Is it smart to buy properties in redevelopment area?

Question

Theo Hicks · Answer

What's nice about the smaller multifamily that is surrounded by massive luxury apartments with all the bells and whistles is that you can sell it as a "luxury experience without the luxury cost". You won't have all of the amenities on site, but you can sell nearby amenities to tenants (i.e., try to partner with a local fitness center).

Ray Johnson · Answer

@Rafal Mielniczek There are a few things I would look at, have you looked into these?

1) New construction in redeveloping Downtown areas tends to be Class A or B+, What level will your property be?

2) What type of amenities are listed on the pre-development websites, versus what you plan to have for your property? Will you be able to compete will be the question.

3) Furnishings can be a game changer, will you be able to compete from an aesthetics perspective?

From a Pros versus Cons view:

1) Pro - you will get renters that may not qualify for the brand new product but still want to be in the new flashy neighborhood and decide they will pay less in rent since they weren't planning to use that new indoor year-round pool any way.

2) Con - You'll need to project your rent for similar Sq. ft, to be a little lower since given the option for a 2 or 3 bedroom in a new development, versus a rehabbed product everyone will most likely want to choose the new development first.

I have a new construction property completed in Oct 2015 in the same neighborhood of one of my properties that was a complete rehab in July 2017, The new construction property got higher income earners applying to rent the property versus the other property which drew a lower income earner wanting to be in the area. Right now since there are still a lot of vacancies from the over a Thousand new construction units that have come online, I can't get equal market rate for a similar 2 bedroom, after stabilization of all the new development product I'll be able to increase rent in the older property to get closer to the new construction property numbers on rent.

James Lloyd · Answer

Just one block in/near these redevelopment areas can make a big difference.

If its the redevelopment zone in/near Paterson, I would avoid it.  This is completely anecdotal/experiential, but I just don't see any 'hope' there in the near future when I visit the city.

If its one of the redevelopment zones closer to/in Newark, then I would see how close you are to the path station, Newark Penn Station, business center, or one of the upcoming neighborhoods.  Again, completely anecdotal, but Newark has some signs of hope in some areas and business prospects.  It was on the short list of Amazon HQ2 for a reason.  Run the numbers and run the numbers on a few different scenarios (best, average, worst) and show it to someone you trust, and if you still think its a good deal, then go for it.

Bjorn Ahlblad · Answer

Recently there was an attractive 15 unit building I put in an offer on. There were 7 new buildings going up in the immediate area, mine would have been right at the beginning of the loop where the new buildings were and would have been seen first by prospective tenants. I wanted the place thinking it would be getting a lot of traffic and was an acqisition target as well. In the end I was unwilling to beat the high offer-no longer met my criteria-so I moved on. All the best!

Jonathan Valdes · Answer

@Rafal Mielniczek that sounds like a great deal!! 20 unit building...thumbs up to you!

I currently live in Little Ferry and have been watching and researching all of northern Bergen county along with some of Hudson and Essex for almost 2 years. I have thought about possibly buying a multi in Hackensack, but it doesn't meet my wife's criteria.

the main areas of growth are along the main street area (courts and river street). there a new building going up on main street and mercer. Its supposed to be 14 story's with a lot of residentials a few commercial on the bottom. It is a great area, near the park, river, stores, govmt buildings along with a good coffee shop (71 main street)

not sure where your building will be, but if you get the chance, check out

http://uppermain.org/

the main street alliance has been around for years.

the other major area is a triangle of construction is  btwn RT17, Maywood ave & central ave.***this is Maywood, but near Hackensack.  I don't know what is being built there. my guess is office space. there was a single family listed for sale along Maywood ave for almost 8months.

**if I were to purchase in Hackensack, it would be near the hospital & east of the train tracks. remember, Maywood residents send their kids to HS in Hackensack. The town is currently trying to figure a way to send them to Paramus.

Alina Trigub · Answer

@Rafal Mielniczek

1) good to "see" you on BP

2) check whether Hackensack has rent control

3) check what the demand is for your building type

4) if you plan to offer apartments through gov assistance, check what their requirements are and whether there's a demand for that

5) having public transportation (buses,and/or trains) in the immediate vicinity is a must

Best of luck!

James Lloyd · Answer

@Rafal Mielniczek, I have not done any work in Hackensack.  I have volunteered at probono opportunities in Newark and other volunteer work in Paterson, which provided some basis for previous comments.  Most of my work is in Morris County with some Union and Somerset.

I'll PM you though because I'm interested in knowing more.

Rafal Mielniczek · Answer

James what is your intake on Hackensack ????? I see that you are a lawyer so you are probably very familiar with the city.

Rafal Mielniczek · Answer

1. Mine right now is a D class property but eventually will bring it up to B

2. not sure as they are all different buildings and in different area, but its down town so close shopping, restaurants and night life.

3. I can definitely compete, also can compete with design and renovation, since I own a construction it will cost me less on rehab.

Pro/Cons

This property is located 2 blocks away from county court house and many other affiliated county buildings and business, and my target area is the lower income tenants that have  lower paying jobs, not  he lawyers and judges etc. that can afford higher rents.

Right now this property is cash flowing  at 19% with way under market value rents, so i can rise them up and still be under market value to compete with new buildings.

Is it smart to buy properties in redevelopment area?

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