Key Take Aways from Northern New Jersey’s June, 2021 Meeting
• Joe Mele (Dresdner Robin) led a discussion on delivery delays of steel, lumber, copper, and other commodities driving up costs and impacting real estate construction.
o Major delays in deliveries from China through the Port of Newark where shipping container pricing has increased 800% from $2K per container to $12K – $13K per container. Containers not shipped back to China are taking up space in Elizabeth and Newark, necessitating transformation of properties in Wayne, Jersey City and Bayonne to temporarily store the overflow of cars and other products.
o Construction innovator Katerra is going under, which could affect subcontractors like Jersey City’s Field Construction as well as deliveries of lumber (Katerra is a major US lumber supplier). Some subcontractors who saw this issue coming redirected costs; others delayed the purchase of materials, waiting for a fall reopening of Canadian border to bring down the price of lumber.
• Lucas Grunberger (Tulfra Real Estate) summarized his firm’s approach to supply and cost issues for materials. By awarding the lumber to framers and paying half upfront, both cost and management problems were reduced. Even with a 50% increase in supply, labor costs increased only 20%. When the cost of copper for ground conduits spiked, he was able to switch to aluminum. For another job, he purchased appliances upfront 9 months before needed, avoiding a 50% spike in cost.
• Gregg Manzione (Nationwide Consulting) reported multifamily coming back strong. In the last 90 days, two 2B, 1200 SF properties in Ridgewood rented for $4500-$5,000 per month. Multifamily is back, even with 5-7% of tenants still protected by the eviction moratorium. Rents in industrial are trending high at 4-8% annually for 16-18SF properties along the I-95 corridor. Multifamily cap rates are at 4-4.25% with sales strong.
• Paul Hacker (Axis Insurance) reported cyber criminals hitting all markets and company sizes, causing higher premiums from carriers. He noted cannabis businesses need to address workman’s compensation as well as cyber issues. With more offices opening, he urged businesses to make sure all their policies are in place.
• According to Yardi System’s Paul Fiorilla, office vacancy rates over the last year are down, particularly in the suburban market. On the other hand, the multifamily market has been extremely hot nationally; the last three months rents have gone up an average of more than 2% nationally. The SW and SE markets for multifamily are hot, while rent in gateway markets like NYC have been down more than 15%, even with a 3.4% increase last month. Rents in central Jersey, on the other hand, are at an all-time high of 4%.
• Itay Ron reported Faropoint, which owns and manages industrial space, is growing in two new directions. They’re investing in supply chain logistics, robotics, warehouse fulfillment, and other new enhancements for existing tenants. They’re also buying up existing class B warehouses in the $5M to $20M range in cities like Dallas, San Antonio. Memphis, Jacksonville, Philadelphia, and Hoboken.
• Guest Diane Leva (Columbia Bank in Fairlawn) handles commercial lines of credit, term loans and commercial mortgages for owner occupied buildings. She works with people whose businesses are experiencing difficult times and are looking to revitalize with new space or direction. For those who qualify, the Bank provides a loan half financed by the Bank and half by SBA; the business owner must put down 10% of the loan.
• NJ legislation update from Charles Hecht: 1) impact of proposed NJ Municipal Land Use Law is still under discussion by municipalities re: land use, truck routes and traffic impact concerns. 2) Municipal ordinances re: Electric Vehicle Charging Stations are under discussion in various towns. South Brunswick has passed its ordinance approving them; most multifamily developments are thinking of adding charging stations as a marketable amenity.
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