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Real Estate New Jersey is part ofthe Forum LOCAL series of featuresin Real Estate Forum magazine. This isan HTML version of an article that ranin the May 2014 issue of Real Estate Forum.To see the story in its original format, click here.

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Some are calling it a “surge”—10,000 apartment units teemingtheir way through the pipeline in Jersey City over the next fiveyears. Others say it's an “explosion” of development, and seem abit wary of fall-out down the line. (Will rental rates, which havebeen throttling upward for years now, stop growing? Will occupancy,which is currently close to maximum, slacken?) No one, however,describes Jersey City's rapid transformation into a cool place forthe Millennial generation to live as a bolt in the wrong direction.And everybody and his sister, it appears, is jumping in with a newproject.

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“It has gotten kind of hard to keep track of all of them, it'strue,” quips Jonathan Kushner, whose KRE Group has just completedwork on one project, 18 Park, in the Liberty Square redevelopmentarea and is in the midst of site work for another, Journal Squared.KRE is preparing to build the first of three huge, skyline-alteringtowers it will erect at Journal Square. The Journal Squared towerswill be 54, 70 and 50 stories tall, with the iconic glass-facedstructures to be built in that order.

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Journal Squared is just one of a larger group of towers approvedfor the neighborhood centered on a mass transit center with aheavily traveled commuter rail station and bus depot. Furthermore,a smallish project by comparison—56 loft units emerging at theformer site of a vacant office building—is nearing completion. MattWeinreich, a New York City developer who five years ago helped turnaround a neighborhood in the West Village, is now focused on fadedJournal Square as a place that can be alchemized into a dynamicurban niche, starting with his Kennedy Lofts.

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The grand plans for Journal Square have been on the books formore than a decade. “Imminent construction” has been announcedintermittently by various builders over the years, fizzling everytime. “Now it's real,” says Kushner. “Jersey City is risingeverywhere, in all its neighborhoods, not just the waterfront, andit is definitely going to rise at Journal Square, thesecond-busiest transit center in the New York Metro.”

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As New York City's over-heated, uber-high-priced rental marketappears likely to stay that way for the foreseeable future, and nowBrooklyn is hewing to the same track, demand for comparable,close-in rentals on New Jersey's Gold Coast has turned white-hot,developers say. On April 8, Warren@York, a new building in thehistoric Paulus Hook neighborhood close to the Exchange Place PATHstation in Jersey City, opened its 139 units. Half were leasedwithin the first week. BNE, the developer, says 80% were takenwithin three weeks. The boutique-style building has a 24-hourconcierge and amenities that include on-site parking; it is alsopriced stratospherically for the “old” Jersey City: one bedroomsstart at $2,130; two-bedrooms range from $3,125-$3,540 and with aden, up to $5,090; and three-bedrooms go for $4,375 to $5,690.

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“The deal is still the same today,” says Cushman &Wakefield's multifamily investment specialist in New Jersey, BrianWhitmer. “People working in Midtown, the World Trade Center, theyall have to live somewhere. New Jersey has always been cheaper thanManhattan, and now, Brooklyn.” He and other investment analysts saythe price discount for tenants crossing the river to rent in NewJersey, traditionally quoted as about a third, has widened, headedtoward 50%, causing demand to skyrocket in Jersey City. But won'tit flatten after 10,000 units “flood” Jersey City's market incoming years, investors and bankers continually ask him. Heanswers, with confidence, “The history of the Gold Coast has provedthat if you build it, they will come. There might be a few years ofstagnant or moderate rent growth up ahead, but nobody should beafraid there won't be heads for beds.”

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In its first-quarter report, HFF said the apartment market alongthe Gold Coast is still riding a wave of demand that only began tocrest in 2010. HFF's Jose R. Cruz predicts demand will remainsteady “and grow another 1.6% over the next five years.” Last year,average rents rose to $2,714 from $2,676 in 2012, an increase of1.5% in Hudson County, according to Reis. HFF's analysts say thateven as thousands of units emerge onto the market in Jersey City,rent growth will be just “slightly mitigated.”

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There are four particular pockets of Jersey City wheremultifamily development is most active right now:

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The Northwest corner, along the city's borderwith Hoboken, a neighborhood becoming known as NoHo, where the CastIron Lofts have opened and property trading is intense for futuredevelopment.

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The Powerhouse Arts District Downtown, whereMill Creek Residential has just acquired an historic warehouse for$38 million that it will transform into 377 lofts, and TollBrothers/Panepinto Properties has a 38-story apartment buildingunder way.

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The Waterfront/Paulus Hook area, where threemassive towers will rise at the Harborside complex and Warren@Yorkis among several modest-sized developments.

