Brian Whitmer, Senior Director of the Metropolitan Area Capital Markets Group in Cushman & Wakefield’s East Rutherford, New Jersey office Brian Whitmer, Senior Director of the Metropolitan Area Capital Markets Group in Cushman & Wakefield’s East Rutherford, New Jersey office

EAST RUTHERFORD, NJ—New Jersey multifamily developers should begin repositioning projects as for-sale condo developments instead of rental properties, to prepare for positive market conditions for “for-sale” multifamily product over the next 12-18 months, Brian Whitmer, head of Cushman & Wakefield’s Metropolitan Area Capital Markets Group, tells GlobeSt.com exclusively.

At the same time, the market for multifamily rental developments in North Jersey remains robust and although it will face stiff competition for land acquisition from newly emboldened condo developers, it will still be an attractive play for investors.

“Every market cycle has inflection points, and we are witnessing an important one right now for the New Jersey multifamily sector,” Whitmer says. “Following several years in which rental development – and plenty of it – dominated the playing field, for-sale condominium product is emerging once again.”

In a wide-ranging interview, Whitmer says “If they have a site that is viable for condo development, and they’ve been walking the rental path, or they’ve broken ground and it’s not too late, this is the time when you say, ‘I’m not going to do rental, I’m going to head toward for-sale, and I’ll take the legal steps to be ready to sell condos.’”

There are enough data points to support a move into condominium development, Whitmer believes. “You can recognize that the condo market has come back, you can rely on the pricing that is there because there are enough sales,” he says. “We are definitely undersupplied with an excess demand. This is something you may really want to take a serious look at, that didn’t exist six months ago.”

Two or three years ago, the only condominium development underway in New Jersey was in Edgewater.

“They did very well selling to foreign buyers, but it wasn’t enough to attract people out of New York into New Jersey,” he says.  The shift came with increased development along the Hudson River Gold Coast spanning from Fort Lee to Bayonne,” Whitmer says.

“Projects by National Resources in Edgewater, Toll Brothers in Hoboken and Lennar in Weehawken laid the foundation,” he says. “Their condo developments opened in late 2014 or 2015, and the initial and some subsequent phases having sold out.”

“People have gotten comfortable with where pricing is in New Jersey, and got that inventory which brought people out to look, because there are multiple options,” he says. “These were the first to test the market. They built, had first mover advantage, and the market rewarded them with success. They created pricing clarity and support via a critical mass of sales comparables and sales velocity that pointed to the existence of an unmet demand.”

More condo projects have emerged, Whitmer points out, including major developments underway by K. Hovnanian in West New York and China Construction in Jersey City.

Today, 1,902 condo units are being constructed along the Gold Coast. Additionally, as multiple developers have very recently, or are in the process of, purchasing land on the basis of developing it in the near term as for sale housing; another 2,833 units are earmarked to become condos,” he says. “In short, Northern New Jersey’s major players are starting to place their bets on the for-sale market’s rebound.”

Rising condo prices in New York City, particularly in Manhattan and Brooklyn, are forcing many multifamily dwellers, particularly Millennials beginning to marry and build families, to look elsewhere for increased space, Whitmer says.

“One of the more attractive places for those who relocate from Manhattan has proven to be New Jersey’s Gold Coast, which offers a public transit system and commuting times that can rival being in the city itself,” he says.

This does not mean that apartment demand is slowing, however.  Rental product continues to be absorbed at velocities of hundreds of units per month, Whitmer says.

Despite that rental demand, land values continue to rise, making for-sale developers competitive with their rental counterparts on development sites for the first time in a decade, Whitmer says.

“Mathematics dictate that for-sale investors can pay more per unit for land than their rental counterparts,” he points out.

Gold Coast condos with waterfront addresses and premier views of the New York City skyline are now commanding upwards of $1,400 per square foot, according to Whitmer, with average pricing ranging from $850 to $1,000 per square foot.

“This level of pricing, coupled with compelling sales velocity, is validating that the Gold Coast condo market is at its point of inflection where for sale development is going to become a familiar term again,” he says.

This paradigm shift has taken hold and is poised to accelerate in the near term. In the meantime, rental apartments will continue to dominate the development pipeline by sheer volume. Currently, 8,281 units are under construction and another 12,772 units are approved along New Jersey’s Gold Coast.

“The bottom line is that whether for-sale or rental, the New Jersey multifamily market remains on solid footing and highly desirable to investors,” says Whitmer. “Last year, we tracked multifamily investment transactions of $10 million or more totaling $769 million in Northern New Jersey. In 2014 we tracked similar transactions totaling $941 million. Our outlook is that the investment activity in 2016 will continue to mirror the past few years and fall within that band, averaging in the $800 million range. Cap rates are looking to be trending in line with where they have been averaging over the past two years.”