When superstorm Sandy hit parts of New Jersey, it sparked concerns about future investor demand for commercial real estate in the waterlogged region.
Nearly a year later, only some of those fears have materialized. Sales growth for office, retail and apartment properties overall in New Jersey has slowed somewhat, according to Real Capital Analytics, a real-estate research firm. But in Northern New Jersey, which includes areas less affected by the storm, sales of industrial properties are on pace to hit a record high this year.
Northern New Jersey also is outperforming the national industrial market. Nationwide, the volume of industrial sales valued at $2.5 million or higher are on pace to hit about $37 billion this year. That is still shy of the annual peak of $60.8 million set in 2007, according to Real Capital Analytics. Total sales volume of industrial properties 100,000 square feet or larger hit $1.02 billion as of the middle of September. That is a 64% increase from $623 million in all of 2012, and surpasses the previous record of $922 million in northern New Jersey industrial transactions in 2006.
"Everyone wants to know if Sandy impacted buildings but at the end of the day there's still a need to be close to [New York City]," said Kyle Schmidt, a broker who specializes in industrial sales with Cushman & Wakefield. Mr. Schmidt said that while investors prefer buildings outside of flood plains, when necessary they are willing to pay the higher insurance premiums to have access to one of the nation's biggest industrial markets. Even properties in the Meadowlands, a marshy area prone to flooding, are prized by many investors because of the area's proximity to Manhattan.
Among the most noteworthy deals is the recent sale of a 887,000-square-foot warehouse in Cranbury, N.J., about 45 miles southwest of New York City, purchased for $98 million by the California Public Employees' Retirement System. The property fetched 20% more than what Exeter Property Group paid two years ago, and it was one of the largest single-property warehouse deals in the region since the financial crisis. Calpers, the giant pension fund, declined to comment.
To be sure, the flurry of deals in northern New Jersey is partly fueled by a rising pack of large institutional investors that are bulking up on warehouses. Blackstone Group LP has made a series of large acquisitions since the downturn to become one of the largest U.S. owners of warehouses and distribution centers.
More recently, Brookfield Asset Management has agreed to acquire Industrial Developments International Inc. Calpers is expected to invest several billion dollars in the next three to five years on industrial properties, according to Martin Standiford, a senior vice president of acquisitions with adviser Bentall Kennedy. The firm represented Calpers in the purchase of the Cranbury property.
With the deal flow recovering faster than some areas' rents and occupancies, analysts and investors are on the lookout for overheating. Exeter Property Group, which sold the Cranbury building, say it would cheer rising prices because its strategy is to buy properties in need of improvement and then sell. "A run up in prices is good for us on the exit," said Ward Fitzgerald, Exeter's chief executive.
While industrial properties are among the least glamorous sectors in commercial real estate, the returns tend to be higher than what office buildings or apartments offer. Some analysts say the improving economy means a greater need for warehouse space for consumer goods and housing-construction materials.
Northern New Jersey is one of Calpers' target markets, according to Mr. Standiford. He said the property's long-term tenant along with its unusually high ceilings and solar panels made it an attractive investment. In addition, it isn't in the flood plain and the building wasn't affected by Sandy. "That's the acid test," Mr. Standiford said. Hopefully you only have one of those storms every 20 years or so."
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