WHICH SECTOR IS GETTING HIT THE HARDEST?
Everyone is suffering in this difficult economy, but some are suffering more than others. In a poll of our readers, 51% say that the retail sector is getting hammered the most. Multifamily and office are almost neck and neck, at 22% and 21% respectively. Only 6% of readers report that the industrial sector is doing the worst. Charles Sarlo, vice president and general counsel for DMR Architects, sees the multifamily market struggling in New Jersey. Here is what he has to say:
"The sector that has been suffering and continues to suffer the most is the multifamily residential market. The whole subprime market has certainly affected developers looking for new opportunities, and property owners still believe they have valuable land. Over the last two to three years. a lot of projects were approved and are still on the boards, but a number of them have not gone forward because of the change in the economic climate and the difficulty getting financing.
"Condos and rentals are both being affected, although rental is perhaps a half step ahead. Developers that are still looking for opportunities are certainly looking at the rental market, but it's still constrained by the unwillingness of lenders to provide money unless the developers have a significant amount of equity in the project. There's also the fact that property owners still believe that they can command top dollar for their property. To make the numbers work, you have to buy the property at the right price. I think there were opportunities with the runaway sale prices where developers were able to buy property at a higher value because they could pass the cost along to the end consumer because the consumers were getting low interest rates and not having to put too much equity into a mortgage. With the rental market, I don't think they can compensate that much for the land value with the ultimate rental prices. All segments of the multifamily sector are struggling now, and a lot of developers are going back to the local zoning boards and looking for extensions for their projects.
"There's a bill before the legislature on permit extensions that is intended to drive economics and get the economy back on solid footing, but a lot of the municipalities are concerned about it. Some of them approved projects and maybe at the time gave the developer a little bit more than the developer was entitled to. They gave them the additional entitlements because they wanted to see a project redeveloped and put back on the tax roll in a productive manner. They didn't want to see them lying fallow and blighted.
"The bill would extend approvals across the board, and some of the municipalities are concerned that now you have a property that perhaps you expended some political capital to get approved, but now it's still going to lay fallow. If the permits did expire, it's possible the property owner would go back to the market and look to sell it again to someone else.
"The overall intent of the bill is good. There's obviously a high cost and a high risk to secure approvals in New Jersey, and from that perspective, when the market does turn around, then a lot of these projects would be ready to go, rather than having them go through the whole approval process again."
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