Editor’s Note: This story was originally prepared for our content partner, GlobeSt.com.
JERSEY CITY, NJ—(SBN)—Developer Eric Margules is optimistic about the overall economy’s impact on commercial real estate development in Jersey City, but he also warns that the high cost of liquor licenses is stunting the broader development of a range of smaller pubs and taverns that could attract more Millennial renters to the Hudson County city.
“Real estate developers have to be optimistic,” Margules told StateBroadcastNews.com in a wide-ranging interview. “We are under market on most of our properties so we have a lot of room for growth. As far as the economy is concerned, I still see it as strong. All the growth is on the West Side and that’s right next to New Jersey.”
Margules Properties currently has 14 buildings in Jersey City, near Journal Square, and the proximity of those buildings to the Journal Square PATH station makes them attractive to young renters, he says.
“More and more, people are making the decision, rather than go to Brooklyn, they’ll go to Jersey City,” he says. What’s keeping the city from reaching what Margules calls “a tipping point,” is the difficulty getting liquor licenses. “I have a lot of buildings in the East Village and Lower East Side of Manhattan, and those areas, when they were first emerging neighborhoods, you’d have a vacant 500 foot store, you’d have a kid go in and build a plywood bar, paint it red, paint the walls blue and green, put in a lighting system and a sound system, get a liquor license and open up, and the whole thing would cost $40,000. In Jersey City, that same space would cost $30 to $40,000 to fix up, but then a liquor license is $250,000. It just makes it prohibitively expensive.”
More affordable liquor licenses would lead to a dramatic increase in the number of bars and restaurants opening in Jersey City, Margules says. “All the vacant stores would be filled, and apartments would be more desirable. The area would see a major renaissance,” he says.”
A pending pilot project in Hackensack to provide limited liquor sales permits to transit-oriented developments is still awaiting legislative approval and the governor’s signature, and its approval is not likely before the November elections. Margules says larger, higher priced new developments in Jersey City have an economic advantage in getting liquor licenses.
“For the people who have smaller buildings, for the people who want to open up a smaller store, they can’t afford it,” he says.
You can hear our interview with Margules in the audio player below.
Margules didn’t start out to develop real estate. He earned an MBA in Real Estate and Finance from the Wharton School and planned on an investment banking career but experienced his first layoff from Merrill Lynch.
“Being unemployed — as everybody knows — is humiliating and frustrating,” Margules says. “I tell people that, for 10 years, I was either unemployed or under employed.”
Margules says he turned his attention to real estate when his steady paycheck evaporated. Virtually broke, he started the firm in 1992 with a $30,000 investment from his father that helped cover the down payment on a walk-up apartment building with stores on the ground level on 26th Street and 8th Avenue in Manhattan.
His father’s investment helped Margules bring in several more investors and raise $475,000.
“I was not at the end of the tunnel, but I saw the light at the end of it probably in 1996,” Margules said. “The rubber started hitting the road in 1997 and it really turned things around for me.”
Now based from a Park Avenue location in Manhattan, his company’s portfolio includes more than 70 buildings stretched across Manhattan, Queens, Brooklyn, Long Island, and Miami Beach. In 2010, Jersey City caught Margules’ attention.
“In Jersey City you really can make some sense out of it. You don’t have to work the building for ten years in order to break even,” says Margules, who now owns and manages more than one million square feet of development rights in the Journal Square section of Jersey City.
“To us, it’s like New York City in the 90s, it really is,” he says. “When I was buying in New York in the 90s, I feel like I was really the only person in Manhattan that knew it was a good time to buy. It was hard to get financing (from banks), it was tough to get investments.”
Margules started in Jersey City with a “really special building” just two blocks from the PATH hub at Journal Square. The property had 30 residential units and eight stores at its base.
“The seller had owned the building for 30 years and his idea of a renovation was if the floor was scratched up, he would roll linoleum over it,” he says. “There are still a lot of long-time owners who have not paid a lot of attention (to their properties). We work with tenants when we get the rents up and it’s hard to do that any place else.”
More recently, Margules Properties purchased five mixed-use buildings in Jersey City and announced plans to upgrade the buildings. Two of the buildings form a triangle bound by Montgomery Avenue, Orchard Street and Jordan Avenue, in the McGinley Square section of Jersey City. They include a gut-renovated, five-story walk-up building at 52 Orchard Street, with 12 apartments and three stores and 685 Montgomery Avenue, a three-story mixed-use building with three stores and five apartments.
The other buildings include: 70 Tonnele Avenue, a 17-unit apartment building; 142 Monticello Ave., a corner three-story townhouse building with 2,500 square feet of retail space on the first floor and two, two-bedroom units on the two upper floors and 2175 JFK Boulevard, a one-story vacant commercial building. Last year he acquired 2800 JFK Boulevard.
Margules advises young real estate professionals to take a long view of the industry.
“Real estate is a long-term investment,” Margules says. “It’s going to take you ten years to where you are making a living. When I was unemployed or underemployed, I had all these friends from business school who were making hefty incomes and doing so well. I didn’t have any of that, but now I feel like I’m in a much better position than they are. They’re still working for a boss, they don’t necessarily like their jobs. I am my own boss. I make my own hours.”