IN THE NEWS
What Lies ahead for Commercial Real Estate?
An acquisitive firm assesses the opportunities and challenges
By Martin C. Daks
September 10, 2007
The New Jersey commercial real estate market is healthy, offering significant opportunities in the leasing and acquisition segments, say top executives at Ivy Equity. But some long-term trends could choke off the growth, they warn.
“In New Jersey, companies like ours benefit from conditions like a close proximity to Manhattan, a diverse and highly educated work force, and easy access to highways, ports and airports,” says Ivy Chairman Russell Warren Jr. The Montvale-based real estate services company he co-founded offers asset management, property management, accounting, construction and leasing services.
As an investor with more than $1.2 billion of real estate assets, Ivy is keenly aware of the vicissitudes of the local market. “Certain industries, like pharmaceutical, need a lot of space,” says co-founder and CEO Anthony DiTommaso Jr. “The companies also bring in supplier firms, like research and development companies that create a spillover effect on demand. Overall, it’s a very vibrant place to be.”
Ivy has been involved this year in some high profile projects, including a successful bid early this year to retain McCarter & English as a tenant at Four Gateway Center near Newark’s Penn Station.
Ivy Realty joined with Ridgewood’s Heritage Management to buy the building last November. The decision by the state’s largest law firm to sign on for 15 more years at Four Gateway means Ivy won’t have to find another occupant for 143,000 square feet of space on the 10th through 15th floors of the center.
In May, Ivy announced that it struck a deal with Barr Pharmaceuticals Inc. to relocate the company’s 250-employee executive headquarters from Woodcliff Lake to a 37-acre property in Montvale formerly occupied by Toys “R” Us, that’s been redeveloped and jointly owned by Ivy Equities and Paragon Realty Group of Westport, Conn.
“There’s tremendous velocity, in terms of high capital flows and strong demand for quality commercial office space,” says Warren. “There’s an influx of capital, the economy is still in fairly good shape, and unemployment is still historically low, all of which helps to drive demand.”
He acknowledges that double-digit vacancy rates in both the office and industrial markets cause some concern, but argues that there is long-term value in both segments.
“Overall, the volume of activity is trending higher,” says DiTommaso. “Ivy expects to acquire about 1.5 million square feet of office and industrial space across central and northern New Jersey (during the summer). On the sell-side, in June we sold Plaza 9 in Woodbridge (to Heritage Management Co. LLC) for $22 million.”
He says that the new buzzword among buyers and tenants is “green,” as in environmentally-friendly and energy efficient.
“Green efforts may be easier to implement in a new building, since they can be incorporated into a design, but we also look to see what can be done with existing buildings,” says DiTommaso. “One approach could be using solar power to supplement existing energy systems.”
Warren says other efforts include replacing a building’s incandescent lighting with fluorescent lighting that uses less power, while “smart lighting” devices, including motion detectors, can shut lights when nobody’s in a room.
Improvements like these can make a building more desirable to a potential buyer or tenant, but the Ivy executives worry about other issues that could overshadow their efforts.
“The biggest challenges here are the lack of land for new development, and continuing increases in the regulatory environment that make it more difficult to obtain building permits,” says Warren.
DiTommaso worried that the state may be losing its appeal as a location for businesses. “Steady increases in real estate taxes and income taxes could crimp future gains,” he says. “Also, companies could be scared off if the state doesn’t get its budget and other finances in order.”
Right now, he says, New Jersey’s occupancy and other costs represent a cheaper alternative to New York City. But he wonders how long that will last.
“Our taxes are already at least on par with New York and Connecticut, and people are asking why they should bother to stay in New Jersey,” he says. “There’s already been considerable migration to Pennsylvania, and the way things are going, that’s likely to increase. The good news is, our company is diversified, so we’re prepared if there’s a slowdown in certain markets.”
