New Jersey Real Estate Report

From the Star Ledger:

Economic Indicators point to an uneven housing recovery

As the New Jersey real estate market tries to get its footing back, more evidence was released this week showing the terrain is uneven.

New home building in the Northeast hit the skids last month, but at the same time fewer New Jersey homeowners received foreclosure notices, according to the latest state and federal statistics.

Construction of new homes in the region fell 18.8 percent in October to a seasonally adjusted annual rate of 56,000 from 69,000 in September — the biggest percentage drop in the country, according to the Commerce Department. That included a nearly 10 percent decline in single-family homes.

Meanwhile, for the first time this year, the number of residential foreclosure filings was actually lower than the same period in 2008, according to the state judiciary.

Lenders started 4,991 foreclosure proceedings against New Jersey homeowners in October, down from 5,262 during the same month last year.

The state is retreating from a foreclosure filings high in June, when 6,138 foreclosure notices were recorded.
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More than 2,600 New Jerseyans have received counseling through the state’s Foreclosure Mediation Program, Gov. Jon Corzine said earlier this fall. About 1,450 cases have been completed, and roughly half of the homeowners were able to stay in their homes.
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In New Jersey, foreclosure filings from September to October in Cumberland and Warren counties increased by the widest margins — 8.75 percent and 11.29 percent, respectively, while filings in Hunterdon and Passaic counties decreased the most — 32.1 percent and 27.5 percent, respectively.
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Unemployment is the main reason homeowners are falling behind, said Joseph Seneca, a professor of economics at Rutgers University’s Edward J. Bloustein School of Planning and Public Policy. While the economy is likely out of recession, the state’s unemployment rate is now only starting to retreat from a record 26-year-high of 9.8 percent. The state’s jobless rate for October was 9.7 percent.

“Looking forward, it’s hard to pull the trigger on any big purchases, such as homes,” Seneca said of the housing climate in the state.

From the Record:

Passaic County jobless rate hit 11.7% in Sept.

Passaic County’s unemployment rate of 11.7 percent in September was the highest in New Jersey, and the second highest in the New York area, federal figures released Monday show.

The county lagged only Bronx County, with a rate of 13.3 percent, the U.S. Department of Labor said. Bergen County’s rate of 8.4 percent was 15th highest in the New York area, and eighth in the state. The figures are not seasonally adjusted.

The rates in both Bergen and Passaic counties have increased over the past year by more than the 3.4 percentage point increase in the national rate of 9.5 percent in September. New Jersey’s unadjusted rate that month was 9.6 percent.

September Unemployment Rate 2008/2009
Passaic 6.8 / 11.7
Hudson 6.7 / 11.6
Essex 6.9 / 11.1
Bergen 4.6 / 8.4
Union 5.9 / 9.8
Warren 5.0 / 8.8
Monmouth 4.9 / 8.7
Sussex 4.8 / 8.5
Somerset 4.2 / 7.9
Morris 4.1 / 7.6
Hunterdon 3.8 / 6.9

From NJBIZ:

Fearing a commercial real estate crisis

Distress among commercial real estate mortgages in New Jersey is intensifying, with more properties in the state going back to the lenders. Some industry insiders say a crisis may be in the works if the economy continues to falter.

“You’re certainly seeing an increasing rate of foreclosures, and of lenders taking back properties,” said David Bernhaut, executive vice president at the East Rutherford office of Cushman & Wakefield, a commercial real estate brokerage. “It’s distress that everybody feels and senses.”

New Jersey currently has nearly $3.6 billion of distressed commercial assets, according to Real Capital Analytics, a New York-based research and consulting firm. Distressed assets include those in foreclosure or bankruptcy, have been restructured or modified, or have been taken back by the lender through foreclosure.

