Capital Chat: Q&A with Joseph Orefice of Investors Bank

In this installment of Capital Chat, MHN talks to Joseph Orefice, senior vice president and head of Investors Bank’s Commercial Real Estate lending group.

Capital Chat is a weekly column for Multi-Housing News and Commercial Property Executive in which top industry leaders give exclusive interviews where they share their insights on market trends, investment strategies and more.

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Joseph Orefice of Investors Bank

Joseph Orefice of Investors Bank

“The American dream doesn’t necessarily mean owning a house and paying a mortgage,” according to Joseph Orefice, senior vice president and head of Investors Bank’s Commercial Real Estate lending group, who has seen the effects of transformation of the American dream firsthand. Investors Bank, headquartered in Short Hills, New Jersey, focuses on multifamily, mixed-use retail, office and other commercial lending in the greater New York Metro area. Recently, Investors Bank has been applying its efforts to investing in more urban, formerly industrial areas, where Orefice believes the demand for rentals will only increase as time passes.

What makes industrial or formerly industrial areas an attractive market for you?

On the construction side, we’re certainly seeing a continued rejuvenation of old assets, converting former industrial sites to residential and upgrading neighborhoods—and all of the ancillary stuff that comes with that. We’re seeing that continued trend. We’re seeing a lot of applications for construction deals, especially in places like Brooklyn and Queens.

We did a deal in Queens that was a rehabilitation of an industrial site. We’ve also looked at areas of Brooklyn where buildings have come down—all of those places were industrial places at one point, certainly [the ones] along the water line. I think that’s continuing. The projects are harder to find now, but it’s still very active. Once you do them, you can’t re-do them. As soon as you take them offline and put in apartments, there’s only a finite amount of land, and so many industrial users need those spaces, too, so they can’t readily replace them…It’s all about limited supply of buildable space.

Why invest money in rehabilitating existing buildings? Isn’t there a risk factor?

Usually they’re pretty well received, [because] people like the historical view of them. We’ve seen them throughout Manhattan too; we’ve seen the rejuvenation of [what were] once factory sites. They have a little more style to them than plain, vanilla new construction oftentimes. There’s a lot of brick face and high ceilings and other features you wouldn’t get from new construction.

I think that there’s definitely interest in the buildings. I think that there’s always risk when it comes to construction and rehab and sometimes you have to have a pretty strong engineering group to make sure you don’t have any engineering problems. I think certainly in most areas of the city and the boroughs, this is a pretty great opportunity for people to re-use something that’s been there for a long time.

How do you see these areas changing over the next two to five years?

I think that there will be a continued turnover of industrial and dilapidated housing and it will appeal generally to a demographic that has a little higher income base. You’ll see things like retail coming into industrial areas that were never there before, which goes along with residential and all the services required for apartments. I think many of these spaces will become vibrant living hubs, where people live and work, even—like having a whole city to themselves without ever coming to Manhattan. I think we’re seeing that already, in parts of Brooklyn that weren’t there even five or 10 years ago, and I expect that to continue.

Are you looking at any new markets?

We’re headquartered in Jersey so about half of what we do is on the other side of the Hudson. We’re pretty active in the “six boroughs.” We like to look at Hoboken and Jersey City, but also do all kinds of multifamily construction out there, where we see really the same story, where people prefer to live in a little cheaper but probably bigger apartments  along the transportation hubs out in New Jersey. It comes back to ease of access for where your employment is and New Jersey’s no different.

Are you seeing more people moving to Jersey to get more for their money?

I think we’re certainly seeing that in Hoboken and Jersey City; I think that’s pretty clear. It’s starting to extend a little bit as people are pushing out, but you can see it very clearly in Jersey City. Jersey City in the last 10 years has made tremendous progress in rejuvenating that whole area. And Hoboken is pretty much filled out, so there’s not a whole lot [left ]there to do. Public transportation—the ferry, the train—it’s very simple, very easy to get to. And you get a little more space for the dollar than you do over in New York.

Now we’re seeing real lifestyle improvements in these apartments. Some of them are facilities (mostly in New Jersey, but in New York, too) where there are common rooms, rooftop terraces with grill areas and things like that. The apartments that are being built today oftentimes are catering to that rental lifestyle that’s different than it was 20-30 years ago. There’s a workout facility, there may be some kind of electronic concierge – I’ve seen that. I’ve seen great game rooms, and common area facilities and huge pools (more in New Jersey). People are [paying] higher rents because not only are they getting a nice new apartment, but they’re getting a whole common area that they have access to.

Do you think this pattern is connected to increasing rental rates?

People [like] the flexibility of renting sometimes, and being able to move around if they want to. I don’t know if it will continue indefinitely, but it certainly seems to be picking up steam right now. The way rents are increasing so much, I think at some stage it will reverse itself a little bit. People will …buy a house in New Jersey or in Connecticut or something, or on Long Island. They’ll actually pay less and get a whole house.

It’s an evolution—it’s all about what dollars get pushed in there and where people move to and what the migration looks like. If you look at SoHo or something, that was all industrial 30 years ago. It became artsy, and then it started to get high-end stores and galleries. Slowly but surely, as people moved in and the place became more affluent, next thing you know, you have all kinds of major chain stores and tourist attractions. Things evolve over time, and Brooklyn’s no different. There are specific logistics that will kind of slow it. Certain areas are just too far out. You can’t have the same density, even in East Williamsburg and on the far side, Brownsville and those places. They’re pretty far out, so it’s going to be a very long time before the hipsters get out that way.