Last week, we talked crossing the finish line with Joe Koicim, and this week we’ll talk fording the river with his colleague, Marcus & Millichap regional manager Brian Hosey. Pioneering investors seeking higher returns are increasingly reinvesting the net proceeds from the sale of pricey New York buildings, some of which have been in the family for generations, into New Jersey.

While institutional money and large funds are inherently less opportunistic and more cautious, enterprising individuals are attracted to the higher yields they can earn after reallocating their money and diversifying their portfolio this way. Brian, who oversees more than 80 listings valued in excess of $300M primarily in Jersey, calls this capital migration phenomenon the "Brooklynization of New Jersey."

Analysts expect higher returns to be accompanied by a greater degree of risk, and indeed many perceive New Jersey’s buildings as offering slightly less security than one of New York’s premier Class-A office buildings, the epitome of the core investment.

But Brian says the perceived volatility in the NJ market is largely mitigated by the huge tenant pool there: Jersey is the most densely populated state in the country.

Brian says that due to the discrepancy between perceived and actual risk, the latter being much lower, owners can expect to earn consistent 5.5% to 6% returns. He told us that the concentration of New York buyers in New Jersey nearly doubled between 2010 and 2016, jumping from 17% to 30% in just six years.

This is likely because New Yorkers simply feel more familiar with New Jersey, and are comforted their assets are nearby, rather than in the Carolinas or Florida, which offer comparable cap rates.

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