Investing In Real Estate – New Jersey’s Two-Sided Market

Real estate has been a great American investing game since colonial times. Buying it or renting it, holding it or selling it, trying to gauge the present and future value of various kinds of real property in different markets, have been a great generator of new wealth, preserver of existing wealth and cause of lost wealth.

For real estate investors in New Jersey today, the usual mix of risks and rewards has taken some interesting turns. Borrowing rates are exceptionally low, but lending standards have gotten tougher - though not everywhere or for all kinds of properties. Certain real estate markets in the state are booming at pre-recession levels, while properties in other markets require an unusual degree of optimism and patience to enter.

Tax and other benefits continue to attract business operators who own the properties where their businesses are located, but at the price of a traditional real estate drawback and poor liquidity. Meanwhile, for investors seeking more affordable fractional ownership, or some real estate diversification in larger portfolios, there are more options than ever from which to choose.

What's Hot And Not So Hot

Every real property is unique. There are good values in bad areas, and bad values in areas showing strong overall appreciation. Certain parts of New Jersey are nonetheless flashing very clear signs of strength or caution.

Phillip E. Goldstein, managing partner at Goldstein Lieberman & Company in Mahwah, and head of the firm's group providing financial and consulting services to the construction industry, points to places like Fort Lee, Hoboken and Jersey City, with easy access to Manhattan, as real estate markets that continue to be very attractive - and not only to domestic investors. Foreign investors, too, see US real estate like this as a bargain, he notes.

Down the New Jersey Shore, though, things continue to be problematic from a real estate investing standpoint. Post-Superstorm Sandy, it will take years for many places here to recover fully. Yet there are real estate investing bargains, too. "If you can get the right price it could be a huge opportunity," Goldstein says.

The current opportunity versus risk equation here, however, seems to tilt hard to the risk side. "Many people are just looking at what's left and saying 'That's it, I'm done," observes Gerard Bobal, a partner at WeiserMazars in Edison. Personally, he adds, "I don't know if I would have the fortitude to buy there .... Recovery will take years."

Tragic though it is for so many on the shore, those engaged in actual reconstruction have more work than they can handle. And "while Superstorm Sandy is a real tragedy for many home owners," notes Ken Uranowitz, president, Gebroe -Hammer in Livingston, "it has had a silver lining for owners of multi-family" in the area. "Many that used to have 5 to 10 percent vacancy rates now have waiting lists."

Uranowitz, whose own business focuses on multi-family properties, highlights the excellent conditions now prevailing in this real estate sector - not just at the shore, but elsewhere in the state. "Some of strongest multi-family housing areas in New Jersey are now in parts of Hudson, Essex and Monmouth counties ... transit hubs to the New York area.

"Our own business is experiencing transactions at pre-recession, peak-of-the-boom-times levels," he continues. Individuals, institutional funds, private equity "are all investing in rental income. Office, industrial and strip centers have been hurt in this recession, but the multi-family market was barely grazed. A business closes and the spot [the real estate where it's located] can remain vacant for a long time. But, people who lose their homes need a place to live. It's their first priority. Multi-family is virtually bullet proof."

Lenders appear to agree with this evaluation. "Multifamily is today the fair-haired child of the banking industry," Uranowitz says. "Banks are falling over themselves to lend here." Goldstein agrees. "Because it throws off a cash flow ... there's little risk [here] in solid markets."

Owning Where Your Business Is Sited

Bobal, who counsels high-net worth clients on investments, including those in real estate, is still positive on a traditional real estate investment that involves commercial property - a business owner purchasing the property where his or her business is sited. There can be a variety of benefits in doing so.

"You're essentially paying rent to yourself in these situations," he notes. "You're building equity. It can create an excellent estate planning vehicle to pass along assets to heirs via partnership shares. There's even a choice factor built in. You can sell the property and keep the business or vice-versa, depending on market conditions."

But of course, there's also the liquidity factor to consider. "This isn't something you [a business owner-operator] can get in and out of quickly," Bobal adds.

Part Of A Larger Portfolio

One need not own an entire property to invest in real estate. Many investors simply want a passive real estate investment as part of their personal portfolios. Kyle R. Stawicki, a senior wealth manager at SMF Financial Advisers, a division of Clifton-based accounting firm Sax Macy Fromm & Co., works with clients who often have such a preference.

We use real estate to diversify a portfolio, he says. "You want assets that behave differently in different ways at different times. Our clients might have between 4 to 8 percent of their portfolios assets in real estate." The actual percentage might depend on a client's attitude toward risk.

Stawicki points to publicly traded real estate vehicles as his choice here for their liquidity. He recalls "the horrible experience" some investors had in 2007 and 2008 with REITs that couldn't be traded. There are still some out there, he notes, "but not for us."

If one of our clients already has a lot of real estate assets, he continues, "they probably already have enough exposure and don't need any more. ... We avoid concentration of risk."

Conclusion

Prognosticating about future markets is always a chancy affair. But a comment of Goldstein about where things are headed with many kinds of real estate in New Jersey is typical these days: "Everyone I talk to says it's starting to come back. I believe it will only go up from here," he says.