NORTHEAST SNAPSHOT, DECEMBER 2010

NEW JERSEY MULTIFAMILY MARKET

Holland

The demand for multifamily properties in New Jersey is strong. Occupancies and rents are up, interest rates are at an all-time low, and few alternative investments are as reliable and stable as multifamily properties.

In New Jersey, apartment occupancy rates have increased in 2010 and there some indication of rent growth. From 2009 to early 2010, the homebuyer tax credit resulted in some renters becoming homeowners. Now, with the expiration of the tax credit and the continued difficulties in the mortgage approval process, home buying has slowed and many would-be homebuyers are remaining renters.

In 2009, apartment occupancies dipped below 90 percent. In 2010, occupancies have pushed back up above 90 percent; occupancy rates are in the mid-90 percent range in northern New Jersey and the lower 90 percent range in southern New Jersey.

Rental rates vary from submarket to submarket but concessions in tight markets seem to be ending with modest rent increases. According to CoStar’s North-Central New Jersey Apartment Market Performance report, dated November 8, 2010, average rent is currently at the bottom of the curve at $1,162. (Average rent peaked at $1,250 in 2007.)

Because of the strong fundamentals, apartment properties remain the most sought after assets among investors. Historically low interest rates also increase investor interest in purchasing properties now. Current demand far outweighs supply — resulting in values at or near peak levels. In fact, apartment property values have risen to 2007 and 2008 levels in many New Jersey markets.

Markets with highest barriers to entry and no new construction are the highest in demand. We are seeing 5 percent and higher cap rates for the Class A properties being sold in these markets, including Bergen and Morris counties and along the “gold coast” in Hudson County. Southern New Jersey still remains somewhat weak with slightly higher vacancies and concessions being offered as incentives to tenants.

A series of Class A properties have sold, demanding the low cap rates. The B and C properties are selling at cap rates around 7 percent. Properties with strong historical occupancies are in high demand.

Multifamily properties are selling at high prices — and with low interest rates, it is a good time to be a seller. The multifamily market has already rebounded. The lack of product and lack of sellers have made it a strong market with many investors seeking properties. Buyers have left the sidelines and are buying what they can while locking in attractive interest rates, which have dipped below 5 percent.

With its close proximity to New York City in the north and Philadelphia in the south, along with population density, and its claim to a strong and stable workforce, New Jersey should remain a desirable place to own and invest in multifamily properties.

— Robert J. Holland, Senior Vice President & Co-Managing Director with Woodbridge, N.J.-based The Kislak Company.

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