Nearly 200 attendees turned out Nov. 2 for Market Outlook: The State of Multifamily, an industry conference hosted by Real Estate NJ and JLL at The Highlawn in West Orange. Speakers included (clockwise, from top left): Otteau Group’s Jeffrey Otteau, Kushner Real Estate Group’s Jonathan Kushner, DSF Group’s Josh Solomon and JLL’s Jose Cruz. — Photos by Aaron Houston for Real Estate NJ
By Joshua Burd
Rising interest rates are weighing on New Jersey’s multifamily pipeline, at least in the near term, but have seemingly not dampened the longer outlook for new construction.
That was the view of panelists at a recent conference hosted by Real Estate NJ and JLL, as they noted that lenders, with a lack of clarity on where rates will land, have balked in recent months when it comes to financing new construction. That has complicated an industry that was already grappling with higher costs of materials, and one in which construction starts for apartments were down 9 percent year over year, according to Jeff Otteau of Otteau Group.
Still, investors have shown a willingness “to pay top pricing for land that is either approved or where it’s being acquired subject to approval,” he said.
“The appetite for dirt still is quite high, largely because it’s looking around the corner and there is some expectation that, by the time this goes vertical, circumstances may have improved a bit,” said Otteau, Otteau Group’s president and managing broker of Hudson Atlantic Realty Advisors, noting that material costs have started to decline. “On the existing assets, though, it’s quite challenging.”
It also helps to have a long-term view of the market. Kushner Real Estate Group’s Jon Kushner said his Jersey City-based firm has six or seven projects under construction at any given time and, while market demand is strong, “we’re continuing to feed our pipeline.” That approach is largely rooted in KRE Group’s six decades of history in the state, he said, plus its continued belief “that New York is the greatest thing that America has to offer and New Jersey benefits from being right next door.”
“If we slow something down six or 12 months, it’s a personal decision,” said Kushner, the firm’s president, the Nov. 2, Market Outlook: The State of Multifamily. “Everyone has to come to those decisions on their own, for different reasons and the like, but right now our plan to continue to try and move every project forward because we believe in every project that we’re under contract on or that we own.”
JLL’s Jose Cruz, referring to sales for development sites, said “we’re seeing decent interest, given everything going on in the market.” The firm is closing a land deal in Morristown whose pricing equates to more than $100,000 per unit, he said, while it recently completed a similar deal in Montclair that exceeds more than $150,000 per market-rate unit.
“That pricing is fairly strong. That’s not pricing we’ve seen in the past in New Jersey,” said Cruz, a senior managing director and co-head of the firm’s capital markets office in the state. “So there is a positive outlook going forward. Whether that’s a year, two years, five years, there’s still some positivity going on in the market right now with who’s underwriting, whether that’s rent growth or lower construction costs over time or better financing, or some combination thereof, we are seeing some positive trends on the land side.”
That’s not to say the apartment sector will go unscathed in the coming months. While statewide vacancy is around 3 percent, Otteau said it was likely that new supply will soon outstrip demand. New Jersey has some 35,000 apartments currently under construction, he said, “so we know that (absorption) is going to go negative some time next year.”
Owners will also likely see rents decline in the year ahead, Otteau said. But he also offered reassurance that long-term demographic shifts bode well for the multifamily sector: 55 percent of all New Jersey households today are one or two persons, while 65 percent have no children living at home, he said.
“These are ideal conditions for long-term apartment demand, and it’s not going to change any time soon because birth rates have plummeted, not only here in the United States, but globally as well,” Otteau said. “And the replacement population that’s aging up into the economy is extremely small, so these are ideal circumstances for a vibrant apartment marketplace.”
Multifamily owners, experts debate path forward as interest rate hikes loom (SLIDESHOW)
