20A — August 16 - 29, 2013 — Mid Atlantic Real Estate Journal


M ultifaMily f inancing

By Michael Oliver, HFF Suburban New Jersey: Class B garden apartments in high demand


t’s no secret multi-fam- ily housing has been one of the most dominant property types within the real estate investment com- munity over the past three and a half years and has lead the market recovery. Accord- ing to Real Capital Analytics, since the first quarter of 2010, there have been over 14,303 multi-housing property trades totaling over $230.6 billion nationwide. During this same time period, every quarter has seen a positive year-over-year increase in volume, except the

deal currently on the market seeking similar pricing. Off the waterfront, several Class A, transit oriented apartment complexes have traded in the range of $300,000 to $400,000 per unit. Since the start of 2012, HFF has tracked the sale of 20 garden properties through- out suburban New Jersey constructed prior to 1985 that have sold for over $10 million. Per unit prices range from $55,000 to $232,000 per unit, at an average sale price of $111,000 per unit. In-place

cap rates vary widely from 5% to 7%, dependent on a host of variables, including in- place debt, necessary capital repairs and access to mass transportation. Examples of such transactions include Constantine Village Apart- ments in Summit, which traded for nearly $200,000 per unit in March 2013 at a sub 6% cap rate. Tenby Chase Apartments, located in Delran, NJ, sold for ap- proximately $115,000 per unit in December 2012 represent- ing a cap rate in the mid 6%

range. Pricing for both com- munities would have likely been more aggressive if above market rate debt did not have to be assumed by the buyers. Additionally, Boulevard and Skyline Apartments located in Hasbrouck Heights traded in July of 2012 for $170,000 per unit at a reported low 5% cap rate. Although pricing metrics have varied within this as- set subsector, investment strategies have generally been consistent. Buyers are underwriting significant rent growth at these aging prop- erties after implementing a modest capital program for interior unit renovations. Capital projects are focused on dated kitchens and bath- rooms, with the replacement or repair of counters, cabi- nets, appliances, vanities, fixtures as well as adding in-unit washers and dryers (if possible). Per unit work traditionally ranges from $5,000 to $8,000 and is yield- ing return-on-costs of 20%+. Renovations don’t necessarily include expensive high end finishes such as granite coun- ter tops and stainless steel appliances (although some do). Buyers are upgrading dated units to better compete with the surrounding com- parable properties. We have even seen several sellers go as far as to renovate 10-15% of their units prior to mar- keting their property for sale to prove the value add story (which has been well received by buyers). As we have moved into the second half of the year, we have observed an increase in the number of calls, tours, and bids for properties of this quality and vintage dur- ing our marketing efforts. Coupled with a lack of prod- uct on the market within the region, this increased atten- tion has directly resulted in more aggressive pricing. The buyer pool is a growing mixture of REIT’s, private equity funds and high net worth investors. Even amid the current uncertain interest rate environment, we are see- ing this demand far outpace supply, and anticipate more aggressively priced deals go- ing forward. Michael Oliver is an as- sociate director in HFF’s New Jersey office. n

second quarter of 2013. This included 13 consecutive quar- ters of double digit growth. The New Jersey market has been no different. Investors have flocked to the apartment sector observing steady rent growth, decreasing vacancy rates, and positive economic fundamentals. Sales of newly constructed ClassAproperties are returning to peak market pricing. For example, The Ju- liana inHoboken sold in Janu- ary 2013 at a price in excess of $500,000 per unit, with sev- eral other Hudson Waterfront

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