Commercial sales reach pinnacle in New Jersey

Real Estate Weekly, June 22, 1994 by Richard Gelmetti

In 1993, sales of residential properties reached the highest level in seven years. While this news made headlines across the country, another real estate story was left virtually untold - the boom in commercial real estate sales. It is the pinnacle of the buying season in office and industrial real estate, with increasing sales as buyers take advantage Of unprecedented opportunities to purchase buildings. The same factors that are contributing to increased home sales - low interest rates and favorable prices - have also spurred sales of commercial buildings, and as a result, the inventory of available buildings in New Jersey has slowly been reduced.

Users were the majority buyers of office W industrial buildings in 1993. Deflated market selling prices made it possible for some users to cut their building overhead by 50 percent or more by purchasing, rather than renting a building. Some savvy buyers who purchased buildings in 1993 are already witnessing increasing sale and lease prices, while others are scrambling to find buildings before interest rates and prices are pushed further upward. Activity in the commercial real estate market has been strong and will continue to grow throughout 1994.

In the past 18 months, Weichert Commercial has sold buildings of all types and sizes to various users. Many of the buildings owned by banks or insurance companies sold at below market prices, and in some instances sold for a small percentage of replacement cost. Users include law firms, engineering companies, doctor's offices as well as many small and mid-sized companies. Weichert Commercial sales include an REO building on Johnson Road in Parsippany that was formerly owned by a subsidiary of Aetna, an 87,000 square-foot OREO building in Somerset sold to Safer Companies, and a 70,000 square-foot Newark building sold to a pension fund. In Chatham, the 18,000 square-foot former Summit Bank Loan Administration Building was sold to a law firm, and in Millburn, the 26,000 square-foot former Berkeley Federal Savings Bank building was sold to an engineering firm. A doctor in Summit purchased a 10,000 square-foot building, and a law firm in West Orange purchased a 12,000 square-foot property. Other office buildings that have recently sold are a 60,000 square-foot REO omce building in Piscataway, a 50,000 square-foot REO office building in South Plainfield, and an 18,000 square-foot building in Bridgewater formerly owned by Natwest.

While it makes economic sense to purchase a building, there are several other factors to consider, especially the three "Cs": Commitment, Capitol and Credit. Commitment to buy is the first step in the decision to purchase a building, and can sometimes be the most difficult obstacle. Once the decision is made, capitol is required for down payment and renovations, and credit is necessary for financing. Some companies are purchasing buildings with unconventional financing, but banks and conventional lenders are today more willing to finance purchases than just six months ago. In fact, as a real estate broker, I've been contacted by several banks that are not only willing to finance appropriate purchases, but are actively soliciting these loans. And that's something we have not seen in many years.

There is still a good selection of buildings available to users at reasonable costs. Weichert Commercial is currently marketing. over 50 prime office buildings available for sale in New Jersey- For example, in Somerset County, we are marketing a 33,000 square-foot building on Route 28 in North Branch, a 16,000 square foot property in Bridgewater and a 12,000 square-foot office building in Hillsborough. In other areas, we have a 20,000 square-foot site in Summit, a 10,000 square-foot building in Mountainside, a 3,000 square-foot building in Morristown and a 27,000 square-foot building in Roxbury.

Entrepreneurs and companies considering purchasing of a building should act quickly because building prices and rents will continue to escalate as the inventory of available properties is depleted. It is still a good time to purchase commercial real estate and the decision to own a building can add up to substantial savings in the future.