What NY/NJ Metro Area Still Offers

New Jersey isn’t just the nation’s most densely populated state – it also boasts eight out of the 10 most densely populated municipalities in the United States. Add in New York City (number six on the list) and it’s obvious that the New York/New Jersey metropolitan area is where lots of people choose to live and work.

While many out-of-staters only know what they see driving along the New Jersey Turnpike, the state is comprised of many different communities: urban, suburban and rural. And it still lives up to its nickname as the Garden State is a major producer of blueberries, cranberries, asparagus, bell peppers and other vegetables, as well as flowers and other nursery products thanks to the abundance of fertile farmland

While many think New Jersey is synonymous with suburban sprawl, the state has taken steps to rein that in, simultaneous with a growing movement of young adults and empty-nesters looking to take up residence in the state’s long-neglected urban areas.

Admittedly there has been a great deal of real estate development in the region in the last few years, but there are still tremendous opportunities in real estate for high-net-worth investors. And even with continued construction of apartment complexes, high-rise rentals, office space and suburban campuses, demand often still outpaces supply.

That’s a situation that presents a tremendous opportunity for high-net-worth investors who are concerned about increased volatility in the traditional markets. Real estate is one of the most popular classes for investors looking for alternatives that will complement the stocks and bonds they already hold, but not all real estate investments hold the same promise.

For example, the Gold Coast stretching from Fort Lee through Jersey City and high-profile areas like Journal Square, have already seen tremendous development which has boosted land prices to the point where what opportunities still exist may no longer offer a viable return.

Where the true investment opportunities lie today are in outlying neighborhoods that so far have failed to attract the attention of developers and government agencies. A prime example is the West Side of Jersey City and the currently underway University Place project. This is a public/private partnership that includes New Jersey City University, the City of Jersey City, several of the state’s premier developers, and private investors.

To cater to shifting housing needs and consumer demands, the goal of this redevelopment plan is to create a vibrant and walkable neighborhood that is close to public transportation and features all of the luxury and lifestyle amenities of comparable waterfront/downtown properties but at much more affordable price points. In addition to 1,000 residential units in four apartment buildings, the development will also include graduate student housing, a performing arts center, a gym and fitness center, bike terminals, and a grocery store-anchored shopping center.

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Why Real Estate?

Real estate also offers a potential hedge against inflation. Historically, strong GDP growth has gone hand in hand with an increased demand for real estate, both for housing and commercial purposes, meaning an increase in the value of real estate holdings.

Although real estate represents a classic example of a tangible asset, many individual investors have avoided it because they either don’t understand it, or don’t know how to get in. For these people, a real estate investment trust (REIT) might seem like an easy way to access this attractive asset class, but it’s not necessarily the best way. In fact, REITs might be victims of their own success. As total REIT investment has grown to more than $1 trillion, according to The National Association of Real Estate Investment Trusts, they have become much more closely correlated to the overall equity market, dramatically diluting their diversification benefits.

An alternative solution for eligible investors might be direct real estate investing, a vehicle that institutional investors have used for years to complement and mitigate the risk from other assets in their portfolios.

One of the primary advantages that direct investing has over a REIT or even many private real estate funds is that investors get to choose specifically which projects they want to be part of. A direct real estate investment is about investing in a specific building or development project. Investors know where they are putting their money and specifically what they own.

There are also emotional and psychological benefits from direct investing in real estate. It’s something tangible, consisting of hard assets, like land and buildings. Investors can drive past the project site and see how it’s progressing. And in the case of something like a hotel or multi-family development they can walk through and see the finished product. That’s a lot different from getting a broker statement in the mail detailing the quarterly performance of a portfolio of stocks, bonds and mutual funds.

Finally, if investors need another reason to consider investing in real estate, the Opportunity Zones incentive that was established by Congress as part of the Tax Cuts and Jobs Act of 2017, is a good one. The program encourages long-term investments in low-income urban and rural communities by providing tax incentives for investors to reinvest their unrealized capital gains into dedicated Opportunity Zone Funds. There are many such zones throughout the NY/NJ metropolitan area and even projects adjacent to, but not part of, an Opportunity Zone, such as the previously mentioned University Place project can benefit from the increased investment in the region.

Back in the 1980s then-Governor Tom Kean appeared in an ad campaign with the slogan, “New Jersey and you—Perfect Together.” It’s a slogan that real estate investors and developers are taking to heart and profiting from in the process.

Jeff Sica serves as president, CEO and CIO of Circle Squared Alternative Investments LLC, an SEC-registered investment management for firm. This article is for informational purposes only and should not be construed as an offer or solicitation. The views expressed here are the author’s own and not that of ALM’s real estate media group.