With a unemployment rate of 3.9 percent, strong demographics, transportation that provides direct access to New York City and a highly skilled workforce, Westchester County is seeing steady investor interest across all major property types.
We have seen significant interest from institutional investors, including pension fund advisors, insurance companies and REITs. This same buyer class has continued to underwrite increased rent growth in the more urban markets of Westchester County — Yonkers, New Rochelle, White Plains — ranging from 2.5 to 4.5 percent depending on occupancy and development pipeline within the local submarkets.
This investor group is targeting yields of 5.5 to 6.5 percent in return on cost metrics and purchasing existing assets for cap rates ranging from 4.4 to 5.3 percent, depending on the age, location and upside of the transaction.
That spread has historically been between 150 and 200 basis points. Given the need to put capital to work, the spread is now closer to 100 basis points, reflecting more aggressive pricing for the market. This trend is evident in the Westchester market with new construction projects in the transportation-oriented towns.
In addition, interest rates have helped keep investors motivated to buy. Low yields have helped to keep pricing at record levels without pushing into unsupportable ranges. We continue to be contacted by regional and national buyers looking at Westchester County as a target market for their capital.
Multifamily, Industrial Lead
Multifamily demand from both private and institutional investors in Westchester County continues to remain strong. In 2019, multiple sale opportunities were met with significant investor interest, which translated into multiple rounds of bidding and record per-unit pricing along with very strong cap rates for these assets.
Fairfield County has experienced significant multifamily construction over the last several years, which has impacted rent growth and had investors conservatively underwriting the market in terms of rent growth and other key pricing metrics.
Multifamily investors are looking beyond that and have seen all the positives that have happened in the market, including better office rents and lower office vacancies, which have a positive impact on the multifamily sector.
In the second half of 2019, JLL was involved in a multifamily sale of more than 300 units, which drew investor interest from both domestic and offshore capital sources. The asset drew multiple rounds of bidding that resulted in pricing north of $300,000 per unit and a cap rate in the low 5s for this older multifamily building.
This strong pricing for an asset this age reflects a very positive long-term investor outlook for Fairfield County. Multiple investors are looking for multifamily product to buy in Fairfield County, as there are limited opportunities and great demographics. Median household income is approaching $150,000 — very desirable from an investor perspective. Combined with the transportation network and access to New York City, this provides a strong investment thesis for capital these days.
Westchester County has also seen a strong uptick in industrial demand. Industrial investors around the country are struggling to find opportunities to buy existing facilities and to build new industrial product near major population centers.
JLL was involved in two industrial sales recently in Westchester, including a multiple asset industrial distribution portfolio that priced at a 4.25 percent cap rate over $150 per square foot. Pricing was a function of the property’s direct access to Manhattan and the lack of available industrial assets to purchase or alternative industrial development sites to consider. In addition, we sold a larger industrial portfolio that had a significant office component.
Office, Retail Hold Strong
Fairfield County is also seeing significant investor demand for both retail and office assets. A recent office transaction attracted capital from around the United States, ultimately, selling to an investor from Boston who underwrote strong future leasing and rent growth at the asset.
Our recent marketing of a grocery-anchored retail center garnered interest from an institutional buyer as well as several private buyers underwriting the asset. The pricing ultimately resulted in a cap rate of 5.5 percent and per-square-foot pricing of over $700, which is very strong for the suburban New York area submarkets.
This deal demonstrates that good retail assets in strong regional markets with attractive demographics like Fairfield County will bring investors to the table at great pricing. Finally, we are seeing solid interest in potential office and retail redevelopments as well.
— By Jose Cruz, senior managing director, JLL. This article first appeared in the November-December issue of Northeast Real Estate Business magazine.