B — September 28 - October 11, 2012 — Fall Preview — Mid Atlantic Real Estate Journal
www.marejournal.com
ew Jersey commercial real estate in 2012 can best be described as By Nicholas Racioppi, Jr. and Joshua Greenfield, Riker Danzig, LLP New Jersey commercial real estate: A year in review and a look ahead NJ C ommercial R eal E state L aw N the Meadowlands, certain ar- eas off the New Jersey Turn- pike, various ports, Newark,
increase in demand, lower cap rates, and even some bidding wars for core assets, particularly in multi-family due to strong demand, low cap rates and a historic op- position to development of multi-family properties. On the other hand, the market for non-core assets, i.e., suburban office, indus- trial in remote locations, etc., continues to be slow. The suburban office market in particular has suffered, as the high unemployment rate has had a negative effect on office demand, and any
demand that does exist has gravitated toward the core- office market. Many major investors and operators have shied away from pursuing this class of assets, which has left some value opportunities for smaller players and pri- vate equity. Many of the transactions that have occurred in 2012 were due to institutional lend- ers being more willing to sell distressed assets and maturi- ties of existing loans. From 2009 through 2011, it was not uncommon to see a lender refusing to sell distressed as-
sets as they were unwilling or unable to take the balance sheet hit and instead decided to “delay and pray” or “extend and pretend.” By 2012, lend- ers had marked down assets on their books and thus were more willing to sell distressed assets at substantial dis- counts to par, thus facilitating some short-sale and deed in lieu transactions. Additionally, 2012 brought a marked increase in “tradi- tional” deals, i.e., those that do not involve distressed properties. Though the major- ity of lending work was refi- nancing of maturing loans, there was a pickup in acquisi- tion financing. Unlike in the period leading up to the great recession, however, lenders have been demanding lower loan to value ratios, full or at least partial guaranties (as opposed to only carve- out guaranties) and that the loans are at least partially amortizing. As the dollar amount of commercial real estate mort- gages coming due in 2013 will be significantly higher than 2012, owners will be forced to either refinance their debt, if possible, or seek alternative arrangements with their lenders. Much of the debt coming due, legacy debt made prior to the 2008 downturn, was made with a high loan to value ratio, no guarantee, and interest only payments for the life of the loan. Therefore, deals centered on distressed debt should continue to be a major piece of the market. We expect that the New Jersey commercial real estate market in 2013 will continue to be a tale of two sub-mar- kets, core and non-core. As a limited number of core as- sets continue to attract the larger owners and operators, it would not be surprising to see investors begin to explore opportunities in non-core as- sets. Investors may also focus on more suburban and rural markets for multi-family, as the factors listed above make it difficult to crack the prime areas. Nicholas Racioppi, Jr., Esq. is the head of Rik- er Danzig’s Real Estate Group, and Joshua Green- field, Esq., is an associate in Riker Danzig’s Real Estate Group. n
a tale of two submarkets: one for core assets and one for non- core assets. Whilethere continues to be a l arge amount o f capital sit-
etc.) are ac- t i v e a n d have attract- ed the most a t t en t i on . The result of the concen- t rat i on on core assets has been the all too
common situation of many investors/operators chasing a relatively small number of properties. This has led to an Joshua Greenfield
Nicholas Racioppi, Jr.
ting on the sidelines, core assets, i.e., multi-family, top quality retail and office, in- dustrial in primary areas (e.g.,
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