New Jersey's Multifamily Investment Market: A Barrel Tapped at Both Ends

Statewide, multifamily properties continue their reign as one of the healthiest investments. Low vacancy rates, convenience to mass transit and a high concentration of properties, particularly in Central and Northern New Jersey, continue to feed the appetite of investors who are hungry for virtually any building class.

Thanks to the state’s choice location along the Boston/New York City/Philadelphia/Washington, D.C., corridor, New Jersey has historically been, and continues to be, one of the strongest and most desirable markets for multifamily investments.

From urban walk-up buildings to suburban garden-style apartment complexes, the Garden State boasts some of the best multifamily housing stock in the nation. This is further bolstered by a strong average occupancy rate of more than 95 percent and durable rent growth. Both of these conditions are fueled by the enduring effects of the residential housing crisis as well as people “priced out” of cities like Philadelphia and Manhattan, who are seeking a more affordable living option.

These migratory tenants are flocking to New Jersey’s urban markets in Hudson, Union, Essex and Camden counties, which are undergoing extensive redevelopment efforts. One example is the city of Elizabeth. As one of the largest metropolitan areas in the nation, New Jersey’s fourth largest city is making a comeback. Multifamily trading is steady within this Newark Bay waterfront community, as evidenced by nine recent trades involving more than 240 units. Combined, the transactions totaled almost $13 million. These also included four note sales, arranged on behalf of one of the largest and most prominent New York-based banks, where the new buyers recognized the tremendous value-add potential associated with this city’s revival. Similarly, Union City, Jersey City and East Orange are also experiencing surging levels of investment activity.

With a renewed emphasis on economic development initiatives and creating a live/work/play environment, rent appreciation is on the rise — a very enticing dynamic that appeals to veteran and first-time investors alike.

Nationwide, Reis projects rents will rise from the current average of approximately $1,050 per month to approximately $1,300 per month by 2017. With New Jersey’s improving jobs outlook and proximity to core employment hubs, the state is expected to fare even better as the average renter lifecycle is extended during this same timeframe.

This economic and cultural rebound is stimulating today’s competitive asking prices for apartment buildings as buyers return to core fundamentals.

It is a well-known industry fact that rising rents are palatable to tenants only when there is visible evidence of improvements. As a result, savvy investors are looking beyond bricks and mortar at value-add opportunities, ranging from simple common area refurbishments, such as painting and flooring, to unit upgrades, including kitchens and bathrooms retrofitted with modern appliances and amenities. These investments are wise, particularly at a time when the tenant “flight risk” to homeownership is tempered, for the foreseeable future, by stricter lending guidelines and continued economic uncertainty.

The increase in multifamily sales activity and the number of properties under contract confirm that buyer confidence in multifamily investments is gaining even greater momentum throughout New Jersey, the Northeast and beyond.

In 2012, Gebroe-Hammer’s market specialists recorded 86 deals representing more than 6,000 units sold — a historic benchmark the firm strives to exceed in 2013. This volume and activity exemplify unabated investment demand, prompting more and more long-time owners to monetize their assets. As the only commercial real estate class to weather the Great Recession successfully, multifamily will continue to experience unprecedented demand and garner competitive-to-aggressive pricing.

— Ken Uranowitz, president of Gebroe-Hammer Associates