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M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Section Publisher .........................................................Steve Kelley Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant ........................................................ Julie King Associate Publisher ................................................. Alissa Aronson Associate Publisher .............................................. Barbara Holyoke Office Manager .........................................................Joanne Gavaza Guest Columnists ............... Brian Whitmer, Cushman & Wakefield; Scott C. Butler, Kaplin Stewart Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 27 Issue 10 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com
Multifamily Market Momentum Continues in Northern New Jersey Brian Whitmer
M
omentum in Northern New Jersey’s multi- family market contin-
ues unabated, with investors aggressively pursuing opportu- nities, and developers actively launching projects along the Hudson River Gold Coast and west along transit lines. Head- ing into the heart of 2015, we are seeing demand drive up sales volume and values, and push down cap rates to histori- cally low levels. Current investment velocity follows a strong 2014 capital markets performance. Last year, $1.3 billion in multifam- ily sales (including transac- tions of $10 million or more) marked the highest volume since 2007, and compares to $900 million annually in both 2012 and 2013. For context, the market saw only $169 million in annual trades during the depth of the recession in 2009. The “buy” side today is domi- nated by institutional advi- sors, particularly for class A apartment communities. Additionally, we are seeing privately held firms and raised funds making big splashes with value-add and class B product. Northern New Jersey’s active sellers include developers and private owners looking to take advantage of valuations that have appreciated to historically high levels, as well as institu- tions that are cycling assets at the end of their traditionally long-term investment horizons. It is worth noting that six multifamily sale transactions exceeding $100 million closed in 2014, compared to two in 2013 and none in 2012. This indicates that investors are not concerned about making larger commitments in North- ern New Jersey, and that there is depth of liquidity for that value range. Illustrating the diversity of location and asset class of these investments, Ra- chel Gardens, a suburban class B community in Pine Brook, sold to a private investor for $136 million. In Edgewater, St. Moritz, a Gold Coast class A high rise, traded to a joint venture of an operator backed by a pension fund advisor for $120 million. Additionally, multifamily cap rates have dropped consis-
The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
tently in Northern New Jersey. In 2009, cap rates averaged 7.27% – the highest average we have recorded going back to 1998. That number quickly reduced (to 5.77 and 5.09% in 2012 and 2013, respectively) as equity returned to the mar- ket and most investors began focusing exclusively on this sector. In 2014, the average dropped to 4.98%, which was supported by multiple class A sales posting cap rates in the low 4% range, as well as class B sales occurring in the high 4% range Rent growth and stable va- cancy rates continue to fuel this sector’s appeal as an invest- ment target. In fact, according to REIS, the average rent for Northern New Jersey reached $1,618 per month at year end 2014 – the highest in recorded history, up 2.9% from year-end 2013. This climb of slightly below 1% per quarter occurred in the face of relatively signifi- cant construction deliveries, totaling around 650 units per quarter. And while vacancies logically saw a slight uptick with the volume of new sup- ply, from 3.6% at year-end 2013 to 4.1% at year-end 2014, the ongoing increase in rents indicates that there is ample demand to support both exist- ing and new product. NEW SUPPLY: GOLD COAST AND TRANSIT LINES New multifamily product in Northern New Jersey is all about the Gold Coast and train stations. Jersey City is by far the most activity for construc- tion, withmultiple communities gearing up for 2015 launch. Ad- ditionally, construction can be found at almost every NJ Tran- sit rail stop within a 45-minute commute to Manhattan.
We are paying close atten- tion to the area that generally falls between the Garden State Parkway and the Hudson Riv- er, from Bergen County south to Rahway. That stretch of land contains the most activity involving construction starts and site preparation. Much of this ties to downtowns that are gentrifying or traditional industrial neighborhoods that are being repurposed. Towns like Woodbridge, Rahway, Bloomfield, Lyndhurst and Hackensack – markets that have not seen new development for decades – are on the cusp of this emerging dynamic. Fort Lee stands out as a Northern New Jersey town in transition. Four major proj- ects are in various stages of construction, lease-up, and stabilization. Combined, once all phases are complete, they will add 1,700 rental units to this single community. BNE Real Estate Group, SJP Prop- erties and Chetrit Group have completed or are finishing multifamily developments. Each is within walking dis- tance of Tucker Development’s mixed-use Hudson Lights proj- ect. Nearing completion, that transformational development is to include 477 rental units, 175,000 s/f of retail and a 175- room hotel. Developers of recently opened communities are encouraged by their leasing velocity and rents. This trickles down to how intensely they have been bidding on their next develop- ment site. It seems that each successive multifamily invest- ment transaction in our region is more aggressive in terms than the one preceding it. This trend has become most evident as our team has been orches- trating a growing number of continued on page 14A
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