CBRE’s Jeff Dunne Talks Tri-State

Those looking to sell or purchase buildings outside of the five boroughs often turn to Jeff Dunne, vice chairman of CBRE.


One could be fooled, looking through the windows of a MetroNorth train or of a Mercedes speeding down the Jersey Turnpike, into thinking that the suburbs outside New York City are sleepy. 

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But towns in the New York Metro area, which are home to 11.5 million people, are changing rapidly. The transformation is being driven by the rising cost of housing in New York City, job growth in the tech sector, and demands from consumers who are increasingly ordering goods online.

There’s enormous value in certain types of properties, too. 

Those looking to sell or purchase buildings outside of the five boroughs often turn to Jeff Dunne, vice chairman of CBRE, one of the largest commercial real estate investment firms in the nation. Dunne, who has worked and lived in the tri-state area since 1983, has a firm grasp of the market. That’s no easy feat considering it stretches out past Bergen County, south to Princeton, north to Westchester, and east to Nassau and Fairfield counties. 

He doesn’t think of himself as a broker but more of a consultant, someone who helps clients look before they leap when buying or selling property. Commercial Observer sat down with Dunne to get his views on the state of the suburban market — in which he proffered an optimistic take so long as towns continue to attract young families to their communities.

Commercial Observer: Were you born and raised in the Northeast?

Jeff Dunne: I was born in Pittsburgh. I didn’t live there long. My father was in sales and marketing, so we moved throughout Pennsylvania and Maryland. I ended up in northern New Jersey. I went to college in Penn State and graduate school at NYU. After NYU I started my first job in Connecticut. It was with a division of Procter & Gamble in the brand management area. Oil of Olay, the Olay products, and Clearasil, which is an acne cream. That’s a billion-dollar brand now. It was great training for what I do now, which is marketing and selling [but] I realized I didn’t want to do that for the rest of my life. 

How did you get into real estate?

I used to read the New York Times real estate section as a kid. I found it interesting, but it was a much different section then; it covered property conditions of office space, sales. Today’s Times is much more residential condo sales and advertising for that.

I didn’t know anyone in the industry. Most people that came into the industry have a contact point somewhere, whether it’s their father, friends, uncle, parent of a friend. There wasn’t a college path to get into commercial real estate. I wrote introductory letters to two firms, CB Commercial and Cushman & Wakefield expressing interest and chased them, ultimately landing at CBRE.

How do you find properties and sellers?

In some cases, they find us, but when you do something for 35 years, you kind of know everybody. It’s preexisting relationships, it’s tracking what people own and staying in touch with people. You begin to understand their thinking on potential sales and we advise them along the way.

People who may have a $100 million asset aren’t pressured to sell. They decide when they want to sell. We’re giving them constructive advice as to how to prepare a property for sale and the kind of leasing they should do. And at the time they want to do something we get the call and we do it. We probably compete for 15 to 20 percent of our business, the balance are people who have worked with us before.

I still do field work. Almost 98 percent of the time I’m going to look at a property. Even if we’ve sold something it might be seven or eight years, I want to go back and see what they did or didn’t do. It’s a fun part of the business.

I love looking at properties. Every time I drive by a crane, I have to pull off the road and see what’s there.

What are the biggest deals you’ve done in the tri-state area in the past year?

Long Island Home [1,496 units at $472.5 million] is our home properties portfolio in Long Island. That’s seven assets of multifamily apartment rentals in Westbury, Levittown, Lake Grove and Bay Shore. Long Island is undersupplied; it’s very difficult to get approvals. This was workforce housing. It wasn’t brand new; it’s lower cost, it’s for renters who need to rent. Investor interest in that category is really strong. 

Imagine if you own a new building. The good news is it’s brand new and beautiful. The bad news is if someone puts something next door, you’ll have to compete with them. If you have 40-year-old buildings, new product has nothing to do with you. New product might rent for $3,000 a month and older product might rent for $1,600 a month. The renter profile is very different and new competition, because construction costs are what they are, if you own 40- or 50-year-old product, there’s no future competition, you just compete with what’s already there.

