Menlo Manor, a 240-unit senior housing complex in Edison that changed hands recently as part of a sale brokered by CBRE — Courtesy: CBRE
By Joshua Burd
Despite rising interest rates, investor demand for multifamily property in New Jersey shows few signs of slowing down through the end of the year and into 2019.
Nat Gambuzza, a senior vice president with CBRE, said transaction volume for properties with more than 50 units did not subside in the first half of 2018 and remained strong heading into the final two quarters. Employment and the economy remained healthy at midyear, he said, likely countering the fact that the cost of borrowing has risen for real estate investors.
“All of those factors are playing into it and we’re still seeing rent growth in the market,” said Gambuzza, who leads CBRE’s investment properties team in New Jersey. “So all of those things coupled together are showing us that the market is resilient in light of the rising interest environment that we’re in.
“The hardest part of the business is still finding the inventory that’s going to appeal to the market.”
Gambuzza’s team closed about $147 million worth of multifamily transactions in the first half of 2018, he said. As of mid-August, the team had about $57 million under contract and others in various stages of negotiation, with “a strong pipeline for the third and fourth quarters.”
The lack of supply remains, even though “some sellers that have been on the fence about whether they want to sell or not are jumping over,” seeing that interest rates have moved and recognizing that investors are buying on thinner margins. For those properties that do become available, Gambuzza said the Class B and C segment of the market is increasingly attractive to investors.
“That seems to get the most activity,” he said. “And if there’s a value-add component to it, where there’s opportunity to renovate units and increase rents, that will draw the most amount of attention from all of the multifamily product that we’ve brought to market.”
He added that interest in suburban markets has picked up, given that rents are growing at a faster clip than in urban markets. The team’s recent deals include the sale of Menlo Manor, a 240-unit senior housing complex in Edison, and the $25.5 million sale of Shrewsbury Arms, a 161-unit property in Eatontown that traded as a value-add opportunity.
Market researchers say developers are projected to deliver between 9,000 and 10,000 apartments in northern New Jersey in 2018, while Gambuzza noted that renters continue to absorb units across all submarkets. That continued strength for new buildings is promising for existing Class B and C and value-add opportunities.
“We have to keep an eye on that to see what’s happening in the market,” said Gambuzza, who is based in CBRE’s Saddle Brook office.
Other brokerage teams are similarly bullish on northern New Jersey. Earlier this month, The Kislak Co. announced the $17.25 million sale of a 68-unit apartment building in downtown Montclair, which was sold by a family that had owned the property for nearly 20 years.
Kislak Vice President Joseph Keenan, who brokered the sale, also noted that the buyer was quick to act because of the upside in rents in Montclair and the lack of rent control in the municipality.
“There is a voracious appetite among investors for well-located, high quality multifamily properties,” Keenan said. “Buildings of this size in this location do not come on the market often.”
To be sure, apartment vacancy in Essex County was 3.7 percent at midyear, the second-lowest in northern New Jersey, according to a report from Marcus & Millichap. Effective rents at that point were $1,326, which represented a 2.3 percent year-over-year improvement.
Another brokerage, Gebroe-Hammer Associates, touted its own continued momentum in a recent midyear report. The Livingston-based firm said it had closed more than $775 million in sales through Q1 and Q2, with activity that covers multiple submarkets and property types.
“The first six months have been extremely robust in terms of deal totals and units sold, with demand for every asset class — from Class A to value-add B/C product — hitting all-time high levels,” said Ken Uranowitz, Gebroe-Hammer’s president. “Apartment buildings, regardless of vintage or tenant demographic, are the frontrunner on investor lists.
“They cover the full spectrum of neighborhoods from transit-rich cities that are all the rage among millennials to commuter-friendly suburban-bedroom communities.”
