Manhattan and NJ see significant residential additions.
But even as the multi-family residential growth in Manhattan and northern New Jersey continues, it is important to note the similar yet contrasting nature of these two distinct but interrelated markets.
At the present time, the demand for luxury rental housing in both areas is unprecedented. Developers are responding rapidly, using all their powers of persistence and creativity to lock down the few infill sites that remain available, as well as the financing they need in order to build apartment inventory.
However, cautionary planning, particularly in northern New Jersey, is vital to the continued prosperity of developers and investors alike. In the "Gold Coast" cities closest to the Hudson River, including Weehawken, Hoboken and Jersey City, there are between 10,000 and 15,000 high-end rental units either under construction or fully approved. The area is thriving at the present time and there are still a number of excellent sites remaining to be developed that should do well as long as the "right" capital structure is put in place. We have, however, reached a point in the real estate cycle where New Jersey developers, as well as capital providers, need to be somewhat cautious about further rental construction, particularly where aggressive rents are being projected.
The issue of potential oversupply on the "Gold Coast" highlights the relationship between the multi-family residential markets of Manhattan and northern New Jersey. Interestingly, much of the demand for waterfront luxury apartments in northern New Jersey springs directly from tenants escaping Manhattan's extremely aggressive rental rates and pricing. Developers in New Jersey are responding to a need created from Manhattan's economic prosperity.
Unfortunately, there is the possibility of the reverse effect: In this situation, the dynamics of supply and demand would narrow the spread between rents in Manhattan and New Jersey, which would inevitably attract rental tenants back to Manhattan and make it less compelling for individuals to move "across the river" to New Jersey.
Manhattan is, of course, going through its own residential construction and conversion boom, but most of the product is high-end, and demand in this segment of the market continues to outstrip supply by a considerable margin. Although Manhattan's residential market would suffer somewhat in the event of an economic downturn, the perception among developers and capital sources is that Manhattan's long-term growth is sustainable, given supply constraints and the difficult approval process for new developments. Fundamentally, the changing demographic profile and attractiveness of urban living will continue to fuel the need for high-rise development product in urban centers like Manhattan. While there will be ebbs and flows, as in any cycle, the underlying market dynamics should remain strong.
The attractiveness of urban high-rise development for Boston Financial stems from many different factors: the lack of new inventory over the past five to 10 years and the barriers to entry, including the high cost of development, stringent zoning restrictions and the limited number of institutions focused on this niche product type. Boston Financial's Investment Banking Group is actively investing in high-rise multifamily and condominium development projects. We do this primarily through our mezzanine debt fund, as well as our Real Estate Development Fund, which is a program to invest early stage equity into development projects. In most instances, we aggressively utilize leverage.
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|Title Annotation:||Focus On: Construction and Building Services|
|Author:||Fung, Drew D.|
|Publication:||Real Estate Weekly|
|Date:||Jul 21, 1999|
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