American films from the 1950s position main streets as the social and economic hearts of small towns. As young professionals and empty nesters move to urban centers and discover that the dream of a roomy apartment and walkable amenities is out of their price range, many are returning to suburban town centers in search of lower rents.
Developers have capitalized on the opportunity, building and renovating multifamily properties along main streets, which in turn has created modern hubs of walkable, urban living.
It is a trifecta of potential, where residents want to rent, developers want to build and towns want to rebrand, Marcus & Millichap broker Daniel Aviles said.
Bergen and Passaic counties, Aviles’ primary focus, have traditionally been seen as bastions of suburban living. In Bergen, 6,922 single-family homes sold in Q2 at a median sales price of $475K, a year-over-year increase of 3.3%. But multifamily demand is starting to outpace single family. Effective rents for multifamily units in Northern New Jersey were $1,840, a year-over-year increase of 4.2%.
More urban areas like Hackensack, Paterson and Passaic have a large inventory of postwar apartments and midcentury mid-rises, Aviles said. The market has grown as development booms along main street districts. According to a Marcus & Millichap report, 9,500 units are slated for completion, up from 5,683 units added last year. Vacancies have risen 4.5% following the supply increase.
Compared to apartment shopping in major submarkets like Manhattan, these communities across the Hudson River offer larger space, access to luxury amenities and proximity to the city from nearby highways and public transportation, Aviles said. Whereas $2K might land a renter a 500 SF studio in New York City — if they are lucky — prospective tenants can almost double the square footage in New Jersey for the same price.
Lower construction costs have helped make this possible.
“In Manhattan or Brooklyn, it’s costing developers almost three times as much to build per square foot as it does to in New Jersey,” Aviles said. “Developers are looking for a place to put their dollars, and N.J. renters are looking for a place to rent, so demand is there.”
As the populations in these towns rise, local governments turn to developers to build retail spaces along main streets. Rather than traveling out of town for groceries or entertainment, residents can park their cars and walk down the block, Aviles said. The New Jersey Economic Development Authority offers incentives through its Real Estate Impact Fund to repurpose mixed-use properties in targeted urban areas.
Old offices along main streets can become loft apartments while the ground floor is repurposed into restaurants and stores. Hackensack’s main street district went through the approval process in January for four projects that will total 456 residential units and 11K SF of retail. Redevelopment of the area kicked off in 2015 when Capodagli started construction on its Meridia Metro apartments.
“You might see people out getting a cup of coffee, walking the street, pushing a baby carriage,” Aviles said. “That is a huge plus for people who want that city experience, but want that neighborhood feel.”
The re-energizing of New Jersey multifamily and the renaissance of town centers has piqued the interest of investors. Multifamily sales activity increased 8% over the last year, with the greatest volume coming out of Hudson and Essex counties. The average unit went for $151K. Competition has pushed some mom-and-pop investors out of the market, Aviles said.
Aviles has had several clients complete 1031 exchanges for multifamily properties in Florida or Pennsylvania. In these markets, investors can increase their portfolio size without breaking the bank. They can also increase their cash flow.
"You can sell a multifamily property in Bergen or Passaic County between a 5% to 6% cap [rate] and buy at a 7% or 8% cap," Aviles said. "So you are able to capitalize on the current height of the market while deferring your capital gains tax."
According to Aviles, price increases in the Greater New York Metropolitan area can always be traced back to the Big Apple.
“Hudson County is essentially the sixth borough. So what does that make Bergen or Passaic?" he asked. "These are just extensions of the main point that is driving this pricing, and that is Manhattan.”
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