FOUR years ago, no one was interested in buying office buildings in northern New Jersey. Today, sophisticated investors are looking hard at the Garden State's suburbs.
``Suburban New Jersey is high on my list,'' says Peter Linneman, director of the University of Pennsylvania's Wharton Real Estate Center and a senior adviser to Eastdil Realty, an international real estate investment banking firm. Dr. Linneman forecasts turns in major real estate markets and writes white papers for the firm on real estate issues.
Linneman rates New Jersey, suburbs outside the District of Columbia, Houston, suburban Los Angeles, and suburban San Francisco as the best places for real estate bargain hunters. He says he likes suburban areas because most of the job creation has taken place outside cities.
New Jersey might be the easiest place to make a deal, he says, ``because lots of people have suffered for so many years, whereas in Los Angeles, investors have only suffered for a year or so.'' Linneman warns that any buyer of distressed properties in either area should be patient because it will take some time and money to bring in new tenants and make improvements.
He says bottom fishers might also look at some fairly high quality strip shopping centers. He particularly likes the Northeast since there are only a limited number of places where ``the Big Boxes,'' K mart, Wal-Mart, and their genre, can locate to break into new markets.
``If Wal-Mart wants to get into suburban Boston, there are probably only 10 sites they can get into and these sites are probably already built up with a shopping center, so the game is trying to get out the old tenants who are not generating enough revenue and flip the space into a box,'' Linneman says.
FOR more cautious and less patient real estate investors, Linneman would advise looking at properties in Columbus, Ohio, suburban northern Atlanta, northern Dallas, Orlando, Fla., Denver, and Portland, Ore. ``These are areas that by my analysis are strong,'' he explains.
If investors are determined to buy city real estate, he advises them to stick to quality buildings in midtown locations. In Manhattan, for example, commercial tenants are moving out of 1920s-era financial district buildings and moving to ``better-located, mid-town buildings with modern amenities and low rents.'' The same trend is happening in Chicago, Philadelphia, and most other older cities, he says.
However, Linneman says he would stay away from Los Angeles, which he refers to as a ``black hole.'' Tenants are leaving the city for the suburbs, and companies are still shrinking. He calls it the weakest real estate market in the country. He is also not enthusiastic about the real estate prospects for Philadelphia, which he calls a ``gem of a city.'' He cites the city's fundamental problem of finding ways to grow.
Although he applauds the progress made by Mayor Edward Rendell, Linneman disagrees with the mayor's approach to attempt to make the city a major tourist attraction. Instead, he says Philadelphia will remain a lunch stop between New York and Washington. And he says Philadelphians are overly optimistic about the affect of a new convention center on the city's prospects. ``Call almost any mayor's office and they will tell you they have a new convention center,'' he says.
However, Linneman says Mr. Rendell is making the right moves by not caving into threats by the owner of the Philadelphia 76ers to move the basketball team to Camden, N.J., unless the city builds a new basketball arena. Linneman believes the sports franchises do not generate much revenue for the city except for some taxes and parking fees. (In the case of the 76ers, it is $1.9 million a year.)
Instead, with a smile on his face, he advises Rendell to tell the 76ers owner, Harold Katz, that the city will be working on the bridges across the Delaware to Camden. ``He should tell Katz, `We don't want to make repairs during the day because of rush hours, so I guess there will only be one lane open on the bridges during game nights for a couple of years. This is not a threat, we're just stating a fact since we wouldn't want a lawsuit.' ''