Investment Market Outlook Called 'Steady'

In the office sector, hit hardest and still being impacted by lack of tenant demand, the amount of sublet space entering the market is less than a year ago. From an investment standpoint, "interest in well-stabilized, highly financeable buildings remains primary," according to Merin. "Trophies are trading at very aggressive cap rates, and capital for these 'safe' assets is plentiful. The sale of Bernards 78 early in the year reflects this demand--with strong credit tenants and a prime location in Somerset County, this 201,781-sf building drew a $42 million sale price, or $208 per sf, when TA Associates acquired it from Lend Lease."

On the industrial side, despite some overbuilding at New Jersey Turnpike Exit 8A in 2000 and 2001, "aggressively priced industrial deals are still being made consistently," Merin says. "The build-to-suit arena remains active, including a number of large projects at Exits 7A and 8A. In Northern New Jersey, spec projects are cropping up in niche markets, including the ORIX/RREEF venture in Carlstadt and the Keystone building in Jersey City.

"Industrial has maintained its relative health through the downturn, and the long-term outlook is excellent," he reports. "Equity providers love industrial, and financing opportunities abound. In a new trend, we've seen heightened interest in flex property as investors pursue higher yielding opportunities."

Finally, "retail has been the darling of New Jersey real estate," Merin says. "Vacancy rates have remained between 3% and 5% percent and national tenants consistently look for market presence in the state. As a result, capital continues to flow into retail and competition remains strong for well-located, well-leased assets. We received more than 30 bids from local and national investors for a recent transaction in which Inland Real Estate bought a 721,000-sf retail portfolio from Starwood Heller for $131.4 million.

Where's the money coming from? Pension funds remain the most aggressive investors today, "showing flexibility and assertiveness in getting their money into the market," Merin says. "Most are willing to enter joint ventures for key projects, and all continue to pursue outright acquisitions of all four property types.

"The presence of foreign investors has also grown during the past year," he concludes. "German funds in particular have extensive access to equity and are looking for long-term, safe deals. We're also seeing an increase in Middle Eastern money looking for alternative investment opportunities."