HOBOKEN, NJ—Cap rates on multifamily properties have grownincreasingly aggressive in (fill in the blank). It wouldn't besurprising if the mystery market were, say, Manhattan, hotneighborhoods in New York City's outer boroughs or San Francisco.In fact, the market in question is none other than the Gold Coastof Hudson County, despite relatively few sizable properties comingto market.

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“Over the past couple of years, we've seen a lot of investorscoming from more popular areas—specifically, Queens and Brooklyn,”Chris Cervelli, broker associate withMichael Cervelli Real Estate, tells GlobeSt.com.Although rents or sales prices have priced many would-be residentsout of Manhattan, “a lot of people work there. And to work there,you have to get there.”

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That has long meant Queens and Brooklyn, Cervelli says, with NewJersey included to only a limited extent, until the “incredibleprice expansion” in the boroughs. Also in expansion mode at thesame time has been Hudson County's transportation infrastructure, afar cry from the days when, across large swaths of the county, “itwas two or three seats before you could get to a PATH train” thatwould complete the trip into Manhattan.

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“The Hudson-Bergen Light Rail has really opened up largeportions of western Hudson County, specifically western JerseyCity,” says Cervelli. As a result, “Hudson County itself has becomea competitor with Brooklyn and Queens,” and in the past couple ofyears, cap rates have trended steadily downward.

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On apartment properties from 10 to 50 units and selling for $5million or below, “We're seeing sub-4% in Hoboken, and sub-6% inJersey City,” and not in the city's downtown, either. “We'retalking about eight or nine blocks from Journal Square.”

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For the most part, Cervelli says, it's been stabilized,income-producing assets that have produced these types of returns,although there have also been parcel sales. To put things intohistorical perspective, six or seven years ago cap rates forapartment properties in some of these outlying areas were in themid to high teens.

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Today, a property in good condition in a blighted area of thecity could go for a 9% cap, and Cervelli says he recently traded a36-unit property under similar circumstances for an 8% cap rate. Henotes that there are still properties trading at comparatively highcap rates, however.

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Whether there will be further compression in the very lowest-capneighborhoods is difficult to say, he says, because “we're slightlyat the mercy of the Federal Reserve. The longer and the moreaggressive they continue with interest rates, the longer this willcontinue. And the longer it continues, the more frustratedinvestors will become as they seek out a return. This will continueuntil something happens where there are other places for people toput their money, taking some of the pressure off commercial realestate.”

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.