We did that in New Jersey [1,035 units at $146 million]. Those were in Asbury Park, East Orange, Trenton and Newark. The hottest property of all being Asbury Park right in the heart of the city. It’s walkable to the train, walkable to downtown where all the retail and bars are, and also close to the ocean. It’s a town that is really coming into its own with light years of improvement relative to any other city in Jersey in my opinion. I hadn’t been there in years, but when I went there it had a good vibe and feel about it.

What type of property is selling well and what is underperforming?

The best performer would be industrial in New Jersey. That’s an industrial corridor because of the way the road systems are set up. The reason industrial is so strong in some ways is product used to go from the manufacturer to the warehouse to the retailer to consumer. What’s happening is the retailer is being bypassed because the consumer is ordering online as opposed to them walking into the store, picking up and buying. The demand for floor space is on the decline and more goods are being shipped directly from the warehouse to the consumer. Go into any apartment building or someone’s house. There’s a constant flow of Amazon boxes.

The second best would be multifamily, rental apartments. More people have given up homeownership to be renters in the last 10 years. Apartment demand is strong. Investors like apartments. Risk is mitigated in apartments. If I have a 300-unit building and I lose 10 tenants I’ve lost [3.33] percent of my rent roll. If I have an office building or shopping center and I lose three tenants, I might have lost half my rent roll. Apartments can always be rented; it’s a matter of lowering your price.

Third is suburban office. Demand is good but not overwhelming. Office has a lot more risk and there’s a lot more capital required. Each time a tenant moves out of a building, very infrequently is the existing space suitable for the next tenant. It’s an expensive proposition to replace and put new tenants in. 

Fourth would be most but not all retail. Nine out of 10 articles on retail are pretty negative. That translates to a reality in some way in investor interest, and there continues to be bankruptcies and shrinkage of retailers.

Are some properties over or undervalued?

Most investors overreact. When something is hot, it gets hotter than it should be because everyone feels they want to be in that space. Conversely whenever things are underperforming and people have fear, they’ll run for the hills. You get over-penalized when you’re not in a good space or a good spot. If I were hunting, I’d think there would be more opportunity to find in retail or office than the industrial or apartment space. There are a lot of people trying to be in those latter categories. As a result, there are good opportunities, but the pricing gets bid up.

What kind of retail is succeeding in New Jersey and Connecticut?

Necessity retail: could be dining, could be food stores, fitness, entertainment, and event [space]. A lot of big tenants used to say, “We don’t want theaters, fitness, and restaurants.” Today most retailers say, “Bring them in!” because they need more foot traffic in their stores. The point is the philosophy has changed completely. What isn’t working so well are things you can order on the internet: books, office supplies, electronics, clothing.

There are chains developing around bringing in entertainment — the extreme of that is American Dream [Mall]. You might go there and not do any shopping, but … if you do all that, you’re probably going to shop and eat. The attraction is a very different attraction than going to the Short Hills Mall or Westfarms Mall in West Hartford. I think in 20 years, half the malls we have won’t be around. They’ll be redeveloped as something different. I think you’ll see malls get developed in some fashion with a mix of retail, medical and apartment, and some warehouse.

What’s changing in the industrial sector? Are people looking for space closer to the city?

There’s a whole new category of industrial being developed called last mile, so delivery of goods can happen quicker. Those are likely to be multi-level, very high-rent facilities. There are a lot of people trying to figure out how to do that in and around Manhattan, and [other] very dense areas where there is insufficient land to be horizontal. Most warehouses prefer 35 feet, one-story loading on both sides. That kind of land doesn’t exist. They have to find different ways of loading and unloading and building buildings. People want instant gratification.

Are buyers converting warehouses to a different purpose than their original use?

No, I’m seeing old, antiquated office buildings are being taken down and converted to warehouses. Some people will take a warehouse depending on the market and convert it to a higher mix of office and warehouse. There is a trend in the Meadowlands to take down old office buildings where there’s additional land or all grade-level parking where there’s more land to do that, and you’re seeing some conversion into industrial there. And two large power plants PSEG in New Jersey are being knocked down and coverted to warehouse space.

Where’s Amazon in all of this?

Amazon is the biggest absorber of new Class A space built in Jersey. I can’t really talk about Amazon; we represent them as a company. If you check how many facilities are brand new and are leased by Amazon you’d see they’d be a very heavy renter of space and that probably applies around the whole country.

