By Ken Uranowitz, president, Gebroe-Hammer Associates
When it comes to investment in multifamily properties, as in life, change is constant.
Between evolving tenant demographics and political climates to recessionary economies and a once-in-a-century pandemic, multifamily assets are continuing to prove their centuries-old knack for pivoting in times of change.
Unlike any other commercial asset class, multifamily possesses an unrivaled level of agility rooted in its most-important attribute: People always need a safe place to call home. In good times and turbulent periods, apartment living offers a tremendous level of flexibility based on point-in-time needs.
Ken Uranowitz, Gebroe-Hammer Associates
While past recessionary times may have had red-flag indicators of things to come, nothing prepared us for the rippling effects of COVID-19. This virus tested us in ways never seen before.
Collectively, we found ourselves in uncharted waters due to the sudden and abrupt measures imposed to slow the spread of COVID-19. While these challenges are being addressed, with the passage of time, health and wellbeing remain paramount.
In this regard, multifamily properties have played an integral role in providing tenants and communities with the most basic needs of shelter, a place to live and a place from which to telecommute for work or education.
A Firm Footing
In the wake of this global health crisis, multifamily assets remain on firm footing.
In general, all arrows point to 2021 as a year of strong occupancies and positive rent gains in Northern New Jersey and beyond, both of which cast multifamily investments in a very favorable light. Solid fundamentals and population demographics ensure that these assets are poised for considerable rent and property value appreciation over the long term.
By 2022, the sector is expected to be back at full throttle. We don’t know if we’ll see a return to pre-pandemic levels that were characterized by one of the longest and most aggressive apartment investment cycles in history, but the stage is set for growth in multifamily acquisitions. In addition to an expected and extended low-interest-rate environment, it is anticipated that Fannie Mae and Freddie Mac will deploy abundant capital.
The foundation for multifamily’s rebound is rooted in several factors. First and foremost, investor demand has held throughout the COVID-19 economy compared with previous recessions.
While private investors and financial institutions alike may have waited for some clarity at the onset and height of the pandemic in 2020, certain economies — Northern and Central Jersey for example — continued to outperform other metros nationwide. The result? Pricing remained stable and deal velocity ramped up with little to no effect on cap rates. Greater clarity yields heightened confidence and results in stronger closing activity.
Occupancy rates and asking/effective rents also are in the early bounceback phase, specifically in the Northern to Southern New Jersey/Greater Philadelphia area. In this heavily populated, property-dense region, suburban multifamily product became a haven for former big-city dwellers seeking more square footage, greater affordability and access to outdoor activities.
These in-place conditions mirror the recovery model established in the aftermath of the Great Recession and every other downturn before that. As in past recessionary periods, multifamily assets have had limited exposure in the COVID economy, offering greater clarity that typically yields even more closing activity. In fact, 2021 already has promising sales numbers on the books.
In the first quarter of this year, Gebroe-Hammer Associates closed 29 transactions throughout one of the most active stretches of the Northeast corridor. Across the New Jersey, New York State and Southern New Jersey/Philadelphia areas, these trades involved 4,041 units totaling $490 million in sales.
Much like we saw around this time last year, this latest cycle marked a “carryover” of investment confidence from the prior year, albeit renewed. While multifamily investment sales were gaining velocity in the fourth quarter of 2020, December was rather impressive across several of the Northeast MSAs.
Fluid needs from multifamily investor clients resulted in 12 deals totaling $173 million for Gebroe-Hammer in December alone. These included the $58 million sale of a 144-unit multifamily portfolio along New Jersey’s Gold Coast in Hudson County; 175 apartment units sold for $18 million in the Southern New Jersey/Greater Philadelphia area and the $17 million sale of a nine-property, 133-unit portfolio in Northern New Jersey’s Passaic County.
Commute Times Matter
Across the markets in which we are active, positive stabilization of occupancy rates and investment activity have been concentrated in submarkets with short to moderate commute times to major cities. Flexible work schedules and telecommuting have prompted tenants to cast wider nets geographically, thus feeding the tenant pipeline.
The boundary for what was once considered a maximum commute time/distance from one’s workplace has been blurred. Will this phenomenon remain as companies reopen their city-based operations? The only answer is to wait and see.
Regardless, the multifamily tenant pipeline is expected to remain robust. Among those leading the tenant charge are Gen Zers who are gradually returning to their urban apartments in a phenomenon termed “unbundling.”
Appropriately known as “zoomers” — named long before the videoconferencing platform became a household term — this post-millennial demographic cohort staged a mass exodus at the onset of the pandemic to temporarily move back home with their parents. In anticipation of the “new normal” fed by the mass vaccine rollout, Gen Zers are now making their way back to major metros and suburban cities. They are following in the footsteps of millennials, their walkable-urban lifestyle predecessors
Historic, challenging, complex, unprecedented — while these terms most certainly define the economic and societal variables of the pandemic, multifamily investments can be summed up by one word: dependable. As such, newly developed properties — many of which broke ground or were in progress pre-pandemic — are coming on line, and value-add assets and workforce housing are at the top of investor checklists.
As a result, the wide delta between multifamily investment demand and for-sale product availability remains prevalent, much like early last year. Projections indicate that 2022 will mark a return to pre-pandemic multifamily fundamentals, notwithstanding the uncertainties surrounding future tax legislation and/or interest rates. The more things change, the more they remain the same.
— This article originally appeared in the March/April issue of Northeast Real Estate Business magazine.