Stifled New York Developers Turn to Jersey City for Resi Projects

Is Northern New Jersey — specifically, Jersey City — the solution to New York City’s housing problem?

The face of Jersey City has been changing rapidly in recent years, seemingly with every stroke of the Colgate Clock (you’d know it if you knew Exchange Place) as developers restore its most economically viable districts to their former glory with new residential, retail and office properties.

This is not the first time the point is made that Jersey is a more affordable alternative to Manhattan, or New York’s other four boroughs. Since time immemorial, New York renters have looked at the listings and said, “Screw it, I’m going to Jersey,” and developers have long catered to that pattern. But, in the last few years, it’s worth looking at the edge Jersey developers have established over New York City builders, especially those specializing in housing which has been at a standstill east of the Hudson River because of higher financing costs rates, a shortage of government incentives, outdated zoning, and high land prices.

The data alone is impressive.

There were 1,300 units delivered in all of northern New Jersey in 2024 as of the middle of the year, per a report from Berkadia, with an absorption of 914 units. The data firm estimated that a total of 17,975 would hit the North Jersey market by the end of 2024. About 13,000 units were under construction or in the pre-leasing phase as of the first half of the year, according to the report.

The effective Jersey City housing rent at the end of the second quarter of 2024 was $3,753 a month, Berkadia said.

Meanwhile, New York City had about 6,313 units delivered to the market at midyear, according to Berkadia, with an absorption of 4,853 units and an expected 20,979 units in the pipeline for the entire year. Effective rent was recorded at $4,465 a month in the second quarter of 2024, per Berkadia.

Diego Hodara’s Titanium Realty Group has seen the opportunities in Jersey City for a long time, and started buying up land around the Journal Square PATH station during the Global Financial Crisis. In the place of single-family homes, Hodara’s firm has been building multifamily assets that feed the demand for people looking for relatively lower rents, but with access to either Manhattan or New Jersey’s waterfront office districts.

“We finished several big buildings, and we’ve been absorbing very well,” Hodara said. “So the value is there for the renters, based on location, the quality and the type of product we are delivering to them, and in the price. So there is a good value for renters that are in need of housing because New York City has done a terrible job related to that.”

Jersey City officials recognized the value of the infrastructure provided to posterity a century-plus ago with the PATH trains, and in 2000,they got ahead of the game by passing the Journal Square 2060 Redevelopment Plan. This allowed developers to build high-rise residential buildings within a 57-block area surrounding the PATH station. 

Hodara credited this for the beginning of what would be the transformation of the city, and a major opportunity for him to build towers such as 413 Summit Avenue, 425 Summit Avenue and 345 Baldwin Avenue.

Of course, it’s not all heaven in “Jeserkistan,” as Bruce Springsteen has described his home state.

“Jersey City has certain weaknesses, but it definitely is way better than what’s happening today in New York City,” Hodara said. “Jersey City hasn’t given any tax abatements for many, many years. So that is one of the challenges, and we are not even talking about interest rates.”

No market is immune to high interest rates or inflation. But the land is cheaper in New Jersey, which developers see as an offset to the lending environment. (The average price for vacant land in New York City is a whopping $523 per square foot, according to data from LoopNet.)

“Certain regulations, permits, the logistics, it makes it less expensive,” Hodara said. “So overall, you end up with a similar product in a similar submarket, when you compare Jersey City and New York City. But the lower cost in Jersey City can allow you to offer lower rents and attract more tenants.”

Kushner Companies Chief Development Officer Michael Sommer, like Hodara, has also been targeting Journal Square for housing development.

In fact, two 64-story towers which cost about $1 billion located right next to the PATH station are set to begin pre-leasing in early 2025. In the end, The Journal, as the development is called, will span 2 million square feet and feature 1,723 apartments and 45,000 square feet of retail space, which has already been leased to Target.

