The third annual Jersey City Summit for real estate investment was held Tuesday at 70 Hudson St. in Jersey City.
Four panels were held addressing the state and opportunities of retail, multifamily, office, emerging markets, city amenities and city planning, with remarks from Jersey City Mayor Steven Fulop, Deputy Mayor Marcos Vigil and New Jersey City University President Sue Henderson.
The multifamily panel, led by Genova Burns Partner Eugene Paolino, focused on the role of Jersey City, specifically the downtown area as a competitor to Manhattan and the New York City boroughs.
The panelist focused on the role of tax abatements to further development and the impact affordable housing requirements have on overall construction and returns.
KABR Group Chairman Kenneth Pasternak spoke of the ability for affordable housing to serve as a catalyst to spur development in the form of a better tax abatement strategy, but warned that it can also be detrimental to developers, to the point that it can discourage them from continuing to develop in the city.
“In New York City, when you build 20 percent affordable, you get 10 percent abated taxes,” he said. “In New Jersey, and let me pick on Jersey City, the typical tax abatement is 10 percent. So, if your average unabated taxes are 0 percent, you’re only getting half of the value, but the same economic obligation on the affordable side. We have to be careful understanding how abatements are involved. I do think the developer side of the business has had an obligation in providing affordable housing … but we don’t want to over-engineer it or we won’t build anything in Jersey City.
“You have to be careful to understand what your abatements and other factors are in the risk you take to have financeable projects and not tax them with affordable housing requirements that don’t make them economic.“
KABR Group recently opened 65 Bay St. with Kushner Companies. The developer is working to break ground at One Journal Square, a joint-venture with Kushner. KABR is also working to develop 26 and 30 Journal Square in the same neighborhood.
Phillip Gesue, chief development officer of Strategic Capital, said that whether affordable housing requirements are or are not involved in the negotiation for tax abatements, they are crucial to the growth of the city. Not only as one of the faster growing regions in the state, but as a subset of the New York City housing market altogether.
“The challenge of the abatements here is that the taxes are double of what the taxes are in New York City on a free-market basis,” he said. “You’re starting at double those taxes … and if you get a tax abatement here in Jersey City, you’re really paying 50 percent, roughly, of what normal taxes would be. Which is the same you would be paying in New York. Essentially, your taxes are back to what a full market would be in New York City.
“It’s just math. At the end of the day the mathematics are relatively simple. Once you get through the math it’s just a matter of what is a fair return. And that is where politics and business usually diverge.”
Regardless, JP Morgan executive director Kinsey Sale said the city remains and will continue to remain attractive for multifamily investment for its mere proximity to New York.
The director said that at least relative to the boroughs and Manhattan, Jersey City continues to be more affordable in spite of the growth in rents.
“You are getting to draft (the New York) economy and are able to build at a much cheaper basis and offer rentals at 40 percent discounts from what you would pay in Manhattan. It’s a nice mix to be able to provide really high-end, well-amenetized beautiful buildings at a somewhat affordable rate to rentals. It’s all relative.
“We’ve been attracted to the fact that you can build at a lower basis and get a better yield over here and still benefit from the high-paying jobs in New York.”