Today's residential market is unlike any of New Jersey's past recoveries. (Except when Bruce put the E Street Band back together.) The pool of renters is not only the young professionals of yore, but a multi-generational group moving activity back east and toward the city. As long as NYC prices keep their upward climb, expect Garden State multifamily to remain hot.
Last year, the prediction was that if interest rates stayed low and job growth continued in NYC, New Jersey would reap the benefits. Well, last week, panelists at Bisnow's 3rd annual New Jersey Multifamily Summit at the Newark Club said the NYC tide is continuing to rise, with the cost of living becoming more unaffordable, pushing everyone—from professionals and single parents to divorcees and empty nesters—to seek out highly amenitized, transit-accessible rental options for less.
KRE Group president Jonathan Kushner told CohnReznick partner Sharon Gordon, who moderated, that even though these renters are making less, they want the same amenities as people who live five miles away in NYC. That trend is not just hot in New Jersey, but surrounding areas too—in Bethlehem, PA, KRE is building townhomes, single-family, carriage houses and rentals with 155k SF of retail all in one community, and panelists noted similar projects in Westchester and Long Island.
And multifamily assets don't have to be modern to sell. HFF just sold a '70s asset in Central Jersey that went for $35M; senior managing director Jose Cruz (above) says there were three rounds of bidding, and it ended at a 5.25% cap. It needed $3M to $4M of immediate work (roofs, parking lot); he says when that's factored in, it went for closer to 5%. "That's aggressive for that age product and location." This year saw a bigger push for B and B-plus assets that new owners could renovate and drive value—a market bellwether—he says.
The panelists say a big residential opportunity lies in converting office and retail to residential. (Sometimes after a day at Target, we curl up in the linens section and take a nap... so we're not far off.) Part of what's driving this: municipalities' office ratables diving because office vacancy is so high, says Minno & Wasko Architects and Planners principal Dave Minno (above), who has such projects in the works in Weehawken and Westchester. Now these municipalities are more open to establishing multifamily as a tax-ratable alternative. "The approvals are going through much faster than I've anticipated on the conversion of these properties," he says, particularly because they're not increasing school-age children or traffic.
Mill Creek Residential Trust senior managing director Russell Tepper. The panelists say that multifamily is the one sector where you can really push rents because of the influx of renters by choice, particularly in transit-oriented, vibrant areas with easy access to NYC (think South Orange, Hoboken and Morristown). They're rare investment opportunities, the panelists say, so expect price compression in the coming year. You won't see as much pricing power in office, because many tenants chose their space based on cost—and if you raise rents, they'll leave.
But the hot market doesn't mean investors are doling out cash willy-nilly. JP Morgan Investment Management VP Drew DeWitt says says that they are reining back on multifamily investment, concerned with the amount of supply coming online. "We'd like to see those projects delivered, so we'll be more selective with multifamily opportunities in 2015 and beyond."
