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Deals & Dealmakers

Gigantic Coca-Cola commitment signals strength of industrial Jersey market

If the local industrial market is any indication, New York may be the soul of the northeast, but New Jersey is the heartbeat.

“It’s location. It’s all about the location of New Jersey,” Savills Studley senior managing director Daniel Foley told Real Estate Weekly. “It’s proximity to the population of the New York Metro area. It’s huge.”

Photo by Dennis Goedegebuure/ Flickr
Photo by Dennis Goedegebuure/ Flickr

Foley has represented Coca Cola in multiple Garden State transactions in recent months, as the beverage company updates its facilities in the region.

The deals include a lease extension at 60 Deans Rhode Hall Road in Monmouth Junction, New Jersey.  The property encompasses a 230,000 sf, LEED Certified built-to-suit facility that the company has occupied for approximately five years.

In addition, due to the installation of a new, automated loading system, Coca Cola Refreshments leased an additional 45 acres of adjacent land at 90 Deans Rhode Hall Road. Both properties are owned by Forsgate Industrial Partners, which was represented inhouse by Alex Klatskin, Steve Seiden and Andrew Moss.

Coca Cola also extended its lease for 243,000 sf at 118 Moonachie Avenue, in Carlstadt, NJ.

The industrial property features 25,000 sf of office space and is used primarily as a distribution facility. The landlord, Prologis, was represented by Paul Rosen.

Foley was not done. His team then negotiated the sale of the beverage company’s 42,180 sf  industrial site at 704 Route 35, in Neptune, New Jersey. The property includes 13 acres of land and was sold to M&M Development LLC for an undisclosed amount.

Finally, Coca Cola Refreshments completed a sale of its 56,994 sf facility at 1500 Livingston Avenue in North Brunswick, New Jersey, which encompassed nine acres of land, also to M&M Development.  M&M Development was represented by Jeff Lagowitz of Savills Studley.

Foley said that the company’s desire to not only extend their time in New Jersey but to also expand in the state is due to a somewhat perfect balance of location and relative affordability.

“You’re equidistant between Boston and Washington D.C.,” noted Foley who added that much of the state is even closer to Philadelphia. “You’re overnight trucking within a third of the population of the county. New Jersey is perfectly located.”

The evidence can be seen in the investment being dedicated to the state’s current industrial infrastructure while across the Hudson, a city that was once driven by factories and tangible production has shifted to new focuses.

Last month, Bussel Realty Corp. (BRC) arranged the sale of 230 Liberty Street in Metuchen, New Jersey, a 41,500 s/f industrial asset. The seller, NYS Collection, dealt the property for $4.4 million and was represented by BRC’s vice president Jordan Metz.

The buyer, Barry Feldheim is an e-commerce/third-party logistics firm relocating from Brooklyn.

“My client, NYS Collection, implemented better distribution channels in its retail/ecommerce sunglasses business over the past several years, and no longer needed the space,” said Metz.

“Given current market conditions, it happened to be the perfect time to sell the asset, which they had purchased less than 10 years ago. We had backup buyers as well, several of whom were companies based in Brooklyn, which further indicates the incredible strength our New Jersey markets are experiencing, once again.  It’s a direct result of the further consolidation and extinction of warehousing in New York’s boroughs.”

While space in New York City itself may no longer be the wisest move for those looking to invest in industrial/warehouse space, the five boroughs are still the main draw.

Foley does not foresee rents along the traffic-clogged streets of the city being overtaken by the tempting, more viable option to the west.

“New York is a totally different market,” said Foley. “New Jersey will never, ever catch up with New York as far as overall cost.”

If true, that scenario will serve as a sliver of victory for the Jersey buyers who are used to dealing within one of the planet’s most seller-centric markets.

“Although the vacancy rates (in New Jersey) have been steadily going down and prices have been steadily increasing, it’s still better economics in New Jersey and you get much more facility than you do with the industrial stuff in New York,” said Foley.

Foley said that the inevitable growth of NJ pricing will have its hiccups.

“Real Estate is a cycle and you can’t forget the historic cyclical nature of our business. Without question we have a very hot market right now but a lot of things could affect it in the future, both in a positive and a negative way,” Foley said. “Are the rates going to continue to go up without any corrections? No. There’s going to be some point where the economy is going to soften and the need for distribution facilities in New Jersey and everywhere else is going to soften right along with it,” he said.

“It’s going to happen, no question about it, it always does. But it always comes back and when it does, it comes back stronger than it has in the past,” he continued.

One factor that may also impact demand is an increase in payroll responsibilities.

According to an analysis that was released last month by CBRE Group Inc., rising minimum-wage levels across the U.S. stand to impose additional cost burdens on industrial-building occupiers, especially in labor-intensive, e-commerce fulfillment centers.

The report calculates that a $1 increase in average wages amounts to a $1 million rise in total annual labor spend for a 500-employee facility.

Translation: higher rents will likely mean less staff openings at these facilities.

The report says that warehouse tenants across the United States can expect an annual rent spike of $2.08 psf on a 500,000 sf industrial building. That’s a 37 percent climb from the previous average annual U.S. industrial rent of $5.65 psf.

“While the impact of rising minimum wages will vary across companies and the states and municipalities in which they operate, it’s a near certainty that e-commerce facilities will take the biggest hit,” said Spencer Levy, head of research for CBRE in the Americas.

“Fulfillment centers and other facilities that process, sort and ship online orders tend to employ twice as many people on average as do typical warehouses and distribution centers, often expanding during peak seasons to as many as four times the average workforce.”

Cost-cutting measures aside, the bidding wars for Garden State industrial real estate is climbing with no long-term plateau in sight.

According to a recent Colliers International report, 2015 closed with the lowest vacancy rate ever reached by the United States market.

In the final quarter of the year, net absorption reached 63.1 million sf nationwide.  Colliers noted that rents are up more than 6 percent psf as compared to 2014 with nearly 50 million sf of new development not being enough to stem national demand.

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