With the housing growth has also come better prospects for retail, which has seen some supply increase while much of the existing supply is being renovated. Updates include the Loew’s Jersey Theatre, which is being transformed by parent company of Devils Arena Entertainment, Harris Blitzer Sports & Entertainment, and $105 million partly from the city’s coffers.

The theater, built in 1929 and spared from the wrecking ball in the late 1980s, has been a challenging ordeal for Mayor Steven Fulop, who said in 2021 that the project would cost $72 million.

But all that seems to be a testament to the residential and retail potential of Journal Square. Once the theater is renovated and restored, the Fulop administration expects Devils Arena will book world-class acts and further boost the economy.

“I think the retail has already and will continue to only improve in terms of quality with all of the new products coming online,” Sommer said in an interview. “Even though the residential rents are, you know, a fraction of the price of what they would be in Manhattan, there is a very affluent tenant base that is living in and moving into Journal Square.”

In terms of offsetting costs, Sommer said that it’s the partnership Kushner has with AJD Construction that offsets high interest rates. But in the end, it boils down to a strong rate of return on investments.

“Working with [AJD] gives us the ability to underwrite a financeable project, in spite of, obviously, the external challenges in the way of interest rates and otherwise,” Sommer said. “But what I would say is most impactful is the fact that, as the market has only gotten stronger, rents have only improved.”

To fund the second phase of the project, known as 1 Journal Square, Kushner was able to get a $295 million construction loan, consisting of a $210 million senior loan from Apollo and an $85 million mezzanine loan from RXR, as CO reported in July.

Around the same time in 2022, Kushner secured $515 million in financing provided by AIG with $385 million on the senior loan and Related Credit Funds adding a $130 million mezzanine.

The project started 10 years ago. During the big funding push, Laurent Morali, Kushner’s CEO, told CO that lenders in 2022 wanted nothing to do with office or retail following the pandemic but considered a massive residential project to be a hedge against uncertainty.

Even with all the tailwinds in the Jersey City, market lenders still have to be selective about who they underwrite mortgages to, which generally means prioritizing developers that own property within city limits or have a history of developing, said JLL (JLL)’s Thomas Didio, who has been arranging loans for developers across the tri-state area with a special focus on multifamily in Jersey City.

Other times, it boils down to how much cash the borrowers are fronting for the project, either with their own money or through funds from limited partners. High yields from rent from sheer volume are making deals pencil out well, and compressed returns are forcing borrowers to put a little more skin in the game.

“We’ve been doing projects where the senior debt two or three years ago was 60 to 65 percent of cost. Today it’s 55 to 60 percent of cost, and then you bring in a piece of preferred equity to 75 to 80 percent of cost,” Didio said. “So maybe in this scenario where you go out and raise an LP, your developer client was 10 percent of the capital stack. Today, they’re more like 15 to 20 percent of the capital stack with their own money. So they certainly have to have conviction that they can build, lease up and stabilize in a rather inflationary environment. They’re doing that by putting more money into these deals.”

Prior to COVID, the average blended rent for Jersey City was between $35 and $40 per square foot. Even with new housing surging onto the market, rents have doubled to over $80 per square foot, according to Didio. It’s still a big discount compared to Manhattan, where blended rent ranges between $130 to $140 per square foot.

Along the waterfront, residential developers are also selling not only new housing but also a lifestyle, according to Rami Rosen, a principal at Compass. And that means that competition for tenants is heating up.

“It has to do a lot with lifestyle, with community, with retention of the resident, because I think the amount of units that’s coming up is going to be overwhelming, and in order to actually maintain the occupancy, there’s going to be fierce competition,” Rosen said. “We see it both on the waterfront and in Journal Square.”

Ultimately, the big boom in housing construction in Jersey City boils down some basic principles.

“It is getting a little bit saturated. At the same time, the price per square foot and the rental prices compared to New York City is still much cheaper,” Rosen said. “The quality of life in Jersey City is much, much higher than New York City. The streets are cleaner. The streets, I think, are safer. And you get much more for your buck, and that’s what’s driving these tenants.”