Brian Whitmer, Cushman & Wakefield
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 cap rates down 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.
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. In 2014, the average dropped to 4.98 percent. 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 occurred in the face of relatively significant construction deliveries, totaling around 650 units per quarter. 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 has by far the most activity for construction, with multiple communities gearing up for 2015 launch. Additionally, construction can be found at almost every New Jersey 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 — which 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.
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. And it seems that each successive multifamily investment transaction in our region is more aggressive in terms than the one preceding it.
— By Brian Whitmer, Senior Director, Cushman & Wakefield’s Metropolitan Area Capital Markets Group. This article first appeared in the March/April 2015 issue of Northeast Real Estate Business magazine.