FLORHAM PARK, NJ-New Jersey’s economy and real estate opportunities are better than the nation overall, but some challenges still lie ahead, said speakers at Marcus & Millichap’s New Jersey Investor Symposium at the Brooklake Country Club here.

And that means that investors must watch opportunities closely, including in some unexpected areas. “Whatever perceived notions you have regarding what you should and shouldn’t do should be revisited,” said Hessam Nadji, managing director of research and advisory services for Marcus & Millichap. “We are facing an economy that has a lot of head winds, including high unemployment and even higher underemployment. The biggest hurdles we face have to do with the high level of debt, public and private. But there are a number of positives.”

The level of public debt is at record levels, and the government’s needed intervention will have “many years of repercussions,” Nadji said. The earthquake and tsunami in Japan, European debt crisis and Middle East revolutions created fear during the fledgling recovery, Nadji added.

Yet a close observation of national data reveals some good news: retail sales are now 5% above 2007 levels, and corporate profits have exceeded their third quarter 2006 peak. Capital expenditures are rising, indicating that companies may be preparing facilities for future hiring in the next couple of years. But growth is coming mostly from large companies; small businesses still find it difficult to get loans.

“Last year, we added 1 million new jobs, 30% of them temporary,” Nadji said. “Companies are too scared to act.”

The major factors delaying action are the European debt issues and the political paralysis in the United States. While Europe is working on resolving its problems, Nadji said he did not expect any changes domestically until after the 2012 presidential election. And housing remains an issue – no recovery can begin with foreclosures and short sales accounting for 30% of home sales, he said. A more normal rate is 10% to 12%.

Fortunately, New Jersey is better off than the rest of the nation, Nadji said. Housing prices declined less than 20% in the Garden State, compared with dips of more than twice that in markets such as Florida and Las Vegas. “What’s amazing is the resilience New Jersey has shown,” Nadji said.

The variation among submarkets is significant, he noted. The multifamily sector in Passaic boasts a 3.5% vacancy rate, while Newark reports a 7.5% rate. Ironically, higher vacancy could mean higher returns.

“The question is what kind of operator you want to be – the steady [and] stable, or to push the turnover for higher rent?” asked Brent Kohere, regional vp of Home Properties, Rochester, NY. “At 96% to 98% occupied, how much can you improve?”

The extremely slow foreclosure process in New Jersey is slowing the recovery of the housing market, said Vincent Spero, executive VP and chief lending officer of Peapack-Gladstone Bank, Bedminster, NJ. The office sector continues to struggle, with vacancy on the rise in some areas.

“There is a lot of sublease, and a lot of sublease coming on the market,” Nadji said. Some recovery won’t be seen until 2013."

Until recently, investors fled to quality, bidding the prices of trophy properties to above 2007 levels.

“Investors who did bid up will now rethink that strategy,” said Rob Friedberg, managing member of Capstone Realty Group, Englewood, NJ. “We saw a lot of investors stop in mid-August. But in general there will be a big flight to quality.” Banks are lending on stabilized properties such as anchored retail, VS noted. “There are great opportunities,” Spero said. “Banks just have to knock on doors."