Let’s talk about residential trends. Who is moving to the suburbs and who is leaving?

The people moving to the suburbs are young people who have come to the conclusion that to afford to live in a three- or four-bedroom home in New York and send your kids to private school — unless you’re making an unbelievable amount of money — it doesn’t work. I think it’s young people who are having children later in life which has caused a delay in that. The future of suburban real estate is pretty good. New York City is not an affordable place to live. 

How are New York’s rent laws affecting Connecticut and New Jersey?

Because of the new rent-control laws there’s a complete disincentive for an owner to spend money in their units. Because of those new laws, you’re seeing capital fleeing from New York to other markets. There’s some avoidance and there’s fear that the governor’s office may push more of this into the suburbs. What you’ll see is slum landlords 10 years from now who will keep units empty rather than rent them. It’s been to the advantage of the suburbs.

Have you seen capital moving to New Jersey and Connecticut?

I’ve seen people who didn’t look a lot more. You can’t just walk out here and say I know the market. Most people want to study it, understand where things trade, watch it for a year. I just came back from the national multi-housing conference in Orlando and my peers couldn’t have been clearer: They’re seeing a lot [more] new capital coming to D.C., Charlotte, Florida cities, and Atlanta than they used to see. That is a direct correlation to the rent regulations that went into effect in New York.

City Planning Director Marisa Lago said that New York City must build more housing but also that its suburbs must shoulder more of that responsibility. Will suburban communities welcome more density?

You’ve seen a lot of towns taking a positive posture to do development. In Harrison, New York, there’s been a dozen office buildings taken down. Toll Brothers is doing an apartment project. A Wegmans is going in where there used to be office buildings. Life Time Fitness sought a large office property and took it down. Office buildings that are 40 to 50 years old, they are depreciating. They’re not functional for what an office tenant would like to have. But I don’t see high-rises being built up here. It’s very expensive and it would look completely out of character.

What about some of Connecticut’s wealthy towns that aren’t allowing more residential development like Darien and New Canaan?

I wouldn’t call Darien and New Canaan pro-apartment development, no. There have been apartments developed and it took a long time for them to get approvals.

There are two answers: There’s the politically correct answer and there might be some truth. I’ll use the politically correct answer. It’s that they don’t want to burden their school systems with a lot of kids. It’s very expensive to educate students and it’s not a good trade. If it costs a town $20,000 to $25,000 to educate a kid every year, and someone moves to town paying $5,000 in taxes in their three-bedroom apartment, that’s not a good trade. Whereas a homeowner who owns a house might be paying $20,000 to $30,000 in taxes.

It seems like these towns only like young people with a certain level of income who can move there. 

Towns don’t like poor people. High-end towns don’t want poor people because they don’t want crime and things they think that go like that.

Here’s what’s happening, I’ll give you a good example: In Greenwich, a client of mine had a large single-family residential house on 70, 80, or 90 acres. It used to be Mel Gibson’s house. He was buying it from the person who bought it from Mel Gibson. The developer wanted to keep the house, build 25 to 30 cluster homes, and create a gated community where people could come into Greenwich and buy a new home $2 or $3 million, which may sound expensive but it’s not. People don’t want to buy a 30,000-square-foot house in back Greenwich anymore. That’s not what young people want. But his project satisfied a need. It’ll bring young people and young kids into the school system. So, the town wanted it. The town approved it. And then the neighbor sued. She said, “I have a horse farm across the street on my 100 acres and I don’t want all these cars coming up the street.” 

So, what happened? The neighbor ended up buying it. My client was buying it subject to approvals and my client wasn’t going to buy and have a five- to 10-year lawsuit. So the neighbor who can afford to buy it bought it and it is going to stay the same. 

The bad news is you’re not bringing young people that want to own and live in Greenwich with kids who might come into the school system over the next 10 years. That’s unfortunate because that’s a good project even though the zoning wasn’t there. 

The town recognizes and is changing, but not as fast as they might need to. To recognize that if we used to have 300 kids graduating from high school and now we have 160, there’s something wrong with that. How do we keep the school open? Do we start closing schools? How do we retain teachers? That reality is going to set in.