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New Jersey’s Post-Suburban Economy Feeds Statewide Multifamily Investment

With city-like, apartment-rental living back in vogue, New Jersey — from its urban centers to its suburban bedroom communities — is transitioning to more walkable, transit-focused neighborhoods. From Northern, Central and Southern Jersey’s green, well-manicured garden-apartment courtyards to the sleek Class A high-rises peppering Hudson County’s Gold Coast, multifamily living and investment are catalysts for sustained statewide economic and population growth.

The groundwork for this trend — and the ensuing surge in construction expected to peak this year — was established a few years back with the emergence of a state-incentivized transit village designation program. While this movement started in 1999 as a means to revitalize transit-friendly communities through mixed-use development, municipal leaders have only begun to embrace and leverage this type of development and private investment long associated with urban centers.

Ken Uranowitz, Gebroe-Hammer Associates

Ken Uranowitz, Gebroe-Hammer Associates

Today, New Jersey has 32 state-­designated transit villages and a multitude of emerging transit centers. Early designees include Pleasantville (Atlantic County), Journal Square/Jersey City, Morristown, South Amboy, South Orange, Rahway, Cranford and Matawan. Most recently, they have been joined by relative newcomers like East Orange, Summit, Plainfield, Irvington, Park Ridge and Hackensack as well as budding hubs such as Harrison.

One example of how multifamily investment is leveraging a transit-rich locale is Essex County’s East Orange, whose greatest asset is its map position. Located at the intersection of the Garden State Parkway and Interstate 280, linking to I-80 and I-95, “The Crossroads of New Jersey” offers immediate proximity to a vast regional and federal highway infrastructure and mass transit hubs connecting to Manhattan and the entire Northeast Corridor.

During the past several years, East Orange has become a multifamily hotbed for investors seeking value-add opportunities primed for repositioning. As a result, the city has gained tremendous traction in transforming from an urban bedroom community in decline to a leading Millennial/Generation Y residential hotspot.

In 2016 alone, Gebroe-Hammer Associates closed $133.02 million in sales totaling 1,656 units citywide. East Orange’s very high population density, coupled with a renter-household percentage exceeding that of the state average, is the pipeline for even greater multifamily investment and an expanded tenant base for years to come.

The resiliency of multifamily in the Garden State is rooted in today’s prime renter age-group cohort — 20 to 34 — which is not expected to peak until 2024. Even as college-educated Millennials move toward family formation, their in-place influence is expected to extend beyond their housing and neighborhood choices of today to have an even greater influence on schools and healthcare tomorrow. This will only add to the state’s transformation from its formerly entrenched suburban, single-family-home glory days.

Over the course of the past three years, the housing-stock landscape has been dominated by fever-pitch construction activity not seen in New Jersey since 1999. Although this pace is expected to slow by year-end, demand for luxury units is at an all-time high and coincides with healthy employment numbers and a nine-year high when it comes to confidence in the economy. Similarly, occupancies at existing well-located and updated Class B/B+ properties are unaffected by the introduction of newly constructed high-end speculative product.

While development slows, annual rent gains will continue to be solid and moderate on the plus-side, as will occupancies. Consequently, Real Capital Analytics reports property values will remain about 50 percent higher than their pre-recession peaks, feeding the disconnect between available for-sale product and voracious investor demand.

The only potential spoiler is The Fed’s intent to stabilize the 10-year Treasury rate with an interest-rate hike. All eyes are on the Fed’s quarterly meetings with speculation as to what effect, if any, one or more interest rate hikes may have on multifamily’s continued uptick. The looming question is: how many increases are there in the offing?

Regardless of this wait-and-see approach, New Jersey’s average rents and values are not expected to swing at all to the left. Prospective homebuyers also will not abandon apartment living anytime soon, especially when North Jersey’s average asking rents are $1,825 per month, with a wide range of options available based on the submarket’s diverse income base. In comparison, the average home price for the region is $457,077, of which 20 percent or $91,415 would be required for a down payment along with a qualifying credit score. Not only is this prohibitive, it also is undesirable among Millennials who shun their parents’ American dream of homeownership.

New Jersey’s apartment sector has enjoyed — and will continue to experience — a good run well into next year and beyond. Price adjustments will ensue in the wake of The Fed’s actions, but not to the detriment of multifamily investments as a whole.

— By Ken Uranowitz, President, Gebroe-Hammer Associates. This article first appeared in the March/April 2017 issue of Northeast Real Estate Business magazine.

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