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Buyers Shun New York City Cap Rates For Suburban Yield

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Year-to-date office investment sales activity in Northern New Jersey have been dominated by one player. Out of the 27 trades of buildings 50K SF or more, 72% were either acquisitions or dispositions by Mack-Cali.

Colliers International executive managing director Jacklene Chesler

While 2015 and 2016 were “incredibly exciting” for overall deal volume in New Jersey, that will not be the case for 2017, said Colliers International executive managing director Jacklene Chesler, who oversees the company’s investment sales platform in the Garden State. However, this is not alarming, as both years were driven by unique fundamentals, including a proliferation of institutional and portfolio sales.

This year will still experience a fair share of volume, Chesler predicts. Sales will partially come from family-based, value-add investors, who have repositioned and stabilized their assets and now want to recycle the capital. And, as cap rates peak in New York City, many buyers are leaving central business districts in favor of suburban office assets.

Tight pricing may limit sales. Despite rising interest rates, owners are not softening asking prices, Chesler said. Q1 deals to date have averaged $107/SF, according to Real Capital Analytics; in 2016, 126 properties traded, averaging $176/SF and a 6.8% cap rate.

The Atrium at Manalapan, Manalapan, NJ

Chesler’s team has closed seven deals so far this year, and six of them were what she considers obscure buyers: foreign capital, Brooklyn-based investors and 1031 buyers. Foreign capital has made a particular push in the suburbs, she said.

For instance, The Atrium at Manalapan, an 86K SF office building at 195 Route 9 South in Manalapan, and the 1-800-FLOWERS headquarters building, a 309K SF office building at 1 Old Country Road in Carle Place, Long Island, both sold to Asian buyers. (Chesler also works in New York and Pennsylvania.)

“These are buyers that typically wouldn’t have been on our radar,” she said. "They paid all cash and were extremely aggressive and efficient. Some of the buyers had previously focused on New York City, but they’re looking for yield.

“Since that market is now compressed, they’re looking to New Jersey and other suburban markets to deploy their capital," she said. "Northern New Jersey is particularly close to New York City and has the area, amenities and access, which hold a lot of appeal.”

1-800-FLOWERS headquarter in Carle Place, Long Island
1-800-FLOWERS's headquarters at One Old Country Road in Carle Place, Long Island

About half of the transactions Chesler’s team was involved in over the past year were marketed via the Ten-X online real estate marketplace, while the remainder were traditionally marketed. Both methods attracted a high volume of bidding activity, she said.

The Atrium at Manalapan, one of the Ten-X deals, attracted 15 registered bidders, and the buyer closed quickly, all-cash, with no due diligence nor contingencies. 1-800-FLOWERS’ headquarters, traditionally marketed, garnered 12 qualified offers — and the top six waived due diligence and agreed to close quickly, all cash, with no contingencies.

On the office side, Chesler’s team is currently marketing the sales of 15 Corporate Place South, a 160K SF office in Piscataway, as well as Ibis Plaza, a 120K SF office building in Hamilton.

Chesler will discuss the influence of tech in commercial real estate with Ten-X senior director Ian Grusd at Bisnow's N.J. State of the Office event March 30.