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The Liberty Harbor North redevelopment area,where KRE is a partner in 18 Park, opening this month.

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KRE and Ironstate Development are co-developers of 18 Park, an11-story, 422-unit tower pitched to appeal directly to those whomight otherwise choose Manhattan or Brooklyn, with its feng shuidesign, Silver LEED environmental “cred,” lifestyle-of-the-minuteamenities (plant-your-own-veggies on the roof) and the possibilityof leasing a studio for as low as $2,000 a month.

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It is that last quality—comparative affordability—in addition toJersey City's incomparable PATH train connections to Manhattan(better than the commute from Brooklyn, since the ride is as shortas seven minutes)—that is the key driver in the currentproliferation of multifamily units.

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“Jersey City has become a magnet for residents seeking qualityhousing alternatives at better values than Manhattan and Brooklyn,”says David Barry, president of Ironstate, which played a major partover 25 years in developing Hoboken as that kind of magnet. Buttoday, there is scant development opportunity remaining in Hoboken.And Jersey City's extensive mass transit options, including PATHand ferry service to Downtown and Midtown Manhattan “offer a levelof convenience currently unparalleled in the regional marketplacefor tenants.”

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Besides 18 Park, Ironstate is also a partner with Mack-Cali indeveloping URL Harborside on the waterfront, another massivethree-tower development that will add more than 2,000 units inDowntown Jersey City. The first URL tower is to rise above aparking structure “pedestal” now under construction at Mack-Cali'sexisting Harborside office/retail complex. About three years ago,Mack-Cali made one of the first moves to transform itself into amultifamily market player from a primarily office-orienteddeveloper/owner when it partnered with Ironstate on the plan to addresidential to Harborside. Since then, Mack-Cali has acquired itsown multifamily development division, Roseland, and plowed aheadwith apartment development and acquisitions around the Northeast.Its URL project will be the company's emblematic trophy in NewJersey, though, when it is complete, which could take as long as adecade.

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The first 69-story URL tower, anticipated to open in late 2016,will have 763 units with compact square footage and maximized useof space. The “URL” stands for Urban Ready Living, whichIronstate's Barry describes as a “rethink” of how apartments shouldbe built and designed today. Ironstate worked for several yearswith Concrete Architectural Associates of Amsterdam to come up witha design that could be environmentally sensitive in all aspects and“visionary” in use of space:

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The common areas have been designed as “sanctuaries to liberateresidents from the hectic realities of urban daily life, andencourage meaningful interaction, relaxation and mingling,” as perthe architects.

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The units themselves are to be “move-in ready,” with built-instorage, LED lighting packages, desks and shelves, mirrors andwindow blinds; and keyless entry systems that permit entry viasmart phone.

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“The idea,” says Barry “is to allow for tremendous livingdensity in a small footprint.” At significantly less cost, ofcourse, than in New York City across the mile-wide Hudson River.That part of the developers' refrain is as inescapable today asMuzak once was in an office building elevator.

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Mill Creek's project, by contrast, entails creation of luxuryunits at a 1905 warehouse building that another developer tried tohave demolished five years ago so something new could go up. Backin the days when condominiums were king of the residential sectoralong the Gold Coast, developer Bob Lehrer had pursued a plan tobuild a condo tower at the core of the warehouse structure. Artistswho had fought long and hard to champion creation of an ArtsDistrict in that neighborhood strenuously opposed the idea, andcity officials denied Lehrer permission to take the building down,subsequently declaring it a historic property. In that way, thehulking old building survived to find itself a highly desirableproperty in a red-hot rental market. Mill Creek will add retail,artist studio and gallery space as part of the conversion tolofts.

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Retail development, by the way, will be the next “explosion tobe heard in Jersey City,” according to C&W's Whitmer. “Thinkabout it,” he says. “All those units. These Millennials won't besitting on the couch in their apartment all the time, watching TVlike their suburban parents might have done. They'll be eating out,seeking entertainment, shopping and consuming.”

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Whitmer says the parallel can be made here again with Brooklyn,which started out as a no-frills outpost to Manhattan “with a fewgreat restaurants and cheap space,” and which is now just as hip,ultra-retailed and nearly as expensive to live in as Manhattan.

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Already, capital markets investment advisors like him and HFF'sCruz are dropping suggestions to clients looking for up-and-comingopportunity to go have lunch or dinner at the “surprising”Restaurant Row growing up on Newark Avenue Downtown. “It's acomplete hotbed of energy and great food,” says Whitmer. “Irecommend you bring your family to stroll around and then havedinner some Sunday afternoon,” says Cruz. “The mention of JerseyCity can bring about a first, reflexive skeptical response. Buthonestly, I tell them, it's something to get excited about rightnow.”

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