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Multifamily Market Momentum Continues in Northern New Jersey

| April 17, 2015 | 0 Comments

Cushman & Wakefield of New Jersey, Inc.
One Meadowlands Plaza
East Rutherford, New Jersey 07073Brian Witmer of Cushman & Wakefield of New Jesrsey

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Strong Fundamentals Punctuate Unabated Investor Demand, Active Development

By Brian Whitmer, senior director
Cushman & Wakefield’s Metropolitan Area Capital Markets Group
East Rutherford, N.J.

EAST RUTHERFORD, N.J., April 17, 2015 – Momentum in Northern New Jersey’s multifamily market continues unabated, with investors aggressively pursuing opportunities, and developers actively launching projects along the Hudson River Gold Coast and west along transit lines. Heading into the heart of 2015, we are seeing demand drive up sales volume and values, and push down cap rates to historically low levels.

Current investment velocity follows a strong 2014 capital markets performance. Last year, $1.3 billion in multifamily sales (including transactions of $10 million or more) marked the highest volume since 2007, and compares to approximately $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 dominated by institutional advisors, 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 institutions 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 Northern New Jersey, and that there is depth of liquidity for that value range. Illustrating the diversity of location and asset class of these investments, Rachel 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 consistently in Northern New Jersey. In 2009, cap rates averaged 7.27 percent – the highest average we have recorded going back to 1998. That number quickly reduced (to 5.77 and 5.09 percent in 2012 and 2013, respectively) as equity returned to the market and most investors began focusing exclusively on this sector. In 2014, the average dropped to 4.98 percent, which was supported by multiple class A sales posting cap rates in the low 4 percent range, as well as class B sales occurring in the high 4 percent range

Rent growth and stable vacancy rates continue to fuel this sector’s appeal as an investment 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 percent from year-end 2013.

This climb of slightly below 1 percent per quarter occurred in the face of relatively significant construction deliveries, totaling around 650 units per quarter. And while vacancies logically saw a slight uptick with the volume of new supply, from 3.6 percent at year-end 2013 to 4.1 percent at year-end 2014, the ongoing increase in rents indicates that there is ample demand to support both existing 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 construction, with multiple communities gearing up for 2015 launch. Additionally, construction can be found at almost every NJ Transit rail stop within a 45-minute commute to Manhattan.

We are paying close attention to the area that generally falls between the Garden State Parkway and the Hudson River, 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 projects 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 Properties and Chetrit Group have completed or are finishing multifamily developments. Each is within walking distance of Tucker Development’s mixed-use Hudson Lights project. Nearing completion, that transformational development is to include 477 rental units, 175,000 square feet 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 development site. It seems that each successive multifamily investment 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 orchestrating a growing number of land sales. These have ranged from a boutique, infill 55-unit site in a transit-oriented town to large-scale, mixed-use opportunities that involve multiple developers and can accommodate hundreds of apartments. Since capital appears to remain in supply, and interest rates are to stay low and investor sentiment high, we are optimistic that the historically low cap rate environment will continue through the balance of 2015.

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Based in East Rutherford, N.J., Cushman & Wakefield’s Metropolitan Area Capital Markets Group specializes exclusively in investment sales of office, industrial, multifamily, retail and land properties throughout New Jersey, New York State, Fairfield County, Connecticut, Pennsylvania, and Delaware. The team has completed more than $19.6 billion worth of transactions since 2000, closing on $1.2 billion in 2014.

 

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