News
NJ MULTIFAMILY MERRY-GO-ROUND
September 8, 2011
| Neither rain nor flood nor gloomy day stayed 175 readers from joining us this morning for Bisnow's New Jersey Multifamily Summit at the Renaissance Woodbridge in Iselin (and some drove three or four hours—that's how hot this topic is). |
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| Jersey City is one area benefiting from the multifamily boom. Its Economic Development Corp director of real estate and marketing Dan Frohwirth tells us that units are being scooped up at an incredible rate, with some buildings, like The LeFrak Org's AquaBlu and Roseland Property's Monaco, either leasing or selling up in a few months. “We're fortunate that we didn't have a lot going up during the downturn,†he says. Even the luxury Trump Plaza Residences is 80% full. Thank high-end office, which was developed over a decade ago and produced a market for residential units. |
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| Prudential Real Estate Investors is actively chasing multifamily, particularly development deals, says principal Chip Walters, who kicked off our panel of equity gurus. Right now, it's looking for shell-ready sites, but is considering infill opportunities in great locations. It's also beginning to look at sites farther out in New Jersey as well as the Lehigh Valley. You can leverage at low rates, Chip says, and still get superior risk-adjusted returns over time. Driving multifamily trends: a lack of product, rentals going condos, and increased demand from a population upswing. “Rent growth is real,†he says. Every time the homeownership rate drops by a point, rentals increase by three points. |
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| Vantage Properties, whose director Devin Aronstam is seen here, did one of NJ's most talked-about transactions this year: snapping up AIG' s six-property Central NJ multifamily portfolio with Angelo, Gordon & Co for $242M and immediately selling off three of the assets to The Orbach Group and Phoenix Realty Group. You have to be cognizant of underwriting, he says—when Vantage buys, it looks at the base case, upside, downside, and the probability of the three happening, he says. While it's important to look at potential rent growth, investors need to understand where utilities and taxes are heading—look four or five years down the line. Also understand the challenges in each municipality. |
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| Although Class-A multifamily properties are getting the best bids (a recent one HFF went out with saw 17), well-located Class-B assets are still priced at a 6% cap rate, says the firm senior managing director Jose Cruz. He's seeing both institutional and private sellers in the market right now, but the challenge is sellers' expectations; they're reading about 5% caps and wanting to translate that to their properties. But the lack of product delivery (some won't open for a few years) makes Jose bullish on rent growth and occupancy rates. The one cloud: job creation, which is critical for household formation. |
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| Hold periods are also changing, say the panelists, with moderator Robert Holland, co-managing director of The Kislak Co. Gone are the days of insurance companies hanging on to a property for 20 years, Chip points out—they're looking more toward five, seven, or 10-year holds. (Vantage is a five to seven-year holder.) There's no challenge finding equity right now, but the problem is meeting return expectations. But we're seeing plenty of core and value-add capital coming back, he continues. The past few months' events are forcing investors to reevaluate positions in second-tier markets, and send more capital to New Jersey, New York, Boston, and other top East Coast markets. |
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| Although there's not a lot of new product in the pipeline, AvalonBay has four projects coming out the ground in Wood-Ridge, North Bergen, Hackensack, and Somerset, reports VP of development Ron Ladell, who kicked off the development panel. But development is difficult in a high-barrier-to-entry market like New Jersey versus somewhere like Texas or Atlanta. Cap rates are seductive, making “everyone a multifamily developer,†he says—but unless you're trending expenses along with rent growth, you'll be challenged. He's also concerned that the merry-go-round will stop. “You have to arbitrage at the right time,†he says. |
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| You have to make a commitment and stay here if you're going to build, not be a fly-by-night developer, adds Mill Creek Residential Trust Northeast senior managing director Peter Porraro. Entitlements are key—if you get entitled for a TOD or infill project, you'll see value created over time. But he points out that building permits are down—last year, there were only 13,000 units permitted versus 18,000 in 2008 and 2009. |
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| And new projects are needed, says Woodmont Properties CEO Eric Witmondt. There are people who don't think homeownership will appreciate anymore, and are turning to renting by choice, not by necessity. They're looking for good locations and amenities like stainless steel appliances, rounded countertops, and nine-foot-high ceilings—but you can only find these in new developments. And there are banks looking to finance these properties. “You can only do renovations to a point,†he points out; if it's not a Class-A location, upgrades don't pay. |
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| The panelists with moderator Michael Leighton, real estate co-head at Cole Schotz. Towns are so desperate for money that there's a willingness to listen to developers, Ron says, and they're more receptive to subjects like affordable housing. No longer do municipalities have a negative connotation about the type of people rental projects attract and are looking at quality projects, Eric adds. But the panelists called for a change in “deplorable infrastructure‗unless we look at factors like parking and transportation, it will be difficult to keep children in NJ once they're on their own. |
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| All good things must come to an end, otherwise we would have taken Michael Leighton's suggestion of holding an ark -building seminar after the panels. But we did ask The Martin Architectural Group's Daniel Rosen (with Bisnow's Connie Allen) what would be the best material for a giant boat. If you're looking for gopher wood, make sure it's certified and cut as close to the location as possible, he says—everyone's about sustainability these days. Next week, his firm's sponsoring our first ever Philadelphia State of the Market event. (TV tells us that it's always sunny there.) Interested in sponsorship or event opportunities? Give Connie a shout at connie@bisnow.comor (212) 520-1853. |
