Mid Atlantic Real Estate Journal — 2013 Forecast — January 11 - 24, 2013 — 5C
www.marejournal.com
2013 F orecast
By Thomas McConnell, CCIM, Marcus & Millichap Demand is high for multifamily properties
T
hough I’ve been in real estate since the 1990s, I can’t remember when
right now. For example, class A bank branches’ investment status could be rocked by the advent of deposits via smart- phone snapshot. Brick and mortar stores are already suf- fering from tablet downloads, not to mention overnight hard copy delivery. It seems like the category of “category-killer” big box stores has, itself, been killed. Business landscapes do change. Once upon a time we left our homes to rent VHS tapes, in locations that now host only empty storefronts. By comparison, multifamily is looking like a progressively
safer bet. As long as the population is growing, though, the need for housing will grow right along with it. In 2012 alone, New Jer- sey saw the construction of 2,500 new rental units, up from 493 the previous year. So I’m bullish on the multifamily sector, but with a couple of caveats. The first is overbuilding, something we’ll need to watch carefully over the next few years as older garden complexes make improvements to compete with new product— whose owners, in turn, will have to be careful not to price their potential tenants back into the
home buying pool. This brings us to the eternal rent-vs.-own tug-of-war. Many folks, especially younger ones, can afford a home but have been burned in the past, or know someone who has. Imagine buy- ing a house in 2006, then sud- denly getting transferred to an out-of-state position. It’s a good bet that such a property might still be underwater today. In a fast-moving economy when anyone can get relocated any- time and anywhere, what used to be a simple math problem is now a charged emotional issue replete with a ball-and-chain
for potential owners. Prospective home buyers remember traumas for a long time, which is part of the rea- son multifamily assets are currently in such high demand on the investor side. But it’s important to remember that a long time doesn’t necessarily mean forever. As Mark Twain once said, history doesn’t nec- essarily repeat itself, but it rhymes. Thomas McConnell, CCIM serves as associate director of Marcus & Millichap’s Na- tional Multi Housing Group (NMHG). n
a particular property type was i n de - mand theway multifamily is today. I’m not exagger- ating when I say that ev- ery day, my
Thomas McConnell
phone rings with more prospec- tive multifamily buyers. These callers might be anyone, from long-term owners and private syndicates to high net worth individuals or, for all I know, my mail carrier. Since I make it a point to keep a solid book of business, I usually have several deals on hand to offer. Unfortunately for my callers, though, asking prices are often higher than they expect. Today’s market is a seller’s one with demand far outstripping supply, a trend I believe will continue into 2013. Savvy buyers are starting to understand that to win a mul- tifamily deal, they have to dig deep. They’re not calling me to review eight-caps in Bergen County anymore. Not to put too fine a point on it, but apartment vacancies here have been under 3.5 percent for over a year now, and asking and effective rents were both at record highs in the third quarter. Even with new completions up to 217 (up from zero for two years run- ning), investors still face stiff competition. Markets like ours tend to be undersupplied because most multifamily owners purchase for the long term, choosing to hold rather than sell. With sup- ply so tight, it’s no surprise that this is a great time to be a seller. Of course I’m biased, but on the other hand, when were interest rates last at three percent? The current debt service environ- ment is pushing prices to arti- ficially high levels, particularly in the multifamily sector. One day, interest rates are at 3.5 percent and an asset commands a price of $10 million; the next, rates are up to 6 percent, with the price plunging to less than $8 million. Many of us fondly recall when a 6% interest rate was a gift to be treasured. Ah, memories. Rates aside, multifamily in- vestments are poised to stay in demand for a while. Other cat- egories seem to be experiencing a little technological turbulence
Recent closings arranged by Thomas McConnell & Kevin McCrann of Marcus & Millichap National Multi Housing Group
Experience the Difference — Profit from the Results
Hackensack, NJ — 45 Units
Mahwah, NJ — 75 Units
Hackensack, NJ — Multifamily Land Development
Rochelle Park, NJ — 126 Units
Thomas McConnell, CCIM, Associate Director National Multi Housing Group Office 201-582-1031 • Cell 732-977-7079 thomas.mcconnell@marcusmillichap.com
Kevin McCrann, Associate Director National Multi Housing Group Office 201-582-1024 • Cell 973-727-9935 kevin.mccrann@marcusmillichap.com
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