Interest rate questions may put damper on surging multifamily investment sales

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Investment sales in northern New Jersey’s apartment sector have kept up a brisk pace, but questions over interest rates may start to weigh heavily on traders and brokers.

Those are the findings of a new report by Marcus & Millichap Real Estate Investment Services, which said buyers “are becoming more cautious” about what they pay for investment properties, due to uncertainty over borrowing costs in the coming months. The Federal Reserve has indicated that it would scale back its bond-buying program, potentially pushing benchmark interest rates upward.

Buyers in North Jersey’s red-hot multifamily market have been “more likely to meet sellers’ high price expectations due to the low interest rates,” the report said. But a significant uptick may widen the gap and create headwinds for the pace of deals.

“That will change the atmosphere we’re in right now,” said Thomas McConnell, a multifamily broker in Marcus & Millichap’s Elmwood Park office. “That’s really what’s been driving a lot these high prices and the demand for the product.”

Transaction velocity in a six-county swath of North Jersey has increased about 4 percent over the past 12 months, the report said, citing Hudson and Union counties as the strongest locations. The analysis noted sales picked up at the end of last year ahead of an increase in capital gains taxes, then slowed in the first half of this year.

McConnell, a senior associate with Marcus & Millichap, characterized the trend as more of a leveling off than a slump, but now, “buyers and sellers are looking over the product more carefully.”

Still, “it’s still a perfect time to be a multifamily seller,” he said.

The report also said new construction in the region is on pace to pick up— by year’s end about 1,840 units will be delivered, while another 2,760 units are scheduled for completion in 2014. Last year, 1,240 units were completed in Hudson, Union, Passaic, Morris, Essex and Bergen counties.

The brokerage firm said the new construction could slow the pace of trading for modern, high-end apartment buildings built in the last decade, though McConnell said older, garden-style apartments make up the more active segment of the market.

Reporter Joshua Burd is @JoshBurdNJ on Twitter.