Real Estate Journal — 2016 Forecast — January 15 - 28, 2016 — 19A
www.marejournal.com
M id A tlantic
2016 F orecast
By Jose Cruz, HFF 2015 New Jersey Third Quarter Review and Year-End Outlook
T
ther maturation of the multi- housing cycle in the state. Multiple sites in Edgewater, Peapack-Gladstone and Jersey City are in the market and will be trading shortly. This could result in further new construc- tion and, as a result, is being watched closely. The suburban condo market continues to be soft in most areas outside of the Hudson Waterfront. Underwriting standards have remained steady, though still aggressive, during the past year. More than ever, buyers are looking to add value in any way possible, including
expense reduction, amenity fee increases and renovation programs. Typical renovation programs include upgrading cabinets, new flooring, better lighting and nicer counter- tops. Per-unit work amounts vary from $4,000 to more than $15,000 depending on the ex- tent of the renovations; this work is yielding returns on costs of +/- 20 percent. In addi- tion to unit renovation, owners are adding more common area amenities (coffee/internet bars, California outdoor kitchens, firepits, dog parks, etc.). In- vestors have considered reno-
vating floor plans of existing product in more urban areas to adapt for more two- and three-bedroom units suitable for families due to the lifestyle trend of renters staying in ur- ban neighborhoods longer into their late 30’s and early 40’s while raising children. Keep your eyes on the year- end rush, which is now well underway. An abundance of capital on both the debt and equity side, potential in- creases in interest rates, and the general demand for hard assets versus stocks and bonds continued on page 22A
hrough third quarter there continued to be increased demand for
A+ product are pricing in the 4’s on a going-in cap rate basis in the more urban markets in New Jersey, and in the 5’s further inland for compa- rable product. These rates have remained steady in the state during the last 12 to 18 months and are not predicted to dip any further despite the strong demand as other asset classes offer better yields to investors, but lower future growth. A number of for-sale resi- dential land parcels are now being marketed, signaling that the industry is entering a fur-
multi-hous- ing product throughout t h e N e w Jersey mar- ketplace and pr i c ing re - ma i n e d a t record levels wi t h s ome
Jose Cruz
new high watermarks being set on a per-unit basis. The investment activity focus this year continues to be driven by the future growth of rents given limited new construction in the suburban markets and the year-long leases, which al- lowed for rent increases in an expanding economy. Institutional investors are expanding their core target markets within the state as their original investment lists are unable to generate enough deals to meet their investment allocations. In turn, select sec- ondary locations are beginning to generate more interest. Additionally, Class B product with renovation potential is now being requested by se- lect institutional investors as yields continue to get tighter on class A product. Through third quarter 2015, New Jersey multi-housing sales volume totaled more than $953 million of multi- housing assets trading in the state according to Real Capital Analytics. A signifi- cant amount of multi-housing property is on the market and when combined with new product being marketed for year-end closings, the volume of multi-housing sales in New Jersey could rival the 2014 total reported by RCA of $1.9 billion. New construction is start- ing in non-primary markets throughout the state including Sayreville, Mt. Arlington and Edison to name a few. Lease- up of these new deliveries range from 35 to 68 units per month, reflecting the demand from tenants for Class A prod- uct. At this point in the cycle, there is a significant amount of new rental construction spe- cifically on the waterfront, but not enough to derail the train as the lease-up. As a percent- age of the overall inventory, the amount of multi-housing under construction is below four percent. Yields for well-located Class
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