NJ MULTI-FAMILY MARKET REMAINS STRONG AND VIABLE

Occupancy Rates Continue to Fall as Rents and Appreciation Values Rise

By Jose Cruz, Executive Director
Cushman & Wakefield’s Metropolitan Area Capital Markets Group
East Rutherford, N.J.

The strength of New Jersey’s multi-family rental market remains healthy. During 2007, the state’s rental inventory ended with an impressive occupancy rate of 96 percent, which improved by a full percentage point during the first three months of 2008. In addition, multi-family investment sales were up 60 percent in 2007 over the previous year.

This occupancy trend is expected to remain constant as steady demand meets with a fairly static supply. The current mortgage crisis, and the resulting uncertainty about housing prices, has pushed an increasing number of people into rentals. The result – rental rates continue to rise, and occupancy rates are increasing as well.

Currently, New Jersey’s apartment inventory consists of approximately 1,700 properties comprised of nearly 375,000 units (excluding senior and low-income subsidized housing). The average rent in Northern New Jersey during the first quarter of 2008 was $1,453 per month, which was 24 percent higher than the average for Central New Jersey.

Meanwhile, Manhattan’s current economic environment continues to have a positive impact on Northern and Central New Jersey multi-family properties, as renters who are unable to afford New York City are drawn to properties across the Hudson, especially in the waterfront markets such as Jersey City, Weehawken, Hoboken and Edgewater, where lower rents fetch more livable space. The highest concentrations of multi-family properties are mostly located within the densely populated northeastern counties of Bergen, Essex and Hudson that either support an area employment center or serve as bedroom communities for Manhattan commuters.

INVESTMENT SALES ACTIVITY

Investment sales activity for multi-family rental product in New Jersey more than doubled last year and continues to outpace commercial and industrial product in terms of demand in 2008. Both cap rates and the average price per unit have remained stable since 2005, hovering around 6.0% and $130,000 per unit on average.

Although sales activity slowed during the first half of 2008, there were some significant sales transactions worth noting during the first three months of 2008. For example, ING Clarion acquired 1000 Jefferson Street in Hoboken, a 217-unit luxury residential community built in 2007, from Tarragon Corporation. This sale set the record in the state for the highest per unit price. Rents at that property have increased by 9.5 percent during the last 9 months.

In contrast to 2007, when institutional investors accounted for 65% of the transactions exceeding $10 million, more private equity and opportunistic funds have been entering the market in 2008 due to a number of Wall Street firms re-examining their real estate acquisitions programs in light of current economic conditions.

CONSTRUCTION ACTIVITY

According to McGraw-Hill Construction, construction contracts in New Jersey from January through April 2008 increased by 14.2 percent, while contracts in the U.S. declined by 16.6 percent over the same period.

During 2007, 14 new apartment communities totaling 2,366 units were built. Hudson, Bergen and Somerset counties continue to be the most active with regard to new apartment construction.

The most significant rental completion during the first quarter of this year was The Cliffs in Jersey City, a 120-unit project built by Manhattan Building Company. There are currently 10 rental projects under construction set to be completed within the next year. These include 70 Green Street (481 units) and The Lexington (59 units) in Jersey City; Flat Rock Square (399 units) in Englewood; Gateways at Saddle Brook (158 units); Park Square in Rahway (159 units) and Meridian House in Carteret (190 units).

Overall, the state of the Northern and Central New Jersey multi-family market remains favorable, with projections indicating this type of building product will remain extremely desirable among investors and tenants alike for the remainder of this year.