizeable growth within certain sectors of the industry. Corporate leases are being taken out to accommodate newer and more modern spaces, in hopes of luring in the millennial workforce. Thankfully, these high-end, fast-track interiors keep coming in the door and are where we excel as a firm. The retail sector is also still going strong, with ongoing projects at American Dream, Riverside Square, Freehold Mall and Garden State Plaza, continuously entering estimating. But we are seeing, as a way to combat online retailers, that the growing trend amongst retailers and shopping centers is to tailor to an immersive experience with malls catering to the entertainment industry heavily within their floor plans. We are excited about 2020 and what it has in store for the industry at large.
390 Veterans Blvd.
Carlstadt, NJ 07072
Allen J. Popowitz, Member and Chair, Real Estate Practice
The close of 2019 has been an extremely busy time for the real estate market in New Jersey. As a result of low rates, many clients have been busy purchasing property at lower cap rates and refinancing multifamily and commercial property. We are seeing incredible numbers in terms of sale prices in this very competitive sellers’ market in which buyers are definitely paying a bit more than they would like. From what I hear from my clients, both lenders and owners, it is not likely that we will see a slowdown for 2020; all indications point to another positive year for New Jersey real estate with one caveat — the 2020 election. Historically, the market slows down right before a presidential contest. Accordingly, in anticipation of the election, it is possible we may see a slight slowdown in the market, but depending upon the result of the election, I would anticipate that the market will likely be brisk again with many of the same characteristics we are seeing now.
101 Eisenhower Parkway
Roseland, NJ 07068
Walter Sierotko, Executive Vice President, Commercial Real Estate
When 2019 started, I thought it would be a slightly better than average year for CRE. Now that the year has closed out, it will go down as one of the best ever, in my opinion. One thing is for sure, my crystal ball is no better than anyone else’s, but I will take a shot at 2020. Given the strong employment, population density and proximity to New York and the ports, I see industrial space continuing its dominance as a preferred property type. Multifamily will be a close second, but we are seeing somewhat slower absorption (albeit still good) in the newly developed A-Class luxury market. I think the B- and C-Class apartments are still prime for sprucing up and popping rents, and we see plenty of attention. Retail with grocery anchors managed by savvy ownership that adapt to the changing environment will do fine. I see many properties converting to more entertainment/food-based tenants and medical uses. Offices in the Hudson Waterfront, Metropark and greater Morristown market will be stable. Other suburban markets will be a little tougher. Hospitality will be fine, as long as the economy continues to hum along, but will be the first to see trouble if things slow down.
100 Wood Ave. South
Iselin, NJ 08830-1001
Vincent A. Spero, Executive Vice President, Head of Commercial Real Estate
From a commercial lending perspective, we think there will be high demand for financing multifamily properties in the New Jersey and Philadelphia, PA markets, due to the new laws in New York State, specifically, New York City rent-regulated properties. We anticipate that many NYC property owners will seek other markets to expand their portfolios. We expect many property owners will seek to blend and extend their existing financing arrangements, since interest rates are expected to remain low for an extended period. We plan to stay disciplined as it relates to specific asset classes that we like, which includes: medical office, mixed-use (retail/apartments), grocery/pharmacy-anchored retail, industrial/warehouse space and workforce multifamily.
500 Hills Drive, Suite 300
Bedminster, NJ 07921
Ken Uranowitz, President
New Jersey’s apartment-housing stock has had a long-held reputation for being ‘older,’ within fully built-out metros and submarkets — but that has all changed in the past 10 years thanks to statewide revitalization and adaptive reuse efforts. With brand-new apartment-property deliveries projected to top off this year and apartment-fundamental pressure easing, multifamily investments will continue their successive quarterly and annual gains, outpacing other investment-property assets in terms of sales and performance. Extended rent-growth gains and unquenched investor appetite — regardless of property vintage or class — are expected to yield asking-rent and property value acceleration in the mid-to-high range, depending on local variables. In addition, 2020 is ripe for drawing ‘new’ multifamily investors once focused on New York City, where onerous rent-control legislation passed late last year. This shift is already creating an even wider delta where there is a constrained demand/supply imbalance, thus intensifying pricing pressure and deepening cap rate compression.