Many properties acquired between 2005 and 2007 — when prices were at their highest — were overleveraged, Bernhaut said. “What you’re seeing now is difficulty in refinancing assets.” The commercial mortgage-backed securities market — a major source of commercial real estate financing during those years — is no longer active, because of the large losses the holders of these securities have suffered, while “lenders have gotten much more conservative, so they won’t lend the type of proceeds necessary to pay off existing mortgages,” he said.
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eal estate investment activity in New Jersey peaked from 2005 to 2006, and with most commercial real estate loans having five-year terms, the majority of those mortgages are due to mature between 2010 and 2012, he said.

Delinquencies made up 3.7 percent of commercial mortgages in New Jersey during the second quarter of 2009, up from 1.6 percent in the same period a year ago, according to Foresight Analytics, an Oakland, Calif.-based research firm. An estimated $7.4 billion of commercial mortgages are expected to mature between 2009 and 2011 in New Jersey, which ranks 13th in the nation in terms of the dollar amount of commercial mortgage maturities during the two-year period, the firm said.

Foreclosures and deeds in lieu of foreclosure have affected more than 15 buildings in New Jersey in 2009, and will become more and more prevalent during the second half of 2010 and 2011, as more commercial real estate debt matures, said David Simson, vice chairman and chief operating officer of New Jersey operations for commercial real estate services firm Newmark Knight Frank.

For properties purchased in the last five to six years, “the debt structure associated with those buildings may very well exceed the current market value of those buildings,” meaning the owners have no equity, to offer concession packages to prospective tenants, nor can they pay service providers, he said.
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Edward Mermelstein, co-founder and managing principal of Edward A. Mermelstein & Associates, a New York law firm that works on deals in New Jersey, said lenders are putting themselves at risk as the gap between a loan’s face value and market value continues to widen.

“How long can you extend loans as property values continue to come down?” he said. “Many of these regional lenders are going to have no place to go except out of business.”

From the Philly Inquirer:

N.J. has been hit hard by the recession

From 2004 through the end of 2007, the go-go years of the national real estate bubble, New Jersey’s private-sector job growth was just 2 percent, less than a third of the national growth of 6.5 percent.
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And since the recession started in December 2007, New Jersey has lost jobs at a faster pace than New York and Pennsylvania, though not as fast as the nation as a whole, according to U.S. Department of Labor data.

Even worse, Rutgers Economic Advisory Service predicted that New Jersey will need until 2016, three years longer than the rest of the nation, to get back to the level of employment of 2007.

Joseph J. Seneca, a professor of economics at Rutgers University’s Edward J. Bloustein School of Planning and Public Policy and coauthor of a 2006 report warning that New Jersey faced “its most uncertain economic future since the Great Depression,” said there was an optimistic angle on the worst financial and economic crisis since the 1930s.

The state’s huge problems give Christie the opportunity to “turn the page on the decade that has seen New Jersey’s business climate deteriorate significantly” because of high taxes – business and personal – and generally high costs, Seneca said.

Even in the good economic times earlier this decade, Seneca said, New Jersey raised its income tax, sales tax, cigarette tax, and realty-transfer tax, while property taxes remained painfully high.

Those moves helped New Jersey edge past New York to claim the highest state and local tax burden in the nation for the last three years, according to the nonprofit Tax Foundation in Washington. Pennsylvania ranked 11th last year.
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Diffley said New Jersey had significant strengths, such as a talented workforce and a great location. However, Diffley and other economists said, the state has been hobbled by the decline of telecommunications and pharmaceuticals, which were growth drivers historically.

In 1990, 20 percent of the nation’s pharmaceutical jobs were in New Jersey. It now has 13 percent of them. From 2007 to 2008, the state lost 10 percent of its jobs in the high-paying industry.

Now a wave of pharmaceutical consolidations involving New Jersey firms, including Pfizer Inc.’s purchase of Wyeth in Madison and Merck & Co. Inc.’s purchase of Schering-Plough Corp., headquartered in Kenilworth, is likely to cost the state even more of those jobs.
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Despite the serious problems, Seneca said the recession could be an opening for New Jersey and other Northeastern states that have been losing population and jobs to the fast-growing Southeast and Southwest.

“There’s an opportunity now to be competitive again, because the high-flying states have been brought low,” Seneca said.