NORTHEAST SNAPSHOT, AUGUST/SEPTEMBER 2010

NORTHERN NEW JERSEY MULTIFAMILY MARKET

Cushman & Wakefield recently went to market with the luxury 217-unit 800 Madison apartment community in Hoboken, N.J. Tarragon Development is the seller in the offering, which drew a team-record 130 confidentiality agreements in its first day of marketing.

The Northern New Jersey multifamily investment market has improved so quickly during the past 90 days that the best data is anecdotal, although hard numbers through the second quarter of 2010 reflect the beginning of the current, explosive upswing.

Rental occupancy is stabilizing in the low- to mid-90 percent range. As a result of the turnaround in demand, incentives in the form of free rent, reduced deposits and discounted fees are waning. REIS reports vacancy for Class A communities of 4.5 percent at second quarter 2010, which is 0.2 percent lower than the 5-year peak set at year-end 2009. While full elimination of concessions will be needed before we see any real rental growth, the market could be only 6 to 9 months away from improved top-line results. The average asking rental for Class A properties at mid-year 2010 rested at $1,902, up slightly from year-end 2009 ($1,899) but still below peak ($1,960 at year-end 2008), according to REIS.

Add to this the reports from popular press and Wall Street that financial hiring is back, and the investment community is becoming increasingly bullish. Multifamily investors see that this is the ideal time to buy ahead of the curve – market recovery is imminent, rents are still low, and financing is available at the most aggressive terms in history.

In fact, today’s capitalization rates (net operating income divided by purchase price) are beating the market high during 2005 to 2007 by 50 basis points, and best-in-class Northern New Jersey communities built in the last 10 years are trading at cap rates in the high 4s and low 5s. In turn, private and institutional sellers have seen a remarkable shift in value to the positive, which suddenly has brought an unprecedented number of properties to the market for sale.

Our team recently went to market with a recently constructed, luxury 217-unit complex in Hoboken. The offering received a record 130 confidentiality agreements on the first day. This illustrates the sheer volume of investors out there playing within the multifamily asset class. Since the beginning of first quarter 2010, there have been more than 3,300 units within approximately a dozen communities put out for bid primarily in Northern New Jersey. A majority of the sellers are institutional; however, developers and private owners have decided to monetize their holdings, given a second chance at what seemed like once-in-a-generation pricing back in 2005 to 2007.

For reference, from 2004 to 2008, New Jersey saw between 15 to 20 institutional-quality multifamily property trades at $10 million or more. During the past 18 months, sales volume was off by nearly 75 percent with a half dozen trades in 2009 and one during the first quarter of 2010. During the fourth quarter 2009 through first quarter 2010, the market was almost void of new listings, save one property.

Arguably, multifamily has become the darling asset class in the Garden State, as well as across the nation.

Looking ahead, transit-oriented projects will continue to be the source of new construction. Developers with well-known names, solid balance sheets and strong relationships with lenders — and who also happen to have parcels to build on in our competition-constrained market — continue to move forward. The first 243-unit phase of Roseland’s Monaco is underway in Jersey City; Trammell Crow is finishing up their 544-unit Alexan CityView community in Bayonne; and National Resources continues to make great progress with its first phase of multifamily on the former Unilever site in Edgewater. In Morristown, Rosewood Properties’ 130-unit Metropolitan at 40 Park recently opened.

— Brian Whitmer, Director with Cushman & Wakefield Inc.’s Metropolitan Area Capital Markets Group in East Rutherford, New Jersey

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