REAL ESTATE & CONSTRUCTION REPORT: ALONG THE RAILS
Martin Daks//June 18, 2018//
REAL ESTATE & CONSTRUCTION REPORT: ALONG THE RAILS
Martin Daks//June 18, 2018//
The story behind The Link at Aberdeen Station — a five-building, upscale mixed-use development of 225 units nestled up against New Jersey Transit’s Aberdeen-Matawan station — tells a lot about the direction of residential development in the Garden State.
It’s a gated community full of amenities, including stainless steel appliances in each unit, a commercial-grade fitness center, a conference room and other goodies. But as any Realtor will tell you, location is the No. 1 issue when it comes to residence appeal. And in this case, the development’s proximity to a train station — just steps away — clinches the deal.
“During the last five or six years we’ve been doing a lot more transit-oriented projects,” said Jonathan Schwartz, a partner at developer BNE Real Estate Group. “A lot of the demand is being driven by 25- to 35-year-old singles and couples – though there’s also interest from empty-nesters, too — who work in Manhattan or Newark but don’t want to pay Manhattan, Newark or Jersey City rents. Living next to the station here [on the North Coast Line] lets them roll out of bed, jump onto the train and enjoy a quick commute. It’s a value proposition that gives residents similar amenities and convenience, but for less rent.”
Convenience for tenants can also mean more work for a builder, however, since a location that’s right up against a train station can make sound an issue. Schwartz said special materials can handle that, including “windows with a high STC rating,” referring to Sound Transmission Class, an industry-standard measurement of soundproofing.
Another concern is getting approved for a PILOT, or payment in lieu of taxes, program. Otherwise, the cost of acquiring, remediating and developing land near a station might be too high.
The first phase of The Link at Aberdeen Station opened up in March and was 75% leased by May, said Schwartz, who’s been with BNE for more than a decade. His other developments have included Warren at York, an 11-story building he put up in Jersey City’s Paulus Hook neighborhood in 2014 that boasts a short walk to PATH, the NY Waterway ferry and a light rail station. Less than a month after its opening, more than 90 percent of the 139 apartments were leased out, he said.
Current BNE projects include River Park and Waters Edge, both in Harrison.
Municipal Cooperation Always Helps
The willingness of many people to work together was a big reason why The Link at Aberdeen Station worked out, according to Aberdeen Mayor Fred Tagliarini.
“The initial plans for this site go back more than a decade, since the town wanted to do something about what was, essentially, an almost 20-acre eyesore filled with old warehouses and other unused space,” Tagliarini said. “I inherited the project from my predecessor, Mayor David Sobel; and we worked closely with the state, NJ Transit, then-State Sen Joe Kyrillos, then-Governor Christie and others. A lot of people got involved and it got done.”
Tagliarini also credits the town’s Economic Business Council.
“We worked closely with the business council, too, since new residents means more potential customers for local companies, in addition to boosting the town’s ratables,” he said. “Developments like these are also good for the environment, since people moving into them are likely to have a reduced need to use their cars.”
Developers are attracted by the demand for these kinds of projects, according to Tagliarini. “Aberdeen in particular was desirable because the station here is one of the most heavily traveled on the North Coast Line,” he said. “For the new residents, a development like The Links offers convenience – roll out of bed in the morning, take a leisurely stroll to the train station and you’re on your way. Then in the evening, you don’t face a lengthy second commute to your home.”
Besides The Link, other developers are putting up new multifamily housing in Aberdeen, drawn by the town’s central location off the Garden State Parkway and its easy access to rail. The target market for these transit-oriented developments tends to be singles, young couples and empty nesters.
“We considered the issue of density, but we believe there’ll be a limited impact on our schools and other services,” Tagliarini said, adding that most of the apartments in developments like these are studio- or one-bedroom, with a smattering of two-bedroom units.
“They’re all part of a redevelopment area, and are PATH centric,” Schwartz said. “Unlike The Link at Aberdeen — which has 7,000 square feet of retail, including Brooklyn Bagel and Frutta Bowls —these Harrison developments don’t have a retail component. The Harrison real estate market s focused on PATH accessibility, and there’s a lot of retail nearby.”
BNE also previously developed The Green at Bloomfield, an upscale 140 unit mixed-use project “just a short walk” from the Bloomfield train station on NJT’s Montclair-Boonton Line.
These and other projects often have unique design and other characteristics, like offering upscale amenities that appeal to their target markets, but in addition to being near mass transit they generally share another trait: a location in the northern or central part of the state. That doesn’t surprise Michael McGuinness, CEO of real estate development association NAIOP New Jersey, which advocates on behalf of the mixed-use, commercial, industrial and other real estate sectors.
