Heating up the market

Increasing investor interest in the “strong” multifamily market “is a trend,” said Jose Cruz, executive director in charge of multifamily sales at real estate services firm Cushman & Wakefield, in East Rutherford. However, although capital is available to fund that investor appetite, the deal flow is slow, as not all institutional investors have returned to the market.

Cruz said one Morris County apartment portfolio of 145 units, valued at about $25 million, attracted 26 bids, with more than 41 investors physically inspecting the property. The deal fell through after the property’s owner decided to hold off the sale: “The demand is the real story here,” he said.

Cruz also has organized nearly 30 investor tours so far for a 400-unit apartment complex in Essex County’s Belleville that’s priced north of $50 million.

Occupancy rates average 95 percent for multifamily properties in the state, compared to levels between 85 percent and 88 percent in early 2007, Cruz said. That’s been helped by the government-sponsored agencies of Fannie Mae and Freddie Mac, which are ensuring credit by actively securitizing home mortgages, he said.

The credit tightening that followed the subprime crisis will drive more demand to rental housing if employers resume hiring, which could start late next year, said Ronald Ladell, vice president of development at AvalonBay Communities Inc., in the Iselin section of Woodbridge. The luxury apartment owner boasts a 96 percent occupancy rate across nearly 3,900 units in the state, he said.

Jon Moore, vice president of development at Clifton-based Value Cos., an investor and developer of multifamily properties, is cautiously optimistic. His company has 2,300 units in five counties; occupancy rates range between 92 percent and 100 percent at those developments, he said.

Ladell said New Jersey appears ready to cash in on the economic recovery and the jobs that would follow. For one, he said, the state’s incoming governor and a re-energized Legislature are expected to launch new economic stimulus programs in the coming months.

Secondly, Ladell predicted that echo boomers (those between 20 and 30 years old) “will look for rental housing more than for for-sale housing.” Cushman & Wakefield’s Brian Whitmer wrote in his firm’s Fall 2009 Multifamily Overview report, “Young mobile corporate professionals will also gravitate towards this choice, as job uncertainty will persuade them from planting permanent roots with a house.”

AvalonBay now feels encouraged to start construction on a West Long Branch project with 180 apartment units, Ladell said; the company has another six to 10 development projects on its drawing board.

Moore is waiting for the market to get better before Value starts a shovel-ready project for 150 condos in Jersey City’s Paulus Hook section, he said.

“Historically, [multifamily] has been proven to be the first sector to recover; it is a more flexible option than single-family housing is,” Moore said. But “the rental market may be challenged for the next couple of years, and may take until 2011-2012 to get back to levels seen in 2007.”

Layoffs in the financial services and pharmaceutical industries hurt the state’s rental housing market, but landlords have kept vacancies low by offering concessions on rent, security deposits and amenities, according to Cushman & Wakefield’s Multifamily Overview report.

Land constraints also kept vacancies low in the Hudson Waterfront — the region that was the epicenter of the multifamily housing boom in the past decade, the report said.

Ladell said that in addition to jobs growth, 2010 will also bring supply constraints in rental housing. Multifamily housing rental starts nationally averaged 215,000 annually between 2004 and 2007, but are projected at only 70,000 next year, he said.

In New Jersey, there were fewer than 1,500 multifamily rental starts this year, and there will be fewer next year “unless some of the stalled larger redevelopment projects rejuvenate themselves, despite the continued uncertainties,” Ladell said.

Meanwhile, the investment sales market for multifamily properties waits for more institutional investors, like pension funds, to demonstrate interest in the sector, Cruz said.