Panelists Envision Continued Strong Growth For Orange County Commercial Markets
John Jordan | September 2019
MIDDLETOWN—The Orange County Partnership recently presented one of the most informative and frank discussions on the commercial real estate market in memory.
Part of the Orange County Partnership’s 2019 Commercial Real Estate Summit held at the Orange County Fair Speedway in Middletown on June 19, the panel, moderated by Joe Deegan, managing director, SVN Deegan-Collins of Kingston, featured commercial real estate brokers, developers, lenders and investors who offered their insights into local, regional and national real estate and economic trends.
The panelists were: Elisabeth Mansfield, president of Mansfield Commercial Real Estate of Goshen; Michael Gilfeather, president and CEO of Orange Bank & Trust, Gary Hans, vice president of acquisitions and finance with Matrix Development of Monroe Township, NJ and Paul Wiley of Valuation Consultants, Inc. of Newburgh.
All panelists believe the commercial real estate market will continue to remain strong, at least in the short term. Wiley and Gilfeather said that based on market fundamentals, they believe the strong commercial markets are in the seventh inning stretch of a nine-inning baseball game. Others put the market in the fifth inning, while another contended that the county’s commercial real estate boon could go extra innings.
Mansfield pointed to some troubling economic signs, including recent reports from economists of a global slowdown and slower manufacturing growth. The Trump Administration’s stand on the trade deficit which she characterized as the “on-again, off-again” approach of imposing tariffs, has not fostered the intended stronger economic activity. While hopeful that a more “sane approach will prevail” on the tariff front, Mansfield expressed optimism that the commercial real estate market will remain strong.
She noted that although the country is enjoying the longest post recovery on record, consumer spending, which accounts for two-thirds of the economic activity in the U.S., is still relatively strong. Therefore, she predicted, “I think we will get to enjoy the ride a bit longer.”
Wiley noted that he does not see any reason why the current “steady and strong” commercial real estate market can’t continue and does not see any market collapse anytime soon.
Matrix’s Hans was bullish on the industrial-warehouse segment and noted the significant amount of activity the firm has undertaken with Amazon and other e-commerce providers of late.
Mansfield focused on Orange County’s industrial market and noted that it is still in the expansion mode with vacancy rates declining and a good amount of new product hitting the market soon or in the pipeline.
In Montgomery, Medline is proposing a new warehouse-distribution facility of 1.3 million square feet, while a major user, believed to be Amazon, is proposing a more than 1 million square-foot complex. Both projects are before the Town of Montgomery for approvals at press time.
Due to e-commerce demand, she expects market conditions to remain favorable in Orange County for industrial real estate investment. “E-commerce has created demand from both users and investors, and we are currently struggling to meet that demand, but changes are happening,” she said.
Mansfield noted that since 2000, approximately 7.4 million square feet of industrial space has been built in Orange County. “Over the next four years (2019-2022) there is 7.8 million square feet under construction, getting approvals or planned to be constructed,” she said. At the end of 2018, the industrial vacancy rate in Orange County was just 1.2%.
Approximately 60% of that nearly 8 million square feet of new construction will be build-to-suit, while the other 40% could be built as speculative space. Two active Orange County developers—Matrix and Frassetto Companies—will commence new projects this year. Matrix is set to build a 240,000-square-foot project, while Frassetto is scheduled to break ground on a 70,000-square-foot flex building this year as well.
Mansfield noted that one-third of the pending industrial development projects in Orange County are from “unproven players” that have come into the market and gone to contract on properties and commenced securing municipal approvals. However, she wonders just how committed these new players are and suspects that most will either hope to land a user or look to flip their approved sites to another investor once they have secured the necessary governmental approvals.
The chief headwind for Orange County going forward may not be the economy or Trump tariffs, but rather a lack of product to offer industrial firms that are looking to grow their operations here.
Mansfield related that there is also a bit of a disconnect between landlords and tenants. “The cost of construction has gone up, and with the dearth of supply, prices have risen and I always find there is a period of resistance on the part of tenants and buyers—holding out for that really good deal,” she said. “And there aren’t any. For some that is a tough pill to swallow…”
Orange Bank & Trust’s Gilfeather said that he sees investor interest in warehouse distribution space as the strongest commercial real estate sector at the moment. For any new office project, the owners would have to have at least 50% of the building leased before a lender would even consider financing the venture, he noted.
The office market in Orange County is not seeing as much demand as the industrial segment. At present, there is approximately 550,000 square feet of available Class A space in Orange County, of which 25% of the available space is located on Crystal Run Road in the Town of Wallkill.
Mansfield noted that while some older and outdated office product in Orange County requires capital investment to become attractive to tenants, the office market in the county could be elevated in the years to come by Bronx, NY-developer Simone Development, which has acquired sites on the grounds of New York Stewart International Airport.
The firm plans to begin construction on a 75,000-square-foot office/medical building and later on another 60,000-square-foot project. Simone Development’s plans at the airport include a new hotel and some industrial development as well.