“Based on the population density, there are simply more people in north ern or central New Jersey who are likely to use mass transit because they work in New York City,” McGuinness said. “South Jersey residents who work in Philadelphia are more likely to drive from their residence to a SEPTA station for that commute. It will be interesting, though, to see whether housing development patterns in South Jersey change if more light rail lines [are] built.”
New Jersey could do more to support the housing-near-transit trend, said McGuinness, who hopes a bill introduced in March would do that.
“Assembly Bill 3654 would require NJ Transit to establish an office of real estate economic development and transit-oriented development and would require an annual report about the agency’s real property information,” he said. “NJ Transit may have significant, underused property that’s owned adjacent to stations that could be better utilized for additional transit-oriented developments. Conceivably,
selling off some of these properties could help the state’s revenues, too.”
A move like that may make things easier for developers like Schwartz, who said that rail projects like The Link at Aberdeen Station can involve multiple permitting and “negotiating with multiple owners” including, in this case, New Jersey Transit. That’s on top of environmental remediation and other efforts typically needed to redevelop these train-centric areas, which often housed commercial or industrial facilities.
“[In Aberdeen] we had partners in the deal who were designated redevelopers,” Schwartz said. The designation is part of a process that can speed up the cleanup of an area that’s been formally designated as blighted or in need of redevelopment.
For Jeffrey Otteau, president of the real estate appraisal and consulting organization, The Otteau Group, one set of numbers clearly illustrates the demand for transit-centered housing in New Jersey.
“From 1990 to 1999, rail towns, or towns with a train station, accounted for about 24 percent of the state’s building permits. During the next decade, from 2000 to 2009, that share climbed to 32 percent. Then from 2010 to now, it jumped, and the category now accounts for 52 percent of building permits.”
Most of that demand, he added, is in North Jersey and Central Jersey.
“At the top of the list is the economic performance of Manhattan, which has been steaming ahead of New Jersey’s, at least since the end of the Great Recession, and creating more opportunities,” he said.
Also adding to the demand momentum is the fact that within New Jersey, an increasing volume of job creation has shifted away from the historical suburban orientation to an urban flow. New York is at least partly behind that trend, as some companies have fled from Manhattan’s high office rent, instead embracing places such as Jersey City and Hoboken.
“When New York City and Hudson County cities became job creation engines, more people were attracted housing that lets individuals easily connect to those cities,” Otteau said. “They want to connect easily because often, they can’t afford to live in these cities.”
Residential rents in a typical New Jersey suburb, for a newer apartment “with all the bells and whistles” average about $2 a square foot, he said.
“It’s double or more in Jersey City, with an average residential rental of $4 to $5 a square foot,” he noted. “In Manhattan we’re looking at $6 to $7 a square foot. People do the math, and if they can’t afford places like Jersey City or Hoboken, they’ll [move to] Harrison, or South Orange, or even further down the line to Aberdeen, where they can catch a train and still get to their job in a reasonable amount of time.”
Added Otteau: “Part of the reason that we don’t see this demand for rail housing in the southern part of the state is because when it comes to jobs and locations, South Jersey doesn’t have the same relation to Philadelphia that New Jersey has to Manhattan. … In many cases, Pennsylvania is equally or more affordable than New Jersey, thanks to a lower sales tax, income tax and — depending on the location — property taxes. That’s reinforced by the unique tax treaty between Pennsylvania and New Jersey. Unlike many other areas, if you live in Pennsylvania and work in New Jersey, you can choose to be taxed at the Pennsylvania rate, which is generally lower than New Jersey’s.”
In 2016, then-Gov. Chris Christie tried to kill the longstanding arrangement, citing state Treasury estimates that New Jersey was losing out on nearly $200 million a year of income tax receipts. He did an about-face though, after Subaru of America President Thomas Doll criticized the decision and reportedly said that if the carmaker had known about the plan before building a headquarters and national training center in Camden, “we may have reached a different conclusion.”
Besides the difference in commuting patterns and the smaller population base in South Jersey, lower rents may mean some developers hesitate to take on the higher costs of building a transit-centered project in the area, added Otteau.
“Rents in South Jersey are about $1.50 a square foot, which is considerably less that central and northern New Jersey, even though the construction material and labor costs are roughly equivalent,” he said. “Land may be a bit less expensive in parts of South Jersey, but the lower asking rents along with the other issues could mean that it doesn’t make as much sense to build transit-centered housing on the same scale in the southern part of the state.”