10A— June 28 - July 11, 2013 — Mid Year Review — Mid Atlantic Real Estate Journal
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NJ M ultifamily
By Thomas McConnell, CCIM, Marcus & Millichap Northern New Jersey apartment market shines as demand spills across the Hudson
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most recent 12-month stretch, thanks to investors that were eager to place capital while interest rates were still at historic lows and before capital gains taxes rose. Last year, the median sales price dropped 5% to $80,500 per unit as investors focused on smaller, older prop- erties in the region that would give them higher yields. Aver- age cap rates declined 20 basis points during the last year to the low-6% range as bidding activity intensified, particu- larly in Bergen County, which accounted for the majority of the drop in cap rates. Looking ahead, I know that some investors have stockpiled their cash over the past few years thinking that they would eventually see fire-sale condi- tions similar to the 1980s RTC pricing. Obviously that hasn’t happened and probably won’t, so many vulture funds have been stuck on the sidelines twiddling their thumbs. Now these buyers are back and ready to target more stabilized assets. Without a doubt, there prob- ably has never been a better time to finance an apartment property purchase, since in- terest rates may never be this low again in our lifetime. This is true for investors looking to expand their portfolios, and also for seasoned investors who are scouring the area look- ing for value-add assets with potential upside. At the same time, some long-term owners will become sellers while cap rates are low in order to place capital into less management intensive properties that are net leased. First-time buyers will con- tinue looking for apartment properties with market-rate rents and low-to-no vacancy. Average cap rates for these properties are in the high-5 to low-6% range, or about 150 ba- sis points higher than similar assets in New York. Investors’ appetite for these properties will remain intense this year, especially as cap rates in other areas compress. With plenty of inexpensive financing and sidelined cash ready to return to the market, Northern New Jersey apart- ment sellers should be able to dictate terms for several more months. Hello Summer! ThomasMcConnell, CCIM, is a Director in Marcus & Millichap’s National Multi Housing Group (NMHG). n
ow that we are fast- approaching the back half of 2013, it’s becom-
well-publicized, and they are actually encouraging some renters to move across the Hudson in search of lower-cost housing options. This trend looks likely to continue for quite some time, and I expect apartment vacancies to remain low this year as job growth out- paces the national average. That’s not a bad scenario if you are an owner, but today there is a great deal of demand for apartment properties, pri- marily due to the improved fundamentals in the busi- ness. Thankfully, the national
economic recovery is still tak- ing hold and the Northern New Jersey economy is expected to see some pretty robust job growth this year. After adding 29,700 jobs in 2012, employers in Northern New Jersey will pump up the payroll volume by adding 47,000 positions in 2013, which is a healthy 2.5% increase. Now, guess what comes with the job growth and increased apartment demand? If you guessed new construction then you are right on the money. De- velopers will deliver 1,800 new multifamily units this year, an
increase over the 1,240 units completed in 2012. Some 2,800 units are under construction, including the 475-unit The Modern apartment towers in Bergen County, which will become the county’s tallest structures when completed. By year end, I expect the ris- ing demand for apartments to help bump up effective rents by 2.8% to $2,005 per month. That’s just a little off the 2012 effective rent growth of 3.2%. In my area of true expertise, the sales market, apartment deal flow across Northern New Jersey jumped 13% during the
ing increas- ingly evident to me that in the Northern New Jersey a p a r tme n t market, now i s a g r e a t time to be a seller.
Thomas McConnell
Why? Because more and more I am noticing what I like to call the “New York effect.” By now the skyrocketing rents in Manhattan have become
Recent closings arranged by Thomas McConnell & Kevin McCrann of Marcus & Millichap’s National Multi Housing Group
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Thomas McConnell, CCIM, Director National Multi Housing Group Office 201-582-1031 • Cell 732-977-7079 thomas.mcconnell@marcusmillichap.com
Kevin McCrann, Director National Multi Housing Group
Office 201-582-1024 • Cell 973-727-9935 kevin.mccrann@marcusmillichap.com
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